Edgar Filing: BLUEFLY INC

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X] Preliminary Proxy Statement.

[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

Bluefly, Inc.
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

1) Title of each class of securities to which transaction
applies:

2) Aggregate number of securities to which transaction
applies:

3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

BLUEFLY, INC.
42 West 39th Street
New York, NY 10018

Dear Stockholder:

You are cordially invited to attend the annual meeting of stockholders
of Bluefly, Inc., which will be held on Friday, August 1, 2003 at 5:00 p.m., at
the Corporation's offices at 42 West 39th Street, 9th Floor, New York, New York.
The formal Notice of Annual Meeting and Proxy Statement, fully describing the
matters to be acted upon at the meeting, appear on the following pages.

The matters scheduled to be considered at the meeting are the election
of directors, the approval of the conversion provisions of our Series D
Convertible Preferred Stock and the approval of the conversion provisions of our
Series E Convertible Preferred Stock.

The Board of Directors recommends a vote FOR all the proposals being
presented at the meeting as being in the best interest of Bluefly and its
stockholders. We urge you to read the Proxy Statement and give these proposals
your careful attention before completing the enclosed proxy card.

Your vote is important regardless of the number of shares you own.
Please be sure you are represented at the meeting, whether or not you plan to
attend, by signing, dating and mailing the proxy card promptly. A postage-paid
return envelope is enclosed for your convenience.

If you would like additional copies of the proxy material, or if you
would like to ask questions about the proposals, you should contact our Investor
Relations Department by telephone at (212) 944-8000.

Sincerely,

E. KENNETH SEIFF
President and Chief Executive Officer

BLUEFLY, INC.
42 West 39th Street
New York, New York 10018

----------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
August 1, 2003

----------

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Bluefly, Inc. (the "Corporation") will be held at 5:00 p.m., local time, on
Friday, August 1, 2003 at the Corporation's offices at 42 West 39th Street, 9th
Floor, New York, New York, for the following purposes:

1. To elect five directors of the Corporation to hold office until the
next annual meeting of stockholders;

2. To approve the conversion provisions of the Corporation's Series D
Convertible Preferred Stock;

3. To approve the conversion provisions of the Corporation's Series E
Convertible Preferred Stock; and

4. To transact such other business as may properly come before the
meeting.

Only holders of record of the Common Stock and the Corporation's Series
A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock and Series D Convertible Preferred Stock at the
close of business on June 25, 2003 are entitled to notice of, and to vote at,
the meeting and any adjournment thereof. Such stockholders may vote in person or
by proxy.

WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE FILL IN, SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE THAT YOUR
SHARES ARE REPRESENTED AT THE MEETING. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.

By Order of the Board of Directors,

E. KENNETH SEIFF
President and Chief Executive Officer

July 2, 2003

BLUEFLY, INC.
42 West 39th Street
New York, New York 10018

----------

PROXY STATEMENT

This Proxy Statement is furnished in connection with the solicitation by
the board of directors (the "Board of Directors") of Bluefly, Inc., a Delaware
corporation (the "Corporation"), of proxies to be used at the annual meeting of
stockholders of the Corporation to be held at 5:00 p.m., local time, on Friday,
August 1, 2003, at the Corporation's offices at 42 West 39th Street, 9th Floor,
New York, New York, and at any adjournment thereof. The purposes of the meeting
are:

1. To elect five directors of the Corporation to hold office until the next
annual meeting of stockholders;

2. To approve the conversion provisions (the "Series D Conversion
Provisions") of the Corporation's Series D Convertible Preferred Stock,
par value $.01 per share (the "Series D Preferred Stock");

3. To approve the conversion provisions (the "Series E Conversion
Provisions") of the Corporation's Series E Convertible Preferred Stock,
par value $.01 per share (the "Series E Preferred Stock"); and

4. To transact such other business as may properly come before the meeting.

If proxy cards in the accompanying form are properly executed and
returned, the shares of Common Stock, shares of the Corporation's Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), shares of the Corporation's Series B Convertible Preferred Stock, par
value $.01 per share (the "Series B Preferred Stock"), shares of the
Corporation's Series C Convertible Preferred Stock, par value $.01 per share
(the "Series C Preferred Stock"), and shares of the Series D Preferred Stock,
represented thereby will be voted as instructed on the proxy. If no instructions
are given, such shares will be voted (i) for the election as directors of the
nominees of the Board of Directors named below; (ii) for the approval of the
Series D Conversion Provisions; (iii) for the approval of the Series E
Conversion Provisions; and (iv) in the discretion of the proxies named in the
proxy card on any other proposals to properly come before the meeting or any
adjournment thereof. Any proxy may be revoked by a stockholder of record prior
to its exercise upon written notice to the Chief Executive Officer of the
Corporation, or by the vote of such stockholder cast in person at the meeting.
The approximate date of mailing of this Proxy Statement and accompanying form of
proxy is July 2, 2003.

VOTING

Holders of record of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock as of the
close of business on June 25, 2003 (the "Record Date") will be entitled to vote
at the meeting or any adjournment thereof. Each share of Common Stock entitles
the holder thereof to one vote on all matters to come before the stockholders at
the meeting, except the election of two members of the Board of Directors, one
of whom was elected by the holders of Series A Preferred Stock voting separately
as a class (the "Series A Preferred Designee"), and one of whom was elected by
the holders of Series B Preferred Stock voting separately as a class (the
"Series B Preferred Designee" and, together with the Series A Preferred
Designee, the "Preferred Designees"). The Series A Preferred Designee was
elected by vote of the holders of Series A Preferred Stock in August 2002 and
the Series B Preferred Designee was elected by the holders of the Series B
Preferred Stock in August 2002. Each share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock entitles
the holder thereof to the number of votes equal to the number of shares of
Common Stock (rounded up to the nearest whole number) into which such share is
convertible as of the Record Date (except that, prior to the approval of the
Series D Conversion Provisions, the maximum number of votes cast with respect to
the outstanding shares of Series D Preferred stock may not exceed 2,204,803). As
of the Record Date, each share of Series A Preferred Stock was convertible into
approximately 8.5 shares of Common Stock, and therefore, entitles the holder
thereof to nine votes on all matters to come before the meeting.

As of the Record Date, each share of Series B Preferred Stock was convertible
into approximately 3.1 shares of Common Stock and, therefore, entitles the
holder thereof to three votes on all matters to come before the meeting. As of
the Record Date, each share of Series C Stock was convertible into approximately
1,315.79 shares of Common Stock and, therefore, entitles the holder thereof to
1,316 votes on all matters to come before the meeting. As of the Record Date,
the 7,136.548 shares of Series D Preferred Stock outstanding were entitled to an
aggregate of 2,204,803 votes and therefore each share of Series D Preferred
Stock entitles the holder thereof to 309 votes on all matters to come before the
meeting other than the approval of the Series D Conversion Provisions and the
Series E Conversion Provisions, on which matter the holders of Series D
Preferred Stock are not entitled to vote pursuant to the certificate of
designations regarding the Series D Preferred Stock. None of the Common Stock,
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock or the Series D Preferred Stock is entitled to cumulative
voting.

Holders of a majority of the votes entitled to be cast at the meeting
will constitute a quorum for the transaction of business. As of the Record Date,
there were 11,024,568 shares of Common Stock outstanding, each entitled to one
vote, 460,000 shares of Series A Preferred Stock outstanding, each entitled to
nine votes, 8,889,414 shares of Series B Preferred Stock, each entitled to three
votes, 1,000 shares of Series C Preferred Stock, each entitled to 1,316 votes,
and 7,136.548 shares of Series D Preferred Stock, each entitled to 309 votes.
The total number of votes entitled to be cast at the meeting is, therefore,
45,354,003. Abstentions and so-called "broker non-votes" (instances in which
brokers are prohibited from exercising discretionary authority for beneficial
owners who have not returned a proxy) are counted for purposes of determining
the presence or absence of a quorum for the transaction of business.

The favorable vote of a majority of the votes cast by holders of shares
of Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock present in person or represented by proxy at the meeting, voting
together as a class, is necessary to approve the Series D Conversion Provisions
and the Series E Conversion Provisions; and the favorable vote of a plurality of
the votes cast by holders of shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock,
present in person or represented by proxy at the meeting, voting together as a
class, is necessary to elect the nominees for the directors of the Corporation.
Abstentions and broker non-votes will not be counted as votes cast with respect
to, and therefore will have no effect on, the election of directors, the
approval of the Series D Conversion Provisions or the approval of the Series E
Conversion Provisions. The Board of Directors recommends a vote FOR each of the
proposals set forth above.

ITEM 1. ELECTION OF DIRECTORS

Five directors are to be elected at the meeting to serve until the next
annual meeting of stockholders. The Board of Directors has recommended the
persons named in the table below as nominees for election as directors. All such
persons are presently directors of the Corporation. Unless otherwise specified
in the accompanying proxy, the shares voted pursuant to it will be voted for the
persons named below as nominees for election as directors. If, for any reason,
at the time of the election, any of the nominees should be unable or unwilling
to accept election, such proxy will be voted for the election, in such nominee's
place, of a substitute nominee recommended by the Board of Directors. However,
the Board of Directors has no reason to believe that any nominee will be unable
or unwilling to serve as a director.

The following information is supplied with respect to the nominees for
election as directors of the Corporation and the Preferred Designees:

NOMINEES FOR DIRECTOR; PREFERRED DESIGNEES

DIRECTOR OF THE
NAME OF DIRECTOR AGE CORPORATION SINCE

E. Kenneth Seiff 38 1991 to present

Josephine Esquivel 47 2001 to present

Alan Kane 61 2002 to present

Martin Miller 73 1991 to present

Robert G. Stevens 49 1996 to present

Neal Moszkowski (Series A Preferred Designee) 37 1999 to present

David Wassong (Series B Preferred Designee) 32 2000 to present

E. Kenneth Seiff, the Corporation's founder, has served as its Chairman of the
Board, Chief Executive Officer and Treasurer since its inception in April 1991.
He assumed the additional role of President of the Corporation in October 1996.

Josephine Esquivel was appointed as a director of the Corporation in June 2001.
Ms. Esquivel was a senior apparel, textiles, footwear and luxury goods equity
analyst with Morgan Stanley Dean Witter from February 1995 until April 2001.
From June 1987 to February 1995, Ms. Esquivel was a Senior Vice President at
Lehman Brothers, and from August 1983 to June 1987, she was a Business Manager
for the textile Corporation J.P. Stevens & Co.

Alan Kane was appointed as a director of the Corporation in August 2002. Since
September 1997, Mr. Kane has been the professor of retailing at the Columbia
University Graduate School of Business. Before joining the Columbia Business
School, Mr. Kane spent 28 years in the retailing industry. Mr. Kane has also
been nominated for election to serve as a Director of Circuit City Stores.

Martin Miller has served as a director of the Corporation since July 1991. Since
October 1997, Mr. Miller has been a partner in the Belvedere Fund, L.P., a fund
of hedge funds. From September 1986 to October 1997, Mr. Miller was President
and a director of Baxter International, Inc., a New York based apparel
wholesaler. From January 1990 to April 1996, Mr. Miller was Chairman of Ocean
Apparel, Inc., a Florida based sportswear firm.

Robert G. Stevens has served as a director of the Corporation since December
1996. From December 1999 to May 2002, Mr. Stevens also served as an Executive
Vice President of the Corporation. Since May 2002, Mr. Stevens has been the
President of Growth Insight, Inc. ("Growth Insight"), a consulting firm that
specializes in developing growth strategies. From December 1994 to December
1999, Mr. Stevens was a Vice President of Mercer Management Consulting, Inc.
("Mercer"), a management consulting firm. From November 1992 to December 1994,
Mr. Stevens was a Principal at Mercer. As of May 13, 2003, Mr. Stevens serves on
the Board of Directors of Axsys Technologies, Inc., a manufacturer of precision
motors, optical components and machines used in medical imaging and aerospace.

Neal Moszkowski has served as a director of the Corporation since August 1999
and is the Series A Preferred Stock Designee. Mr. Moszkowski has been a partner
of Soros Private Equity Partners LLC ("Soros Private Equity") since August 1998.
Prior to joining Soros Private Equity, Mr. Moszkowski was an Executive Director
of Goldman Sachs International and a Vice President of Goldman, Sachs & Co., an
investment banking firm, in its Principal Investment Area. He joined Goldman,
Sachs & Co. in August 1993. Mr. Moszkowski is also a Director of Integra
LifeSciences Holdings Corporation, a medical products company and JetBlue
Airways Corporation.

David Wassong has served as a director of the Corporation since February 2001
and is the Series B Preferred Stock Designee. Mr. Wassong has been a partner of
Soros Private Equity since June 1998. Prior to joining Soros Private Equity,
from July 1997 to June 1998, Mr. Wassong was Vice President, and previously
Associate, at Lauder Gaspar Ventures, LLC, a media, entertainment and
telecommunications-focused venture capital fund.

MEETINGS OF THE BOARD

During the fiscal year ended December 31, 2002, the Board of Directors
met, or acted by unanimous written consent, on nine occasions. Each of the
directors attended 75% or more of the aggregate number of meetings of the Board
of Directors and committee(s) on which he or she served during the 2002 fiscal
year.

So long as at least 60% of the shares of Series A Preferred Stock issued
and outstanding as of August 26, 1999 remain issued and outstanding, the Series
A Preferred Designee is entitled to seven votes on any matter to come before the
Board of Directors. So long as 60% of the Series B Preferred Stock issued and
outstanding as of February 5, 2001 remains issued and outstanding, the Series B
Preferred Designee is entitled to seven votes on any matter to come before the
Board of Directors. As of the date of this Proxy Statement, such minimum amounts
of Series A Preferred Stock and Series B Preferred Stock remain issued and
outstanding and, therefore, the Preferred Designees are entitled to cast 14 out
of 19 votes to be cast by Board of Directors on any matter to come before the
Board of Directors.

The Board of Directors has established an Audit Committee ("Audit
Committee") comprised of Martin Miller, Josephine Esquivel and Alan Kane. The
Audit Committee is responsible for the appointment of the Corporation's outside
accountants, examining the results of audits, reviewing internal accounting
controls and reviewing related party transactions. The duties of the Audit
Committee are fully set forth in the charter adopted by that committee and
attached hereto as Exhibit A. During the fiscal year ended December 31, 2002,
the Audit Committee, met, or acted by unanimous written consent, on five
occasions. The Board of Directors believes that Messrs. Miller and Kane and Ms.
Esquivel are "independent directors" within the meaning of Nasdaq Marketplace
Rule 4200(a)(14). The information contained in this paragraph (other than the
first sentence hereof) shall not be deemed incorporated by reference by any
general statement incorporating by reference the Proxy Statement into any filing
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Securities Exchange Act of 1934, as amended, the "Exchange Act"), and shall not
otherwise be deemed filed under such Acts.

The Board of Directors also has established an Option Plan/Compensation
Committee ("Option Plan/Compensation Committee") consisting of Neal Moszkowski
and Martin Miller. The Option Plan/Compensation Committee administers the
Corporation's 1997 and 2000 Stock Option Plans (the "1997 Plan" and the "2000
Plan" respectively), establishes the compensation levels for executive officers
and key personnel and oversees the Corporation's bonus plans. During the fiscal
year ended December 31, 2002, the Option Plan/Compensation Committee, met, or
acted by unanimous written consent, on 16 occasions.

In October 2001, the Board of Directors established a Technology
Committee (the "Technology Committee") to approve any plan, agreement,
instrument or document it deems necessary, appropriate or desirable to reduce
the Corporation's technology expenses while preserving the reliability and
performance of the Corporation's technology infrastructure. The Technology
Committee consists of Neal Moszkowski and David Wassong. During the fiscal year
ended December 31, 2002, the Technology Committee met, or acted by written
consent, on one occasion.

The Board of Directors has no standing nominating committee.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee met and held discussions with management and
Pricewaterhouse Coopers LLP ("PwC"). The Audit Committee reviewed and discussed
the audited consolidated financial statements for fiscal 2002 with management
and has discussed with the independent public accountants the matters required
to be discussed by Statement on Auditing Standards No. 61, "Communication with
Audit Committees."

The Corporation's independent public accountants also provided to the
Audit Committee certain written communications and the letter required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Audit Committee also discussed with the independent
public accountants their independence from the Corporation.

Based on the Audit Committee's review and discussions described above,
the Audit Committee recommended to the Board that the Corporation's audited
consolidated financial statements for fiscal 2002 be included in the
Corporation's Annual Report on Form 10-K for fiscal 2002 filed with the
Securities and Exchange Commission.

AUDIT COMMITTEE

MARTIN MILLER
JOSEPHINE ESQUIVEL
ALAN KANE

SHARE OWNERSHIP

COMMON STOCK

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Corporation as of the Record
Date, for (i) each person who is known by the Corporation to own beneficially
more than 5% of the Common Stock, (ii) each of the Corporation's directors,
(iii) the Named Executives (as defined below), and (iv) all directors and
executive officers as a group.

NUMBER OF SHARES
NAME(1) BENEFICIALLY OWNED PERCENTAGE(2)
-------------------------------- ------------------ -------------
E. Kenneth Seiff 2,295,990(3)(4) 17.92%

Josephine Esquivel 7,500(5) *

Alan Kane 3,750(6) *

Martin Miller 27,500(7)(8) *

Neal Moszkowski(9) 15,000(10) *

David Wassong(9) 7,500(11) *

Robert G. Stevens 221,189(12) 1.97%

Patrick C. Barry 1,003,590(13) 8.35%

Jonathan B. Morris 1,011,536(14) 8.41%

SFM Domestic Investments LLC 1,576,833(15) 12.69%

Quantum Industrial Partners LDC 48,188,318(16) 89.36%

George Soros 49,765,151(17) 89.94%

All directors and executive
officers as a group (9 persons) 4,593,556(18) 30.50%

----------

*Less than 1%.

(8) Includes 3,000 shares of Common Stock held by Madge Miller, the wife of
Martin Miller, as to which Mr. Miller disclaims beneficial ownership.
(9) Messrs. Moszkowski and Wassong's address is c/o Soros Private Equity
Partners LLC, 888 Seventh Avenue, 28th floor, New York, New York 10106.
Messrs. Moszkowski and Wassong are the designees of the holders of the
Series A and B Preferred Stock, respectively. Messrs. Moszkowski and
Wassong disclaim beneficial ownership of the shares of Common Stock
beneficially owned by George Soros, SFMDI and QIP (as defined in notes
(15) and (16) below) and none of such shares are included in the table
above as being beneficially owned by them.
(10) Includes 15,000 shares of Common Stock issuable upon exercise of options
granted under the 1997 Plan.
(11) Includes 7,500 shares of Common Stock issuable upon exercise of options
granted under the 1997 Plan.
(12) Includes 188,250 shares of Common Stock issuable upon exercise of
options granted under the 1997 Plan.
(13) Includes 998,590 shares of Common Stock issuable upon exercise of
options granted under the 1997 Plan.
(14) Includes 998,673 shares of Common Stock issuable upon exercise of
options granted under the 1997 Plan.
(15) Represents: 124,700 shares of Common Stock issuable upon conversion of
14,590 shares of Series A Preferred Stock; 866,942 shares of Common
Stock issuable upon conversion of 281,571 shares of Series B Preferred
Stock; 41,710 shares of Common Stock issuable upon conversion of 31.7
shares of Series C Preferred Stock; 297,669 shares of Common Stock
issuable upon conversion of 226.229 shares of Series D Preferred Stock
(includes shares of Common Stock which would be issuable upon conversion
of Series D Preferred Stock, assuming stockholder approval of the Series
D Conversion Provisions); 172,995 shares of Common Stock; 41,710 shares
of Common Stock issuable upon conversion of 31.7 shares of Series E
Preferred Stock (includes shares of Common Stock which would be issuable
upon conversion of Series E Preferred Stock, assuming stockholder
approval of the Series E Conversion Provisions); and 31,107 shares of
Common Stock issuable upon exercise of warrants (collectively, the
"SFMDI Shares") held in the name of SFM Domestic Investments LLC
("SFMDI"). SFMDI is a Delaware limited liability company. As sole
managing member of SFMDI, George Soros ("Mr. Soros") may also be deemed
the beneficial owner of the SFMDI Shares. The principal address of SFMDI
is at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. The
foregoing information was derived, in part, from certain publicly
available reports, statements and schedules filed with the Commission.
(16) Represents: 3,806,923 shares of Common Stock issuable upon conversion of
445,410 shares Series A Preferred Stock; 26,503,095 shares of Common
Stock issuable upon conversion of 8,607,843 shares of Series B Preferred
Stock; 1,274,078 shares of Common Stock issuable upon conversion of
968.3 shares of Series C Preferred Stock; 9,092,525 shares of Common
Stock issuable upon conversion of 6,910.319 shares of Series D Preferred
Stock (includes shares of Common Stock which would be issuable upon
conversion of Series D Preferred Stock, assuming stockholder approval of
the Series D Conversion Provisions); 5,287,082 shares of Common Stock;
1,274,078 shares of Common Stock issuable upon conversion of 968.3
shares of Series E Preferred Stock (includes shares of Common Stock
which would be issuable upon conversion of Series E Preferred Stock,
assuming stockholder approval of the Series E Conversion Provisions);
and 950,537 shares of Common Stock issuable upon exercise of warrants
(collectively, the "QIP Shares") held in the name of Quantum Industrial
Partners LDC ("QIP"). QIP is a Cayman Islands limited duration company
with its principal address at Kaya Flamboyan 9, Willemstad, Curacao,
Netherlands Antilles. QIH Management Investor L.P., a Delaware limited
partnership ("QIHMI"), is a minority shareholder of QIP and is vested
with investment discretion with respect to portfolio assets held for the
account of QIP. The sole general partner of QIHMI is QIH Management LLC,
a Delaware limited liability company ("QIH Management"). Soros Private
Funds Management LLC, a Delaware limited liability company ("SPFM") is
the sole managing member of QIH Management. Mr. Soros is the sole member
of SPFM. Mr. Soros has entered into an agreement with Soros Fund
Management LLC, a Delaware limited liability company ("SFM LLC"),
pursuant to which Mr. Soros has agreed to use his best efforts to cause
QIH Management to act at the direction of SFM LLC (the "QIP Contract").
SFM LLC, as a result of the QIP Contract may be deemed to be the
beneficial owner of the QIP Shares. Mr. Soros is also the Chairman of
SFM LLC and in such capacity may be deemed to have voting and
dispositive power over the QIP Shares. Accordingly, each of QIP, QIHMI,
QIH Management, SFM LLC and Mr. Soros may be deemed to be the beneficial
owners of the QIP Shares. Each has their principal office at 888 Seventh
Avenue, 33rd Floor, New York, New York 10106. The foregoing information
was derived, in part, from certain publicly available reports,
statements and schedules filed with the Commission.
(17) See (15) and (16) above
(18) Includes 4,034,597 shares of Common Stock issuable upon exercise of
options granted under the 1997 Plan.

SERIES A PREFERRED STOCK

The following table sets forth certain information with respect to the
beneficial ownership of the Series A Preferred Stock of the Corporation as of
the Record Date, for (i) each person who is known by the Corporation to own
beneficially more than 5% of the Series A Preferred Stock of the Corporation,
(ii) each of the Corporation's directors, (iii) the Named Executives, and (iv)
all directors and executive officers as a group.

Number of Shares
Name(1) Beneficially Owned Percentage(2)
-------------------------------- ------------------ -------------
E. Kenneth Seiff - -

Josephine Esquivel - -

Alan Kane - -

Martin Miller - -

Neal Moszkowski(3) - -

David Wassong(3) - -

Robert G. Stevens - -

Patrick C. Barry - -

Jonathan B. Morris - -

Quantum Industrial Partners LDC 445,410(4) 96.8%

George Soros 460,000(5) 100.0%

All directors and executive
officers as a group (9 persons) - -

----------

*Less than 1%.

(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Messrs. Moszkowski's and Wassong's address is c/o Soros Private Equity
Partners LLC, 888 Seventh Avenue, 28th Floor, New York, New York 10106.
Messrs. Moszkowski and Wassong are the designees of the holders of the
Series A and B Preferred Stock, respectively. Messrs. Moszkowski and
Wassong disclaim beneficial ownership of the Series A Preferred Stock
beneficially owned by George Soros and QIP and none of such shares are
included in the table above as being beneficially owned by them.
(4) Represents the shares of Series A Preferred Stock held in the name of
QIP (the "QIP A Shares"). QIP is a Cayman Islands limited duration
company with its principal address at Kaya Flamboyan 9, Willemstad,
Curcao, Netherlands Antilles. QIHMI is a minority shareholder of QIP and
is vested with investment discretion with respect to portfolio assets
held for the account of QIP. The sole general partner of QIHMI is QIH
Management. SPFM is the sole managing member of QIH Management. Mr.
Soros is the sole member of SPFM. Mr. Soros has entered into an
agreement with SFM LLC, pursuant to which Mr. Soros has agreed to use
his best efforts to cause QIH Management to act at the direction of SFM
LLC. SFM LLC, as a result of the QIP Contract, may be deemed to be the
beneficial owner of the QIP A Shares. Mr. Soros is also the Chairman of
SFM LLC and in such capacity may be deemed to have voting and
dispositive power over the QIP A Shares. Accordingly, each of QIP,
QIHMI, QIH Management, SFM LLC and Mr. Soros may be deemed to be
beneficial owners of the QIP A Shares. Each has their principal office
at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. The
foregoing information was derived, in part, from certain publicly
available reports, statements and schedules filed with the Commission.

(5) Represents both (i) 14,590 shares of Series A Preferred Stock held in
the name of SFMDI (the "SFMDI A Shares") and (ii) the QIP A Shares
referenced in Note 4 above. As sole managing member of SFMDI, Mr. Soros
also may be deemed the beneficial owner of the SFMDI A Shares. The
principal office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New
York, New York 10106.

SERIES B PREFERRED STOCK

The following table sets forth certain information with respect to the
beneficial ownership of the Series B Preferred Stock of the Corporation as of
the Record Date, for (i) each person who is known by the Corporation to own
beneficially more than 5% of the Series B Preferred Stock of the Corporation,
(ii) each of the Corporation's directors, (iii) the Named Executives, and (iv)
all directors and executive officers as a group.

Number of Shares
Name(1) Beneficially Owned Percentage (2)
-------------------------------- ------------------ --------------
E. Kenneth Seiff - -

Josephine Esquivel - -

Alan Kane - -

Martin Miller - -

Neal Moszkowski(3) - -

David Wassong(3) - -

Robert G. Stevens - -

Patrick C. Barry - -

Jonathan B. Morris - -

Quantum Industrial Partners LDC 8,607,843(4) 96.8%

George Soros 8,889,414(5) 100.0%

All directors and executive
officers as a group (9 persons) - -

----------

*Less than 1%.

(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Messrs. Moszkowski's and Wassong's address is c/o Soros Private Equity
Partners LLC, 888 Seventh Avenue, 28th Floor, New York, New York 10106.
Messrs. Moszkowski and Wassong are the designees of the holders of the
Series A and B Preferred Stock, respectively. Messrs. Moszkowski and
Wassong disclaim beneficial ownership of the shares of Series B
Preferred Stock beneficially owned by George Soros and QIP and none of
such shares are included in the table above as being beneficially owned
by them.
(4) Represents the shares of Series B Preferred Stock held in the name of
QIP (the "QIP B Shares"). QIP is a Cayman Islands limited duration
company with its principal address at Kaya Flamboyan 9, Willemstad,
Curcao, Netherlands Antilles. QIHMI is a minority shareholder of QIP and
is vested with investment discretion with respect to portfolio assets
held for the account of QIP. The sole general partner of QIHMI is QIH
Management. SPFM is the sole managing member of QIH Management. Mr.
Soros is the sole member of SPFM. Mr. Soros has entered into an
agreement with SFM LLC, pursuant to which Mr. Soros has agreed to use
his best efforts to cause QIH Management to act at the direction of SFM
LLC. SFM LLC, as a result of the QIP Contract, may be deemed to be the
beneficial owner of the QIP B Shares. Mr. Soros is also the Chairman of
SFM LLC and in such capacity may be deemed to have voting and

dispositive power over the QIP B Shares. Accordingly, each of QIP,
QIHMI, QIH Management, SFM LLC and Mr. Soros may be deemed to be
beneficial owners of the QIP B Shares. Each has their principal office
at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. The
foregoing information was derived, in part, from certain publicly
available reports, statements and schedules filed with the Commission.
(5) Represents both (i) the 281,571 shares of Series B Preferred Stock held
in the name of SFMDI (the "SFMDI B Shares") and (ii) the QIP B Shares
referenced in Note 4 above. As managing member of SFMDI, Mr. Soros also
may be deemed the beneficial owner of the SFMDI B Shares. The principal
office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
10106.

SERIES C PREFERRED STOCK

The following table sets forth certain information with respect to the
beneficial ownership of the Series C Preferred Stock of the Corporation as of
the Record Date, for (i) each person who is known by the Corporation to own
beneficially more than 5% of the Series C Preferred Stock of the Corporation,
(ii) each of the Corporation's directors, (iii) the Named Executives, and (iv)
all directors and executive officers as a group.

Number of Shares
Name(1) Beneficially Owned Percentage (2)
-------------------------------- ------------------ --------------
E. Kenneth Seiff - -

Josephine Esquivel - -

Alan Kane - -

Martin Miller - -

Neal Moszkowski(3) - -

David Wassong(3) - -

Robert G. Stevens - -

Patrick C. Barry - -

Jonathan B. Morris - -

Quantum Industrial Partners LDC 968.3(4) 96.8%

George Soros 1,000.0(5) 100.0%

All directors and executive
officers as a group (9 persons) - -

----------

*Less than 1%.

(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Messrs. Moszkowski's and Wassong's address is c/o Soros Private Equity
Partners LLC, 888 Seventh Avenue, 28th Floor, New York, New York 10106.
Messrs. Moszkowski and Wassong are the designees of the holders of the
Series A and B Preferred Stock, respectively. Messrs. Moszkowski and
Wassong disclaim beneficial ownership of the shares of Series C
Preferred Stock beneficially owned by George Soros and QIP and none of
such shares are included in the table above as being beneficially owned
by them.
(4) Represents the shares of Series C Preferred Stock held in the name of
QIP (the "QIP C Shares"). QIP is a Cayman Islands limited duration
company with its principal address at Kaya Flamboyan 9, Willemstad,
Curcao, Netherlands Antilles. QIHMI is a minority shareholder of QIP and
is vested with investment discretion with respect to portfolio assets
held for the account of QIP. The sole general partner of QIHMI is QIH
Management. SPFM is the sole managing member of QIH Management. Mr.
Soros is the sole member of SPFM. Mr. Soros has entered into an
agreement with SFM LLC, pursuant to which Mr. Soros

has agreed to use his best efforts to cause QIH Management to act at the
direction of SFM LLC. SFM LLC, as a result of the QIP Contract may be
deemed to be the beneficial owner of the QIP C Shares. Mr. Soros is also
the Chairman of SFM LLC and in such capacity may be deemed to have
voting and dispositive power over the QIP C Shares. Accordingly, each of
QIP, QIHMI, QIH Management, SFM LLC and Mr. Soros may be deemed to be
beneficial owners of the QIP C Shares. Each has their principal office
at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. The
foregoing information was derived, in part, from certain publicly
available reports, statements and schedules filed with the Commission.
(5) Represents both (i) 31.7 shares of Series C Preferred Stock held in the
name of SFMDI (the "SFMDI C Shares") and (ii) the QIP C Shares
referenced in Note 4 above. As managing member of SFMDI, Mr. Soros also
may be deemed the beneficial owner of the SFMDI C Shares. The principal
office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
10106.

SERIES D PREFERRED STOCK

The following table sets forth certain information with respect to the
beneficial ownership of the Series D Preferred Stock of the Corporation as of
the Record Date, for (i) each person who is known by the Corporation to own
beneficially more than 5% of the Series D Preferred Stock of the Corporation,
(ii) each of the Corporation's directors, (iii) the Named Executives, and (iv)
all directors and executive officers as a group.

Number of Shares
Name(1) Beneficially Owned Percentage(2)
-------------------------------- ------------------ -------------
E. Kenneth Seiff - -

Josephine Esquivel - -

Alan Kane - -

Martin Miller - -

Neal Moszkowski(3) - -

David Wassong(3) - -

Robert G. Stevens - -

Patrick C. Barry - -

Jonathan B. Morris - -

Quantum Industrial Partners LDC 6,910.319(4) 96.8%

George Soros 7,136.548(5) 100.0%

All directors and executive
officers as a group (9 persons) - -

----------

*Less than 1%.

QIH Management. SPFM is the sole managing member of QIH Management. Mr.
Soros is the sole member of SPFM. Mr. Soros has entered into an
agreement with SFM LLC, pursuant to which Mr. Soros has agreed to use
his best efforts to cause QIH Management to act at the direction of SFM
LLC. SFM LLC, as a result of the QIP Contract, may be deemed to be the
beneficial owner of the QIP D Shares. Mr. Soros is also the Chairman of
SFM LLC and in such capacity may be deemed to have voting and
dispositive power over the QIP D Shares. Accordingly, each of QIHMI, QIH
Management, SFM LLC and Mr. Soros may be deemed to be beneficial owners
of the QIP D Shares. Each has their principal office at 888 Seventh
Avenue, 33rd Floor, New York, New York 10106. The foregoing information
was derived, in part, from certain publicly available reports,
statements and schedules filed with the Commission.
(5) Represents both (i) 226.229 shares of Series D Preferred Stock held in
the name of SFMDI (the "SFMDI D Shares") and (ii) the QIP D Shares
referenced in Note 4 above. As managing member of SFMDI, Mr. Soros also
may be deemed the beneficial owner of the SFMDI D Shares. The principal
office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
10106.

SERIES E PREFERRED STOCK

The following table sets forth certain information with respect to the
beneficial ownership of the Series E Preferred Stock of the Corporation as of
the Record Date, for (i) each person who is known by the Corporation to own
beneficially more than 5% of the Series E Preferred Stock of the Corporation,
(ii) each of the Corporation's directors, (iii) the Named Executives, and (iv)
all directors and executive officers as a group.

Number of Shares
Name (1) Beneficially Owned Percentage (2)
-------------------------------- ------------------ --------------
E. Kenneth Seiff - -

Josephine Esquivel - -

Alan Kane - -

Martin Miller - -

Neal Moszkowski(3) - -

David Wassong(3) - -

Robert G. Stevens - -

Patrick C. Barry - -

Jonathan B. Morris - -

Quantum Industrial Partners LDC 968.3(4) 96.8%

George Soros 1,000.0(5) 100.0%

All directors and executive
officers as a group (9 persons) - -

----------

*Less than 1%.

(4) Represents the shares of Series E Preferred Stock held in the name of
QIP (the "QIP E Shares"). QIP is a Cayman Islands limited duration
company with its principal address at Kaya Flamboyan 9, Willemstad,
Curcao, Netherlands Antilles. QIHMI is a minority shareholder of QIP and
is vested with investment discretion with respect to portfolio assets
held for the account of QIP. The sole general partner of QIHMI is QIH
Management. SPFM is the sole managing member of QIH Management. Mr.
Soros is the sole member of SPFM. Mr. Soros has entered into an
agreement with SFM LLC, pursuant to which Mr. Soros has agreed to use
his best efforts to cause QIH Management to act at the direction of SFM
LLC. SFM LLC, as a result of the QIP Contract, may be deemed to be the
beneficial owner of the QIP E Shares. Mr. Soros is also the Chairman of
SFM LLC, and in such capacity may be deemed to have voting and
dispositive power over the QIP E Shares. Accordingly, each of QIP,
QIHMI, QIH Management, SFM LLC and Mr. Soros may be deemed to be
beneficial owners of the QIP E Shares. Each has their principal office
at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. The
foregoing information was derived, in part, from certain publicly
available reports, statements and schedules filed with the Commission.
(5) Represents both (i) 31.7 shares of Series E Preferred Stock held in the
name of SFMDI (the "SFMDI E Shares") and (ii) the QIP E Shares
referenced in Note 4 above. As managing member of SFMDI, Mr. Soros also
may be deemed the beneficial owner of the SFMDI E Shares. The principal
office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
10106.

EXECUTIVE OFFICERS OF THE CORPORATION

The following table sets forth the names, ages and all positions and
offices with the Corporation held by the Corporation's present executive
officers.

Name Age Positions and Offices Presently Held
------------------ --- -------------------------------------------
E. Kenneth Seiff 38 Chairman of the Board of Directors, Chief
Executive Officer, President and Treasurer
Patrick C. Barry 40 Chief Financial Officer and Chief Operating
Officer
Jonathan B. Morris 36 Executive Vice President and Secretary

----------

Following is information with respect to the Corporation's executive
officers who are not also directors of the Corporation:

Patrick C. Barry served as an Executive Vice President of the Corporation from
July 1998 to September 2000 and as its Chief Financial Officer since August
1998. In September 2000, Mr. Barry assumed the role of Chief Operating Officer
of the Corporation and has served in that capacity since such time. From June
1996 to July 1998, Mr. Barry served as Chief Financial Officer and Vice
President of Operations of Audible, Inc., an Internet commerce and content
provider. From March 1995 to June 1996, Mr. Barry was Chief Financial Officer of
Warner Music Enterprises, a direct marketing subsidiary of Time Warner, Inc.
From July 1993 to March 1995, Mr. Barry served as Controller of
Book-of-the-Month Club, a direct marketing subsidiary of Time Warner, Inc.

Jonathan B. Morris has served as an Executive Vice President and Secretary of
the Corporation since June 1998. From November 1995 to June 1998, Mr. Morris was
an attorney with Brown, Raysmann, Millstein, Felder & Steiner LLP, a New York
based law firm that specializes in Internet and technology law. From September
1993 to November 1995, Mr. Morris was an attorney with Mudge, Rose, Guthrie,
Alexander & Ferdon.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Objective and Philosophy. The Option Plan/Compensation Committee works closely
with management to design an executive compensation program to assist the
Corporation in attracting and retaining outstanding executives and senior
management personnel. The design and implementation of such program continually
evolves as the Corporation grows, but is based primarily on two elements: (i)
providing compensation opportunities that are competitive with competing
companies of similar size and (ii) linking executives' compensation with the
Corporation's financial performance by rewarding the achievement of short-term
and long-term objectives of the Corporation.

Compensation Program Components. Currently, the three principal components of
the Corporation's executive compensation program are: (i) annual base salary,
(ii) short-term incentive compensation in the form of performance bonuses
payable in cash each year, and (iii) long-term incentive compensation in the
form of stock options. These programs are structured in accordance with the
Option Plan/Compensation Committee's objectives and philosophy.

Base Salary. Base salary levels for the Corporation's executives are
designed to be reflective of competitive conditions in the marketplace for
executives of comparable talent and experience and are based on responsibility
and performance. Base salaries for executives are generally recommended by
executive management for the review and approval of the Option Plan/Compensation
Committee and the Board (subject to applicable employment agreements).

Short-Term Incentive Compensation. The short-term incentive compensation
component consists of performance bonuses. The amount of any bonus is
determined, in part, pursuant to the Corporation's management by objective
("MBO") program. Pursuant to the MBO program, individual and corporate goals are
set annually and, in some instances, every six months, and the bonus paid to
each executive is based in part on measuring which of these goals have been
realized.

Long-Term Incentive Compensation. The long-term incentive compensation
component consists of stock option plans under which executives may be granted
stock options exercisable to purchase shares of Common Stock. The exercise price
of stock options represents the fair market value of the Common Stock on the
date of grant, which is the closing sale price of the Common Stock on the Nasdaq
SmallCap Market for the business day preceding the date of grant. Generally, the
stock options become exercisable in equal monthly increments over four years
(subject to a six month "cliff" provision) and expire ten years from the date of
grant. The deferred vesting provisions of the stock options are designed to
reward long-term contributions and create an incentive for executives to remain
with the Corporation. The Option Plan/Compensation Committee believes that
granting stock options creates an incentive to promote the long-term interests
of the Corporation and aligns the economic benefit to be derived therefrom by
the Corporation's executives with those of the Corporation's outside
shareholders. Stock options are granted by the Option Plan/Compensation
Committee (and approved by the Board) to key employees based on management's
recommendation, and levels of participation in the plan generally vary based on
the employee's position with the Corporation.

CEO Compensation. Mr. Seiff's employment agreement provides for a base salary of
$275,000, subject to increase by the Board of Directors, and an annual bonus to
be determined by the Board of Directors, which may, at the discretion of the
Board of Directors, be paid through the issuance of capital stock of the
Corporation. His compensation is determined annually by the Option
Plan/Compensation Committee based on his compensation in prior years and the
compensation of CEO's of similarly sized companies in the internet retailing
industry.

Base Salary. During fiscal 2002, Mr. Seiff received an annual base
salary of $275,000.

Short-term Incentive Compensation. Mr. Seiff participated in the
short-term incentive compensation plan discussed above and received a
performance bonus of $50,000 for fiscal 2002.

Long-term Incentive Compensation. During fiscal 2002, Mr. Seiff was
granted 1,000,000 options to purchase Common Stock.

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction for compensation over $1.0 million
paid to a Corporation's chief executive officer and certain other highly
compensated executive officers. Qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met. The long-term
incentive compensation plan adopted by the Corporation has been structured to
comply with the requirements under Code Section 162(m) regarding qualifying
performance-based compensation to provide for the deductibility of compensation
payable thereunder. The Option Plan/Compensation Committee does not expect that
the total cash and non-cash compensation received by any executive of the
Corporation in fiscal 2003 will exceed $1.0 million.

OPTION PLAN/COMPENSATION COMMITTEE

NEAL MOSZKOWSKI
MARTIN MILLER

The foregoing report of the Option Plan/Compensation Committee shall not
be deemed incorporated by reference by any general statement incorporating by
reference the Proxy Statement into any filing under the Securities Act or the
Exchange Act, and shall not otherwise be deemed filed under such Acts.

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid to the Chief
Executive Officer of the Corporation and to the three other most highly
compensated executive officers of the Corporation for the Corporation's fiscal
years ended December 31, 2002, December 31, 2001 and December 31, 2000 (each
person appearing in the table is referred to as a "Named Executive"). No other
executive officer of the Corporation received total annual compensation from the
Corporation in excess of $100,000 during these years.

LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------ ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
---------------------------------- ---- ------------ ------------ ------------ ------------

E. Kenneth Seiff 2002 $ 274,999 $ 50,000(7) $ 3,782 1,000,000(2)
Chief Executive Officer, President 2001 $ 267,308 $ 81,750(6) $ 1,000 --
and Treasurer 2000 $ 250,367 $ 50,000 $ 1,000 980,000(1)(3)

Patrick C. Barry 2002 $ 224,999 $ 35,000(7) $ 590 1,000,000(2)
Chief Financial Officer and Chief 2001 $ 249,039(4) $ 44,000(6) $ 590 --
Operating Officer 2000 $ 200,433(4) $ -- $ 590 489,912(2)(3)

Jonathan B. Morris 2002 $ 224,369 $ 35,000(7) $ 330 1,000,000(2)
Executive Vice President 2001 $ 249,039(4) $ 40,000(8) $ 330 --
2000 $ 200,433(4) $ -- $ 330 490,000(2)(3)

Robert G. Stevens(5) 2002 $ 153,355 $ -- $ -- --
Executive Vice President 2001 $ 249,039(4) $ 40,000(8) $ -- --
2000 $ 168,000 $ -- $ -- 490,000(2)(3)

(1) Options granted at an exercise price equal to 110% of the fair
market value on the date of grant.
(2) Options granted at an exercise price equal to 100% of the fair
market value on the date of grant.
(3) Represents options granted during fiscal year 2000 for services
performed in fiscal 2000.
(4) Includes amounts paid pursuant to retroactive salary
adjustments.
(5) Mr. Stevens' position as an executive officer of the Corporation
terminated in May 2002.
(6) Represents amounts earned in 2001, but paid in fiscal 2002.
(7) Represents amounts earned in 2002 and paid in 2003.
(8) Represents amounts earned in 2001, but paid in fiscal 2002 and
2003.

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning the grant of stock options
under the 1997 Plan to the Named Executives during the fiscal year ended
December 31, 2002:

INDIVIDUAL GRANTS
--------------------------------------------------------------
% OF TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO EMPLOYEES
UNDERLYING OPTIONS IN EXERCISE OR
NAME GRANTED (#) FISCAL YEAR (%) BASE PRICE ($) EXPIRATION DATE
------------------ -------------------- -------------------- -------------- ---------------

E. Kenneth Seiff 790,000 15.1% $ 0.91 12/26/12
210,000 4.0% $ 0.91 12/26/12

Patrick C. Barry 790,000 15.1% $ 0.91 12/26/12
210,000 4.0% $ 0.91 12/26/12

Jonathan B. Morris 790,000 15.1% $ 0.91 12/26/12
210,000 4.0% $ 0.91 12/26/12
Robert G. Stevens -- -- n/a n/a

The Corporation does not currently grant stock appreciation rights.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth information with respect to the Named
Executives concerning the exercise of options during the last fiscal year and
the unexercised options held at December 31, 2002. None of the Named Executives
exercised any outstanding options during the fiscal year ended December 31,
2002.

SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, 2002 (#) OPTIONS AT DECEMBER 31, 2002 ($)(1)
--------------------------------- -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- ----------- ------------- ----------- -------------

E. Kenneth Seiff 1,122,013 982,988 $ 410,000 $ 1,230,000

Patrick C. Barry 784,155 860,757 $ 410,000 $ 1,230,000

Jonathan B. Morris 784,219 860,782 $ 410,000 $ 1,230,000

Robert G. Stevens(2) 188,250 -- $ 287,000 $ --

(1) Represents the value of unexercised, in-the-money stock options
at December 31, 2002, using the $1.64 closing price of the
Common Stock on that date.
(2) Mr. Stevens' position as an executive officer of the Corporation
terminated in May 2002.

EMPLOYMENT AGREEMENTS

The Corporation has entered into employment agreements with each of the
Named Executives who is currently employed by the Corporation. Each such
employment agreement provides for a base salary, subject to increase by the
Compensation Committee, and an annual bonus to be determined by the Compensation
Committee.

Mr. Seiff's annual base salary is $275,000, and the annual base salary of
Messrs. Barry and Morris is $225,000. Prior to the termination of his employment
agreement in May 2002, Mr. Steven's annual base salary was $225,000. The term of
the employment agreement for each of Messrs. Seiff, Morris, and Barry ends on
June 30, 2005 but shall automatically renew for a successive one-year term,
unless the Corporation provides notice of its desire not to renew such agreement
at least 90 days prior to the end of the term. Each such employment agreement
obligates the Corporation to make certain severance payments equal to six
months' salary in connection with a termination by the Corporation of such Named
Executive's employment, other than for cause, and also provides for the
immediate vesting of any stock options held by such Named Executive under such
circumstances. Each such employment agreement also provides for the immediate
vesting of any stock options held by such Named Executive upon the occurrence of
certain events classified as a "Change In Control". In addition, each such
employment agreement provides that upon the occurrence of certain events
classified as a "Change of Control" in which cash, securities or other
consideration is paid or payable, or otherwise to be distributed directly to the
Corporation's stockholders, each such Named Executive shall receive a bonus
equal to a percentage of the proceeds received by the Corporation's
stockholders.

DIRECTORS' COMPENSATION

The Corporation's non-employee, independent directors are paid a cash
stipend of $500 for each board or committee meeting attended in person (however,
no such stipend is payable for more than one board or committee meeting held on
the same date) and are reimbursed for expenses incurred on behalf of the
Corporation. Additionally, each non-employee director receives an option to
purchase 3,750 shares of Common Stock under the 1997 Plan at the time that such
director is appointed and an annual grant of an option to purchase 3,750 shares
of Common Stock under the 1997 Plan.

See also the disclosure regarding Robert G. Stevens, a director of the
Corporation, under the heading "Certain Relationships and Related Transactions."

STOCK PERFORMANCE GRAPH

The following is a comparison of the cumulative total stockholder return
of Common Stock with the cumulative total return of the NASDAQ National Stock
Market Index and the CRSP Total Return Industry for Retail Trade Stocks for the
period from December 31, 1997 though December 31, 2002. Cumulative total return
values were calculated assuming an investment of $100 on December 31, 1997 and
reinvestment of dividends.

Bluefly, Inc.,
Comparison of Cumulative Total Return
December 31, 2002

[Performance Graph Appears Here]

NASDAQ NASDAQ
Measurement Date Bluefly, Inc. Market Index Retail Index
----------------- ------------- ------------ ------------
December 31, 1997 100.0 100.0 100.0

December 31, 1998 522.6 141.0 121.7

December 31, 1999 532.3 261.5 106.7

December 31, 2000 29.0 157.8 65.5

December 31, 2001 98.1 125.2 90.5

December 31, 2002 84.6 86.5 76.9

This comparison shall not be deemed to be incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing of the Corporation pursuant to the Securities Act or the Exchange Act
except to the extent the Corporation specifically incorporates this comparison
by reference therein. This comparison shall not be deemed soliciting material or
otherwise deemed filed under either such act.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH SOROS RELATING TO THE LOAN FACILITY

The Corporation is party to a Financing Agreement (the "Rosenthal
Financing Agreement") with Rosenthal & Rosenthal, Inc. ("Rosenthal"), pursuant
to which Rosenthal provides it with certain credit accommodations, including
loans and advances, factor-to-factor guarantees, letters of credit in favor of
suppliers or factors and purchases of payables owed to the Corporation's
suppliers (the "Loan Facility"). In connection with the Loan Facility, the
Corporation entered into a Reimbursement Agreement with Quantum Industrial
Partners LDC and SFM Domestic Investments LLC (collectively, "Soros") pursuant
to which Soros issued a standby letter of credit (the "Soros Guarantee") (as of
December 31, 2002, in the amount of $1.5 million) in favor of Rosenthal to
guarantee a portion of the Corporation's obligations under the Loan Facility,
the Corporation agreed to reimburse Soros for any amounts it pays to Rosenthal
pursuant to such guarantee and the Corporation granted Soros a subordinated lien
on substantially all of its assets, including its cash balances, in order to
secure its reimbursement obligations. By amendment to the Reimbursement
Agreement, on March 17, 2003, the amount of the Soros Guarantee was increased to
$2.0 million. In March 2003, the expiration date of the Loan Facility was
extended to June 30, 2004.

In consideration for the issuance of the Soros Guarantee in March 2001,
pursuant to the Reimbursement Agreement, the Corporation issued to Soros a
warrant to purchase 100,000 shares of Common Stock at an exercise price equal to
$0.88 per share, exercisable at any time prior to September 15, 2011. In
consideration for Soros' agreement to maintain the $1.5 million standby letter
of credit until August 15, 2003, the Corporation issued to Soros, in March 2002,
a warrant to purchase 60,000 shares of Common Stock at an exercise price equal
to $1.66 per share (the 20 day trailing average of the closing sale price of the
Common Stock on the date of issuance), exercisable at any time prior to March
30, 2007. By amendment to the Reimbursement Agreement, on March 17, 2003, the
amount of the Soros Guarantee was increased to $2 million and Soros agreed to
maintain the Soros Guarantee until November 15, 2004. In consideration for
Soros' agreement to maintain the Soros Guarantee until November 15, 2004 and
increase the amount, the Corporation issued to Soros a warrant to purchase
25,000 shares of Common Stock at an exercise price equal to $0.78 per share (the
10 day trailing average of the closing sale price of the Common Stock on the
date of issuance), exercisable at any time prior to March 17, 2013.

Subject to certain conditions, if the Corporation defaults on any of its
obligations under the Loan Facility, Rosenthal has the right to draw upon the
Soros Guarantee to satisfy any such obligations. If and when Rosenthal draws on
the Soros Guarantee, pursuant to the terms of the Reimbursement Agreement, the
Corporation would have the obligation to, among other things, reimburse Soros
for any amounts drawn under the Soros Guarantee plus interest accrued thereon.
In addition, to the extent that Rosenthal draws on the Soros Guarantee during
the continuance of a default under the Loan Facility or at any time that the
total amount outstanding under the Loan Facility exceeds 90% of the Soros
Guarantee, the Corporation will be required to issue to Soros a Contingent
Warrant to purchase a number of shares of Common Stock equal to the quotient of
(a) any amounts drawn under the Soros Guarantee and (b) 75% of the average of
the closing price of the Common Stock on the ten days preceding the date of
issuance of such warrant. Each Contingent Warrant will be exercisable for ten
years from the date of issuance at an exercise price equal to 75% of the average
closing price of the Common Stock on the ten days preceding the ten days after
the date of issuance.

Under the Loan Facility, Soros has the right to purchase all of the
Corporation's obligations from Rosenthal at any time during its term (the
"Buyout Option"). With respect to such Buyout Option, Soros has the right to
request that Rosenthal make a draw under the Soros Guarantee as consideration to
Soros for the purchase of such obligations.

FINANCING TRANSACTIONS WITH SOROS

March 2002 Standby Commitment. In March 2002, the Corporation entered
into an agreement with Soros, pursuant to which Soros agreed to provide the
Corporation with up to $4 million (the "March 2002 Standby Commitment Amount")
of additional financing on a standby basis at any time prior to January 1, 2003,
all of which has been funded as described below. The Corporation was permitted
to draw down on the March 2002 Standby Commitment Amount only at such time as
its total cash balances were less than $1 million. Such financing was

permitted to be made in one or more tranches as determined by the members of the
Board of Directors who are not Soros designees, and any and all financings made
were required to be on terms that were consistent with those in the market at
the time the draw was made for similar investments by investors similar to Soros
in companies similar to the Corporation. Subject to certain limitations, the
March 2002 Standby Commitment Amount was to be reduced on a dollar-for-dollar
basis by the gross cash proceeds that the Corporation or its subsidiaries
received from the issuance of any equity or convertible securities after March
27, 2002. In exchange for this commitment, but not as a substitute for
additional consideration that Soros would receive if and when any financing was
made pursuant to the Soros Standby Agreement, the Corporation issued to Soros a
warrant to purchase 100,000 shares of Common Stock at an exercise price of $1.68
per share at any time until March 27, 2007. In connection with the issuance of
this warrant, Soros agreed that the issuance of this warrant would not trigger
the anti-dilution provision of Section 5.8.6 of the Corporation's certificate of
incorporation.

First Drawdown on March 2002 Standby Commitment. In June 2002, Soros
invested $1.9 million in the Corporation through the purchase of shares of
Common Stock and warrants, thereby reducing the March 2002 Standby Commitment
Amount to $2.1 million. Under the terms of the transaction, the Corporation
issued 1,186,573 shares of Common Stock at $1.57 per share, and warrants to
purchase 296,644 shares of Common Stock at any time during the next five years
at an exercise price of $1.88 per share for a purchase price of $0.125 per
warrant.

The June 2002 Soros investment was negotiated as part of an equity
financing in which third party investors would also participate. In particular,
one-third party investor committed to invest approximately $7 million on the
same terms and conditions as those that applied to Soros' investment. However,
this third party investment was not consummated. In connection with the June
2002 financing, the Corporation agreed to file a registration statement with the
Commission within 45 days of closing, in order to register the Common Stock
issued in the financing, as well as the Common Stock underlying the warrants.
However, given the failure of the third party investors to consummate their
investment, Soros has agreed to delay the filing of such registration statement,
although the Corporation expects that it will be required to file such
registration statement at some point in the future.

As a result of the June 2002 financing, the conversion price of the
Series B Preferred Stock, all of which is held by Soros, automatically decreased
from $2.34 to $1.57. In accordance with EITF 00-27, this reduction in the
conversion price of the Series B Preferred Stock resulted in the Corporation
recording a beneficial conversion feature in the approximate amount of $10.2
million as part of its financial results for the quarter ended June 30, 2002.
This non-cash charge, which is analogous to a dividend, resulted in an
adjustment to the Corporation's computation of Loss Per Share.

Second Drawdown on March 2002 Standby Commitment. In August 2002, Soros
invested an additional $2.1 million in the Corporation through the purchase of
Series 2002 Convertible Preferred Stock. Under the terms of the deal, the
Corporation issued 2,100 shares of newly designated Series 2002 Convertible
Preferred Stock to Soros at a price of $1,000 per share. The Series 2002
Convertible Preferred Stock had a liquidation preference of $1,000 per share and
was convertible in whole or in part, at the holder's option, into the type of
equity securities sold by the Corporation in any subsequent round of equity
financing, at the lowest price per share paid by any participant in such
financing and upon such other terms and conditions as such securities were sold
in such financing. The Series 2002 Convertible Preferred Stock did not have any
fixed dividend rate, and did not provide the holders thereof with any voting
rights, other than with respect to transactions or actions that would adversely
affect the rights, preference, powers and privileges of the Series 2002
Convertible Preferred Stock. This $2.1 million invested by Soros following the
$1.9 million investment made by Soros in June 2002 completed Soros' obligation
under the $4 million standby commitment established in March 2002. As part of
the March 2003 financing, the Series 2002 Convertible Preferred Stock was
converted into Series D Preferred Stock.

September 2002 Series C Preferred Stock and Note Financing. In September
2002, the Corporation entered into an agreement with Soros pursuant to which
Soros purchased 1,000 shares of Series C Preferred Stock for $1,000,000 and
promissory notes convertible into Series C Preferred Stock ("Series C Notes") in
the aggregate principal amount of $2,000,000, all for the aggregate purchase
price of $3,000,000. Each share of Series C Preferred Stock has a face value of
$1,000 and a liquidation preference equal to the greater of (i) $1,000 plus
accrued and unpaid dividends, and (ii) the amount the holder of such share would
receive if it were to convert such share into Common Stock immediately prior to
the liquidation of the Corporation. The Series C Preferred Stock is

convertible, at any time and from time to time at the option of the holder into
Common Stock at the rate of one to 1,315.79. The conversion price of the Series
C Preferred Stock is subject to an anti-dilution adjustment, pursuant to which,
subject to certain exceptions, to the extent that the Corporation issues Common
Stock or securities convertible into Common Stock at a price per share less than
the Series C Preferred Stock conversion price in the future, the conversion
price of the Series C Preferred Stock would be decreased so that it would equal
the price at which shares of common stock are sold in the new issuance. The
Corporation is entitled to redeem all, but not less than all, of the outstanding
Series C Preferred Stock for cash at the price of, depending upon the date of
such redemption, four times, four and one-half times or five times the market
price of the Common Stock on the date of the initial issuance of the Series C
Preferred Stock. Dividends accrue on the Series C Preferred Stock at an annual
rate equal to 8.0% of the face value and are payable only upon conversion or
redemption of the Series C Stock or upon our liquidation. The Series C Preferred
Stock votes on an as converted basis (except that it was not entitled to vote
with respect to the approval of the conversion rights of the Series 2002
Convertible Preferred Stock and for the Series C Preferred Stock, which were
approved by the Corporation's shareholders at its annual meeting in November
2002).

Interest on the Series C Notes accrued at an annual rate equal to 3.0%
on a cumulative, compounding basis and was payable only upon repayment of the
principal amount, whether at maturity or upon a mandatory or optional
prepayment. The outstanding principal amount of the Series C Notes and all
accrued and unpaid interest was payable in full no later than March 26, 2003.
The Series C Notes were subject to (i) mandatory prepayment upon the occurrence
of certain bankruptcy events, whether voluntary or involuntary, (ii) prepayment
at the option of the holder upon the occurrence of certain events of default,
the sale of all or substantially all of the Corporation's assets, the merger or
consolidation of the Corporation into another entity or any change of control of
the Corporation and (iii) prepayment at the Corporation's option, at any time or
from time to time, upon five days notice to the holder. The principal amount of
and interest accrued on the Series C Notes were convertible into Series C
Preferred Stock, at the option of the holder and at any time and from time to
time, at the rate of $1,000 per share. The Corporation's obligations under the
Series C Notes were subordinated to its obligations under the Rosenthal
Financing Agreement although such subordination did not affect Soros' conversion
rights with respect to the Series C Notes. The Series C Notes were repaid in
connection with the March 2003 financing.

As a result of the September 2002 financing, the conversion price of the
Series B Preferred Stock, all of which is held by Soros, automatically decreased
from $1.57 to $0.93. In accordance with EITF 00-27, this reduction in the
conversion price of the Series B Preferred Stock resulted in the Corporation
recording a beneficial conversion feature in the approximate amount of $5.1
million as part of its financial results for the quarter ended September 30,
2002. This non-cash charge, which is analogous to a dividend, resulted in an
adjustment to the Corporation's computation of Loss Per Share.

January 2003 Convertible Promissory Note Financing. In January 2003 the
Corporation issued to Soros $1 million of demand convertible promissory notes
that bore interest at a rate of 8% per annum and had a maturity date of July 28,
2003 and warrants to purchase 25,000 shares of Common Stock, exercisable at any
time on or prior to January 28, 2007 at $1.12 per share. The promissory notes
together with any accrued interest were convertible into equity securities that
the Corporation might issue in any subsequent round of financing, at the
holder's option, at a price that was equal to the lowest price per share
accepted by any investor in such subsequent round of financing. Interest on the
notes accrued at an annual rate equal to 8.0% on a cumulative, compounding basis
and was payable only upon repayment of the principal amount, whether at maturity
or upon a mandatory or optional prepayment. The outstanding principal amount of
the notes and all accrued and unpaid interest was payable in full no later than
July 28, 2003. The notes were subject to (i) mandatory prepayment upon the
occurrence of certain bankruptcy events, whether voluntary or involuntary, (ii)
prepayment at the option of the holder upon the occurrence of certain events of
default, the sale of all or substantially all of the Corporation's assets, the
merger or consolidation of the Corporation into another entity or any change of
control of the Corporation and (iii) prepayment at the Corporation's option, at
any time or from time to time, upon five days notice to the holder. The
Corporation's obligations under the notes were subordinated to its obligations
under the Rosenthal Financing Agreement although such subordination did not
affect Soros' conversion rights with respect to the Series C Notes. As part of
the March 2003 financing, the January 2003 promissory notes were converted into
Series D Preferred Stock.

March 2003 Series D Preferred Stock Financing. In March 2003, the
Corporation entered into an agreement with Soros pursuant to which Soros: (i)
provided $2 million of new capital by purchasing 2,000 shares of Series D
Preferred Stock, (ii) converted the promissory notes issued to it in the January
2003 financing and all of its

Series 2002 Preferred Stock into 3,109.425 shares of Series D Preferred Stock
and (iii) purchased 2,027.123 additional shares of Series D Preferred Stock for
approximately $2 million, with such $2 million in additional proceeds being
retained by Soros as payment in full of the Corporation's obligations under the
demand promissory notes issued to Soros in September 2002.

Each share of Series D Preferred Stock has a face value of $1,000 and a
liquidation preference equal to the greater of (i) $1,000 plus accrued and
unpaid dividends or (ii) the amount the holder of such shares would receive if
it were to convert such shares into Common Stock immediately prior to the
liquidation of the Corporation. The Series D Preferred Stock is convertible, at
any time and from time to time at the option of the holder into Common Stock at
the rate of one to 1,315.79. The conversion price of the Series D Preferred
Stock is subject to an anti-dilution adjustment, pursuant to which, subject to
certain exceptions, to the extent that the Corporation issues Common Stock or
securities convertible into Common Stock at a price per share less than the
Series D Preferred Stock conversion price in the future, the conversion price of
the Series D Preferred Stock would be decreased so that it would equal the
conversion price of the new security or the price at which shares of Common
Stock are sold, as the case may be. However, to the extent required by the rules
of the Nasdaq SmallCap Market or any other national securities exchange or
quotation system upon which the Common Stock may be listed from time to time,
until such time as such conversion provisions are approved by the Corporation's
stockholders, the total number of shares of Common Stock issuable upon
conversion of the Series D Preferred Stock may not exceed 2,204,803 shares
(which represents less than 20% of the Corporation's outstanding Common Stock as
of the date that the Series D Preferred Stock was issued), regardless of any
adjustment to the Series D Preferred Stock conversion price.

Beginning on November 13, 2004, the Corporation is entitled to redeem
all, but not less than all, of the outstanding Series D Preferred Stock for cash
at the price of, depending upon the date of such redemption, four times, four
and one-half times or five times the market price of the Common Stock on the
date of the initial issuance of the Series D Preferred Stock. Dividends accrue
on the Series D Preferred Stock at an annual rate equal to 12% of the face value
and are payable only upon conversion or redemption of the Series D Preferred
Stock or upon the Corporation's liquidation. The Series D Preferred Stock votes
on an as converted basis, except with respect to approval of the Series D
Conversion Provisions and the Series E Conversion Provisions.

Additionally, Soros agreed to provide the Corporation with up to $1
million in additional financing on a standby basis at any time prior to January
1, 2004, provided that the Corporation's cash balances were less than $1 million
(the "2003 Standby Commitment"). Such financing could be made in one or more
tranches as determined by the members of the Board of Directors who are not
Soros designees, and any and all draws against the 2003 Standby Commitment were
to be effected through the purchase of newly-designated shares of Series E
Preferred Stock on terms and conditions substantially identical to the Series D
Preferred Stock, except that: (1) the conversion price of the Series E Preferred
Stock was to be the lower of (a) the average closing price of the Common Stock
on the Nasdaq SmallCap Market for the ten trading days preceding the issuance of
the Series E Preferred Stock and (b) $0.76; and (2) the Series E Preferred Stock
was not to be convertible into Common Stock (and was not to be entitled to vote
with the Common Stock on matters submitted to a vote of the holders of the
Common Stock) until such time as the Corporation's stockholders approve the
Series E Conversion Provisions to the extent required by the rules of the Nasdaq
SmallCap Market or any other national securities exchange or quotation system
upon which the Common Stock may be listed from time to time. Subject to certain
limitations, the amount of the 2003 Standby Commitment was to be reduced on a
dollar-for-dollar basis by the gross cash proceeds received by the Corporation
or any of its subsidiaries from the issuance of any equity or convertible
securities after March 12, 2003. To the extent that a draw down on the 2003
Standby Commitment resulted in the conversion price of the Series E Preferred
Stock being less than $0.76, Soros agreed to waive its right to readjust the
conversion price on the Series B Preferred Stock, the Series C Preferred Stock
and the Series D Preferred Stock in connection with the issuance of the Series E
Preferred Stock.

As a result of the March 2003 Financing, the conversion price of the
Series B Preferred Stock and the Series C Preferred Stock, all of which is held
by Soros, automatically decreased from $0.93 to $0.76. In accordance with EITF
00-27, the reduction in the conversion price of the Series C Preferred Stock
resulted in the Corporation recording a beneficial conversion feature in the
approximate amount of $225,000 as part of its financial results for the quarter
ended March 31, 2003. This non-cash charge, which is analogous to a dividend,
resulted in an adjustment to the Corporation's computation of Loss Per Share.

May 2003 Series E Preferred Stock Financing. In May 2003, Soros
purchased 1,000 shares of Series E Preferred Stock from the Corporation for an
aggregate purchase price of $1 million in full satisfaction of the 2003

Standby Commitment. The Series E Preferred Stock has a conversion price of $0.76
and incorporates the rights and preferences described above.

Until May 2002, Robert G. Stevens, a director of the Corporation, served
as an Executive Vice President of the Corporation. In connection with the
termination of his employment, the Corporation agreed to pay to Growth Insight,
a corporation wholly owned by Mr. Stevens, $7,000 per month in consideration of
consulting services to be performed from June 1, 2002 to November 30, 2002. All
such amounts have been paid.

The Corporation believes that each of the transactions described above
was on terms fair to the Corporation's and its stockholders, and at least as
favorable to the Corporation those available from unaffiliated third parties.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Corporation's directors and executive officers and
persons who beneficially own more than ten percent of the Common Stock
(collectively, the "Reporting Persons") to file with the Commission initial
reports of beneficial ownership and reports of changes in beneficial ownership
of the Common Stock. Reporting Persons are required to furnish the Corporation
with copies of all such reports. To the Corporation's knowledge, based solely on
a review of copies of such reports furnished to the Corporation and certain
representations of the Reporting Persons, the Corporation believes that during
the 2002 fiscal year all Reporting Persons complied with all applicable Section
16(a) reporting requirements, except that Alan Kane's initial statement of
beneficial ownership on Form 3 upon his appointment as a director of the
Corporation was inadvertently filed late but was filed on October 31, 2002.

ITEM 2. SERIES D CONVERSION PROVISIONS

As discussed above under the caption "Certain Relationships and Related
Transactions," on March 12, 2003, the Corporation issued to Soros 7,136.548
shares of Series D Preferred Stock.

As a Nasdaq SmallCap Market - listed issuer, the Corporation is subject
to the requirement that it obtain stockholder approval for any issuance of
securities convertible into Common Stock at a price less than the greater of
book or market value that equals 20% of the Common Stock or voting power
outstanding before such issuance. While the conversion price of the Series D
Preferred Stock was based on the market value of the Common Stock as of the date
of issuance, the Corporation understands that Nasdaq may take the position that
the inclusion of provisions relating to anti-dilution adjustments to the Series
D Preferred Stock conversion price based on future equity issuances may bring
the Series D Preferred Stock within the coverage of the Nasdaq stockholder
approval rules. Accordingly, the Board of Directors has determined that it is
advisable to submit the Series D Conversion Provisions to the approval of the
Corporation's stockholders and the maximum number of shares that may be issued
upon conversion of the Series D Preferred Stock has been set at 2,204,803 (which
represents less than 20% of the outstanding Common Stock as of the date that the
Series D Preferred Stock was issued) until such time as the Series D Conversion
Provisions are so approved. Stockholder approval under Nasdaq's rules requires
the vote of a simple majority of the shares present at any meeting and entitled
to vote. Therefore, Soros beneficially owns sufficient shares of Common Stock
(even excluding its shares of Series D Preferred Stock and Series E Preferred
Stock, which are not entitled to vote on this matter) to determine the outcome
of the vote with respect to the Series D Conversion Provisions.

As holder of a majority of the issued and outstanding Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, Soros has substantial
influence over whether, and the terms upon which, the Corporation may consummate
any subsequent round of financing. Moreover, Soros has historically provided the
Corporation with much of its needed capital. Although there can be no assurance
that the Corporation will be able to raise additional capital, the Board of
Directors believes that it will be substantially more difficult to raise
additional, either from Soros or a third party, in the event that the Series D
Conversion Provisions are not approved.

The Board of Directors recommends a vote FOR approval of the Series D
Conversion Provisions.

ITEM 3. SERIES E CONVERSION PROVISIONS

As discussed above under the caption "Certain Relationships and Related
Transactions," on May 21, 2003, the Corporation issued to Soros 1,000 shares of
Series E Preferred Stock for an aggregate purchase price of $1,000,000.

As noted above under Item 2, as a Nasdaq SmallCap Market - listed
issuer, the Corporation is subject to the requirement that it obtain stockholder
approval for any issuance of securities convertible into Common Stock at a price
less than the greater of book or market value that equals 20% of the Common
Stock or voting power outstanding before such issuance. Accordingly, the Board
of Directors has determined that it is advisable to submit the Series E
Conversion Provisions to the approval of the Corporation's stockholders and the
Series E Preferred Stock is not convertible into Common Stock until such time as
the Series E Conversion Provisions are so approved. Stockholder approval under
Nasdaq's rules requires the vote of a simple majority of the shares present at
any meeting and entitled to vote. Therefore, Soros beneficially owns sufficient
shares of Common Stock (even excluding its shares of Series D Preferred Stock
and Series E Preferred Stock, which are not entitled to vote on this matter) to
determine the outcome of the vote with respect to the Series E Conversion
Provisions.

As holder of a majority of the issued and outstanding Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, Soros has substantial
influence over whether, and the terms upon which, the Corporation may consummate
any subsequent round of financing. Moreover, Soros has historically provided the
Corporation with much of its needed capital. Although there can be no assurance
that the Corporation will be able to raise additional capital, the Board of
Directors believes that it will be substantially more difficult to raise
additional equity, either from Soros or a third party, in the event that the
Series E Conversion Provisions are not approved.

The Board of Directors recommends a vote FOR approval of the Series E
Conversion Provisions.

INDEPENDENT PUBLIC ACCOUNTANTS

The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP as independent accountants for the fiscal year ending
December 31, 2003. The Corporation's financial statements for the 2002 fiscal
year were examined and reported upon by PwC.

A representative of PwC will be present at the meeting, will be provided
the opportunity to make a statement if he or she desires to do so, and will be
available to respond to appropriate questions from stockholders.

AUDIT FEES

The aggregate fees billed for professional services rendered by PwC for
the audit of the Corporation's consolidated financial statements, including the
reviews of the Corporation's condensed consolidated financial statements
included in its quarterly reports on Form 10-Q, for fiscal 2002 and 2001 were
approximately $81,000 and $61,000, respectively.

AUDIT RELATED FEES

Other than the fees described under the caption "Audit Fees" above, PwC
did not bill any fees for services rendered to the Corporation during fiscal
2002 and 2001 for assurance and related services in connection with the audit or
review of the Corporation's consolidated financial statements.

TAX FEES

PwC did not bill the Corporation for any professional services rendered
to the Corporation during fiscal 2002 and 2001 for tax compliance, tax advice or
tax planning.

OTHER FEES

PwC did not bill the Corporation for any other professional services
rendered during fiscal 2002 and 2001 other than those described under the
caption "Audit Fees."

AUDIT COMMITTEE PRE-APPROVAL POLICIES

The Corporation's policy is that, before PwC is engaged by the
Corporation to render audit or non-audit services, the engagement is approved by
the Audit Committee.

OTHER BUSINESS

The Board of Directors currently knows of no other matters to be
presented at the meeting. However, if any other matters properly come before the
meeting, or any adjournment thereof, it is intended that proxies in the
accompanying form will be voted in accordance with the judgment of the persons
named therein.

STOCKHOLDER PROPOSALS

The Corporation's bylaws provide that a stockholder who intends to
present a proposal for stockholder vote at the Corporation's next annual meeting
must give written notice to the Secretary of the Corporation not less than 90
days prior to the date that is one year from the date of this annual meeting.
Accordingly, any such proposal must be received by the Corporation before May 2,
2004. The notice must contain specified information about the proposed business
and the stockholder making the proposal. If a stockholder gives notice of a
proposal after the deadline, the Corporation's proxy holders will have
discretionary authority to vote on this proposal when and if raised at the next
annual meeting. In addition, in order to include a stockholder proposal in the
Corporation's proxy statement and form of proxy for the next annual meeting,
such proposal must be received by the Corporation at its principal executive
offices no later than the close of business on April 2, 2004 and must otherwise
comply with the rules of the Commission for inclusion in the proxy materials.

COST OF SOLICITATION

The cost of soliciting proxies in the accompanying form has been or will
be borne by the Corporation. Directors, officers and employees of the
Corporation may solicit proxies personally or by telephone or other means of
communications. Although there is no formal agreement to do so, arrangements may
be made with brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals, and the Corporation may
reimburse them for any attendant expenses.

INCORPORATION OF FINANCIAL INFORMATION

The following financial statements and other portions of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2002 as
filed with the Commission on March 28, 2003 (the "Form 10-K"), and the
Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2003, filed with the Commission on April 30, 2003 (the "Form 10-Q"), copies
of which are being delivered with the Proxy Statement, are incorporated by
reference herein:

. financial statements of the Corporation appearing in
Part II, Item 8 of the Form 10-K and in Part I, Item 1
of the Form 10-Q.

All documents filed with the Commission by the Corporation pursuant to
sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
subsequent to the date of this Proxy Statement and prior to the date of the
meeting are incorporated herein by reference. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED
PROXY AND RETURN IT IN THE ENCLOSED STAMPED AND ADDRESSED ENVELOPE AS PROMPTLY
AS POSSIBLE.

By Order of the Board of Directors,

E. KENNETH SEIFF
President and Chief Executive Officer

Dated: July 2, 2003

[FRONT]

BLUEFLY, INC.
PROXY
Annual Meeting, August 1, 2003

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints E. KENNETH SEIFF and JONATHAN MORRIS as
Proxies, each with full power to appoint his substitute, and hereby authorizes
them to appear and vote as designated on the reverse side, all shares of Common
Stock, Series A Preferred Stock Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock of Bluefly, Inc. held on record by the
undersigned on June 25, 2003 at the Annual Meeting of Stockholders to be held on
August 1, 2003, and any adjournments thereof.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 and 3.

(Continued and to be signed on the reverse side.)

[X] Please mark your votes as in this example.

VOTE FOR VOTE WITHHELD
all nominees listed at AUTHORITY
right except as marked to from all
the contrary below nominees FOR AGAINST ABSTAIN

1.ELECTION
OF DIRECTORS [ ] [ ] Nominees: 2. PROPOSAL TO APPROVE [ ] [ ] [ ]
E. Kenneth Sieff THE SERIES D CONVERSION
Josephine Esquivel PROVISIONS
FOR, EXCEPT __________________ Alan Kane
VOTE Martin Miller 3. PROPOSAL TO APPROVE
WITHHELD AS __________________ Robert G. Steven THE SERIES E CONVERSION
TO THE PROVISIONS
FOLLOWING __________________ [ ] [ ] [ ]
NOMINEES (IF 4. IN THEIR DISCRETION,
ANY): __________________ THE NAMED PROXIES MAY
VOTE ON SUCH OTHER
__________________ BUSINESS AS MAY PROPERLY
COME BEFORE THE ANNUAL
MEETING, OR ANY
ADJOURNMENTS OR [ ] [ ] [ ]
POSTPONEMENTS THEREOF.

[ ] [ ] [ ]

The undersigned acknowledges receipt of the accompanying
Proxy Statement dated July 2, 2003.

SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE
ANNUAL MEETING IN ACCORDANCE WITH THE STOCKHOLDER'S
SPECIFICATIONS ABOVE. THE PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED
AT THE TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL
MEETING OF STOCKHOLDERS TO THE UNDERSIGNED.

------------------------ ------------------------- DATE__________________
SIGNATURE OF STOCKHOLDER SIGNATURE IF HELD JOINTLY
NOTE: Please mark, date, sign and return this Proxy promptly using the enclosed
envelope. When shares are held by joint tenants, both should sign. If signing as
an attorney, executor, administrator, trustee or guardian, please give full
title. If a corporation or partnership, please sign in corporate or partnership
name by an authorized person.

Exhibit A

CHARTER OF THE AUDIT COMMITTEE

OF THE

BOARD OF DIRECTORS

BLUEFLY, INC.

I. AUDIT COMMITTEE PURPOSE

The Audit Committee of the Board of Directors of Bluefly, Inc. (the
"Company") is appointed by the Board of Directors to assist the Board of
Directors in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:

. Monitor and review the processes pursuant to which the Company's
financial statements are prepared and audited, the fairness of those
financial statements and monitor and ensure the adequacy of the
Company's systems of internal controls regarding finance, accounting,
and legal compliance.

. Appoint and monitor the independence and performance of the Company's
independent auditors.

. Provide an avenue of communication between the independent auditors,
management and the Board of Directors.

The Audit Committee has the authority to conduct or authorize investigations
into any matter within the scope of its responsibilities, and it shall have
direct access to the independent auditors as well as anyone in the
organization. The Audit Committee has the ability to retain, at the Company's
expense, special legal, accounting, or other financial consultants or experts
it deems necessary in the performance of its duties or to assist in the
conduct of any investigation.

II. AUDIT COMMITTEE COMPOSITION AND MEETINGS

Audit Committee members shall meet the requirements of the National
Association of Securities Dealers. The Audit Committee shall be comprised of
three or more directors as determined by the Board of Directors, each of whom
shall be independent non-executive directors, free from any relationship that
would interfere with the exercise of his or her independent judgment. All
members of the Audit Committee shall have a basic understanding of finance
and accounting and be able to read and understand fundamental financial
statements, and at least one member of the Audit Committee shall have
accounting or related financial management expertise. Members of the Audit
Committee

may enhance their familiarity with finance and accounting by participating in
educational programs.

Audit Committee members shall be appointed by the Board of Directors. If an
audit committee Chair is not designated or present, the members of the Audit
Committee may designate a Chair by majority vote of the Audit Committee
membership.

The Audit Committee will have regular meetings at least four times per year
(which should coincide with, and precede, the Company's public announcement
of its quarterly and annual results) or more frequently as circumstances
dictate. The Audit Committee should meet privately and separately, on a
regular basis, with management and with the independent auditors, to discuss
any matters that the Audit Committee or each of these groups believes should
be discussed.

III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES

Review Procedures

1. Review and reassess the adequacy of this Charter at least annually.
Submit this Charter to the Board of Directors for approval and have it
published in a proxy or information statement at least every three years
in accordance with the Securities and Exchange Commission regulations.

2. Review the Company's annual audited financial statements and related
footnotes prior to filing or distribution. The review should include
separate discussions with management and with the independent auditors
of significant issues and disagreements regarding accounting principles,
practices and judgments, any significant difficulties encountered during
the course of the audit, including any restrictions on the scope of work
or access to required information and the effect of using different
accounting principles, practices and judgments.

3. Review and discuss with management and with the independent auditors the
Company's quarterly earnings releases and reports prior to public
distribution.

4. Review any reports or other documents filed with the Securities and
Exchange Commission that include public financial disclosures prior to
filing or distribution and discuss with management, if appropriate,
whether the information contained in these documents is consistent with
the information contained in the Company's financial statements.

5. In consultation with management and the independent auditors, consider
the integrity of the Company's financial reporting processes and
adequacy of controls. Discuss significant financial risk exposures and
the steps management has taken to monitor, control and report such
exposures. Review significant findings prepared by the independent
auditors together with management's responses including the status of
previous recommendations.

6. Review written reports and significant findings prepared by the
independent auditors, if any, and if appropriate, discuss the
information contained in the reports with the independent auditors.
Review management's responses, if any, to such reports and findings,
including the status of previous recommendations.

7. Receive copies of reports to management prepared by the independent
auditors and management's responses to any such reports. Obtain
confirmation from the independent auditors that the Company is in
compliance with its financial reporting requirements.

8. Review, annually, the procedures, structure, and qualifications of the
Company's financial reporting personnel. Discuss with the independent
auditors the performance of the financial reporting personnel and any
recommendations the independent auditors may have.

9. Review and approve the partners or managers of the independent auditors
who were engaged on the Company's audit.

10. To the extent that they have not been reviewed by the Compensation
Committee of the Board of Directors or another committee of the Board of
Directors composed of independent directors, review related party
transactions and transactions involving conflicts of interest with
officers and directors, whenever possible in advance of the creation of
such transaction or conflict. Cause to be reviewed compensation,
expenses, perquisites and related party transactions with officers and
directors to verify that they are in accordance with corporate policies
and with any agreements or arrangements approved by the Board of
Directors.

Independent Auditors

11. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors, and the Audit Committee has the
ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditors. The Audit Committee shall
review the independence and performance of the independent auditors and
the experience and qualifications of the senior members of the
independent auditor team. The Audit Committee shall annually appoint the
independent auditors or approve any discharge of the independent
auditors when circumstances warrant.

12. Approve the audit fees and other significant compensation to be paid to
the independent auditors.

13. Approve the retention and related fees of the independent auditors for
any non-audit services and consider whether the provision of these other
services is compatible with maintaining the auditors' independence
consistent with applicable standards.

14. On an annual basis, the Audit Committee should receive from the
independent auditors a formal written statement delineating all
relationships between the

independent auditors and the Company and representing to the Company the
independent auditors' independence consistent with applicable standards.
The Audit Committee should discuss with the independent auditors the
disclosed relationships or services that may impact the objectivity and
independence of the auditors, and take, or recommend that the Board of
Directors take, appropriate action to ensure the independence of the
auditors.

15. Review the independent auditors' audit plan - discuss scope, staffing,
reliance upon management and audit approach.

16. Discuss certain matters required to be communicated to audit committees
in accordance with the American Institute of Certified Public
Accountants: A Statement of Auditing Standards No. 61 including such
matters as (i) the consistency of application of the Company's
accounting policies; (ii) the completeness of information contained in
the financial statements and related disclosures; (iii) the selection of
new or changes to the Company's accounting policies; (iv) estimates,
judgments and uncertainties; (v) unusual transactions and (vi)
accounting policies relating to significant financial statements items,
including the timing of transactions and the period in which they are
recorded.

17. Obtain and consider the independent auditors' judgments about the
quality and appropriateness of the Company's accounting principles as
applied in its financial reporting; the discussion should include such
issues as the degree of aggressiveness or conservatism of the Company's
accounting principles and underlying estimates the clarity of the
Company's financial disclosures and other significant decisions made by
management in preparing the financial disclosures.

Legal Compliance

18. On at least an annual basis, review, with the Company's counsel, any
legal matters that could have a significant impact on the Company's
financial statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.

Other Audit Committee Responsibilities

19. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's
annual proxy statement.

20. Report Audit Committee actions to the Board of Directors on a regular
basis including any recommendations the Audit Committee deems
appropriate.

21. Perform any other activities consistent with this Charter, the Company's
By-laws and governing law, as the Audit Committee or the Board of
Directors deems necessary or appropriate.

22. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.

23. Review financial and accounting personnel succession planning within the
Company.