                                  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 "Company"), of proxies to be used at the annual meeting of
stockholders of the Company to be held at 5:00 p.m., local time, on July 29,
2004, at the Company'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 six directors of the Company to hold office until the next
        annual meeting of stockholders;

    2.  To approve amendments (the "Plan Amendments") to the Bluefly, Inc. 1997
        Stock Option Plan, as amended (the "Plan"), which would (a) increase the
        aggregate number of shares of Common Stock that may be the subject of
        options granted pursuant to the Plan from 12,200,000 shares to
        14,200,000 shares and (b) increase the aggregate number of shares of
        Common Stock that may be the subject of options granted pursuant to the
        Plan to a participant in a fiscal year from 1,000,000 to 2,000,000;

    3.  To approve the conversion provisions of certain convertible promissory
        notes issued to the Company's majority stockholders (the "Note
        Conversion Provisions"); 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 Company's Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), shares of the Company's Series B Convertible Preferred Stock, par value
$.01 per share (the "Series B Preferred Stock"), shares of the Company's Series
C Convertible Preferred Stock, par value $.01 per share (the "Series C Preferred
Stock"), shares of the Company's Series D Preferred Stock, par value $.01 per
share (the "Series D Preferred Stock"), and shares of the Company's Series E
Preferred Stock, par value $.01 per share (the "Series E Preferred Stock," and,
together with the Common Stock, the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock,
the "Voting 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 Plan Amendments; (iii) for the approval of the Note
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
Company, 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 June 29, 2004.

                                     VOTING

        Holders of record Voting Stock as of the close of business on June 22,
2004 (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,

<PAGE>

Series D Preferred Stock and Series E 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. As of the Record Date: (a) each share of Series A Preferred
Stock was convertible into approximately 8.6 shares of Common Stock, and
therefore, entitles the holder thereof to nine votes on all matters to come
before the meeting; (b) each share of Series B Preferred Stock was convertible
into approximately 3.1 shares of Common Stock and, therefore, entitles the
holder thereof to four votes on all matters to come before the meeting; and (c)
each share of Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred 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. None of the Voting 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 14,580,621 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 four
votes, 1,000 shares of Series C Preferred Stock, each entitled to 1,316 votes,
7,136.548 shares of Series D Preferred Stock, each entitled to 1,316 votes and
1,000 shares of Series E Preferred Stock, each entitled to 1,316 votes. The
total number of votes entitled to be cast at the meeting is, therefore,
66,301,974. 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 Voting Stock, present in person or represented by proxy at the meeting,
voting together as a class, is necessary to approve the Plan Amendments and the
Note Conversion Provisions; and the favorable vote of a plurality of the votes
cast by holders of shares of Voting 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 Company. 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 and the approval of the Plan Amendments and the
Note Conversion Provisions. The Board of Directors recommends a vote FOR each of
the proposals set forth above.

                          ITEM 1. ELECTION OF DIRECTORS

        Six 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 Company. 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 Company and the Preferred Designees:

                                        2
<PAGE>

                   NOMINEES FOR DIRECTOR; PREFERRED DESIGNEES

        NAME OF DIRECTOR                               AGE   DIRECTOR OF THE
                                                              COMPANY SINCE

        E. Kenneth Seiff                                40   1991 to present

        Melissa Payner-Gregor                           45   2003 to present

        Josephine Esquivel                              48   2001 to present

        Alan Kane                                       62   2002 to present

        Martin Miller                                   73   1991 to present

        Robert G. Stevens                               50   1996 to present

        Neal Moszkowski (Series A Preferred Designee)   38   1999 to present

        David Wassong (Series B Preferred Designee)     33   2000 to present

E. Kenneth Seiff, the Company's founder, has served as its Chairman of the
Board, Chief Executive Officer and Treasurer since its inception in April 1991.
He also served as the President of the Company from October 1996 to September
2003.

Melissa Payner-Gregor has served as the Company's President since September
2003. From December 2000 to March 2003, Ms. Payner-Gregor served as CEO and
President of Spiegel Catalog. She was also a board member of The Spiegel Group,
Inc. ("Spiegel") from December 2000 to March 2003. From 1997 to 2000, Ms.
Payner-Gregor was the Senior Vice President of Merchandising and Advertising of
Spiegel. Spiegel filed a plan of reorganization under Chapter 11 of the Federal
Bankruptcy code in March 2003. From 1995 to 1997, Ms. Payner-Gregor was
President and a board member of Chico FAS, Inc. Ms. Payner-Gregor has also held
senior executive positions with Guess?, Inc., Pastille (a Division of Neiman
Marcus) and Henri Bendel.

Josephine Esquivel has served as a director since 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
Company J.P. Stevens & Co.

Alan Kane has served as a director since 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. His experience in the retailing industry
includes the following: President and Chief Executive Officer of Grossman's
Eastern Division, a building materials retailer, from 1993 to 1994, President
and Chief Executive Officer of Pergament Home Centers, a home center retailer,
from 1991 to 1993, Private Consultant in the retailing industry from 1987 to
1991, and President and Chief Executive Officer of Hahne & Company, a department
store chain and division of May Company, from 1979 to 1987. He has also served
as a member of the Board of Directors of Circuit City Stores, Inc., an
electronics retailer, since 2003.

Martin Miller has served as a director since July 1991. Since July 1999, Mr.
Miller has served as the President of The Terbell Group, Inc., a consulting
company. From October 1997 to April 2003, Mr. Miller was a partner in the
Belvedere Fund, L.P., a fund of hedge funds.

                                        3
<PAGE>

Robert G. Stevens has served as a director of the Company since December 1996.
From December 1999 to May 2002, Mr. Stevens also served as an Executive Vice
President of the Company. 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. Since May 2003, Mr. Stevens has served 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 since August 1999 and is the Series A
Designee. Mr. Moszkowski is managing director of the Soros Private Equity
division of Soros Fund Management LLC ("Soros Private Equity"), where he has
been 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 Life Sciences Holdings, Inc., a medical products company,
and Jet Blue Airways Corporation, a low fare airline.

David Wassong has served as a director since February 2001 and is the Series B
Preferred Designee. Mr. Wassong is a managing director of Soros Private Equity,
where he has been 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.

                              CORPORATE GOVERNANCE

        The Board of Directors reviewed the independence of each of the
Company's directors in February 2004 on the basis of the standards adopted by
Nasdaq. In this review, the Board considered transactions and relationships
between the Company, on the one hand, and each director, members of his or her
immediate family, and other entities with which he or she is affiliated, on the
other hand. The purpose of this review was to determine which of such
transactions or relationships were inconsistent with a determination that the
director is independent under the Nasdaq rules. As a result of this review, the
Board of Directors affirmatively determined that Messrs. Miller and Kane and Ms.
Esquivel are each "independent directors" within the meaning of the Nasdaq
rules. Because Soros owns a majority of the voting power of the Company's
capital stock, the Board determined that it was appropriate for the Company to
rely upon the "Controlled Company" exemption provided by Nasdaq rules.
Accordingly, Nasdaq rules do not require that a majority of the Company's Board
of Directors be independent, and, similarly, do not require that all of the
members of the Nominating Committee (as defined below) be independent.

        During the fiscal year ended December 31, 2003, the Board of Directors
met, or acted by unanimous written consent, on twelve 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 2003 fiscal
year. The Company does not have a policy with regard to the attendance by
directors at the Company's annual meeting of stockholders. Mr. Seiff attended
last year's annual meeting of stockholders.

        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 20 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") in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Audit

                                        4
<PAGE>

Committee is comprised of Martin Miller, Josephine Esquivel and Alan Kane. The
Audit Committee is responsible for the appointment of the Company'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, a copy
of which was filed as an annex to the Company's proxy statement for its 2003
annual meeting. The Board has determined that Ms. Esquivel and Mr. Kane are each
"audit committee financial experts" within the meaning of the Securities and
Exchange Commission's rules and that each member of the Audit Committee is
"independent," as that term is used in Item 7(d)(3)(iv) of Schedule 14A
promulgated under the Exchange Act. During the fiscal year ended December 31,
2003, the Audit Committee, met, or acted by unanimous written consent, on six
occasions. 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 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
Company's 1997 and 2000 Stock Option Plans, establishes the compensation levels
for executive officers and key personnel and oversees the Company's bonus plans.
During the fiscal year ended December 31, 2003, the Option Plan/Compensation
Committee, met, or acted by unanimous written consent, on twelve occasions.

        In June 2004, the Board of Directors established a Nominating and
Governance Committee ("Nominating Committee"), consisting of Alan Kane and David
Wassong. Mr. Kane is an independent director under Nasdaq rules. While Mr.
Wassong is not an independent director under Nasdaq rules, he is permitted to
sit on the Nominating Committee pursuant to the "Controlled Company" exemption
discussed above. The purposes of the Nominating Committee are to assist the
Board of Directors by identifying individuals qualified to become directors, and
setting criteria for, and evaluating, candidates for director nominees, and to
recommend to the Board of Directors the director nominees for election at the
annual meetings of stockholders or for appointments to fill vacancies; recommend
to the Board of Directors nominees for each committee of the Board; advise the
Board of Directors about appropriate composition of the Board and its
committees; advise the Board of Directors about and recommend to the Board of
Directors appropriate corporate governance practices and to assist the Board of
Directors in implementing those practices; lead the Board of Directors in its
annual review of the performance of the Board and its committees; and perform
such other functions as the Board of Directors may assign to it from time to
time. The duties of the Nominating Committee are fully set forth in the charter
adopted by that committee, a copy of which is included as an annex to this proxy
statement. Because the Nominating Committee was established in 2004, no meetings
of the committee were held in 2003.

        The Nominating Committee will consider many factors when evaluating
candidates for the nomination to the Board of Directors, with the goal of
fostering a Board of Directors comprised of directors with a variety of
experience and backgrounds. Important factors that will be considered as part of
the Nominating Committee's evaluation include (without limitation) diversity,
skill, specialized expertise, experience, business acumen, understanding of
strategy and policy-setting. Depending upon the Company's then-current needs,
certain factors may be weighed more or less heavily. In considering candidates
for the Board of Directors, the Nominating Committee will consider the entirety
of each candidate's credentials and does not have any specific minimum
qualifications that must be met. However, the Nominating Committee does believe
that all members of the Board of Directors should have the highest character and
integrity and sufficient time to devote to Company matters.

        The Nominating Committee will consider persons recommended by
stockholders as candidates for nomination as a director. Recommendations should
be submitted to the Secretary of the Company. Each recommendation should include
a personal biography of the suggested candidate, an indication of the background
or experience that qualifies such person for consideration, and a statement that
such person has agreed to serve if nominated and elected. Stockholders who wish
to nominate a person for election to the Board of Directors themselves, rather
than recommending a candidate to the Nominating Committee for potential
nomination by the Board of Directors, must comply with applicable law.

                                        5
<PAGE>

        Communication by stockholders may be made to any or all of the members
of the Board of Directors by writing directly to them c/o Bluefly, Inc., 42 West
39th Street, New York, New York 10018. No inquiry addressed to a director will
be screened by the Company, unless it is believed to pose a security risk.
Assuming that no security risk is posed, the communication will be forwarded
directly to the director to whom it was addressed.

        The Company has adopted a Code of Ethics applicable to all directors,
officers and employees, which meets the requirements of a "code of ethics" as
defined in Item 406 of Regulation S-K, and maintains procedures for the
confidential, anonymous submission by employees of complaints regarding the
Company's accounting, internal accounting controls, auditing matters and other
issues. A copy of the Company's code of ethics is available on the Company's Web
site at www.bluefly.com/codeofethics. Any amendment to or waiver of a provision
of the code of ethics that applies to the Company's principal executive officer,
principal financial officer, principal accounting officer, controller or persons
performing similar functions and relates to elements of the code specified in
the rules of the Securities and Exchange Commission will be posted on the Web
site.

             REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

        The Audit Committee met and held discussions with management and
PricewaterhouseCoopers LLP ("PwC"). The Audit Committee reviewed and discussed
the audited consolidated financial statements for fiscal 2003 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 Company'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 Company.

        Based on the Audit Committee's review and discussions described above,
the Audit Committee recommended to the Board that the Company's audited
consolidated financial statements for fiscal 2003 be included in the Company's
Annual Report on Form 10-K for fiscal 2003 filed with the Securities and
Exchange Commission.

                                         AUDIT COMMITTEE

                                         ALAN KANE
                                         MARTIN MILLER
                                         JOSEPHINE ESQUIVEL

                                        6
<PAGE>

                                 SHARE OWNERSHIP

COMMON STOCK

        The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of the Record Date,
for (i) each person who is known by the Company to own beneficially more than 5%
of the Common Stock, (ii) each of the Company'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                          2,580,990/(3)/ /(4)/       15.18%
Josephine Esquivel                           11,250/(5)/                  *
Alan Kane                                     7,500/(6)/                  *
Martin Miller                                31,250/(7)//(8)/             *
Neal Moszkowski /(9)/                        18,750/(10)/                 *
Melissa Payner-Gregor                       338,889/(11)/             2.27%
David Wassong /(9)/                          11,250/(12)/                 *
Robert G. Stevens                           224,939/(13)/             1.52%
Patrick C. Barry                          1,295,745/(14)/             8.16%
Jonathan B. Morris /(19)/                       100                       *
SFM Domestic Investments LLC              1,576,833/(15)/             9.87%
Quantum Industrial Partners LDC        4 48,188,318/(16)/            83.83%
George Soros                           4 49,765,151/(17)/            84.51%
All directors and executive
 officers as a group (9 persons)          4,520,664/(18)/            23.12%

----------
    *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)     Includes 3,000 shares of Common Stock held by Nicole Seiff, the wife of
        E. Kenneth Seiff, as to which Mr. Seiff disclaims beneficial ownership.
(4)     Includes 2,425,833 shares of Common Stock issuable upon exercise of
        options granted under the Plan.
(5)     Includes 11,250 shares of Common Stock issuable upon exercise of options
        granted under the Plan.
(6)     Includes 7,500 shares of Common Stock issuable upon exercise of options
        granted under the Plan.
(7)     Includes 28,250 shares of Common Stock issuable upon exercise of options
        granted under the Plan.
(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's and Wassong's address is c/o Soros Fund Management
        LLC, 888 Seventh Avenue, 28th floor, New York, New York 10106. Messrs.
        Moszkowski and Wassong are the designees of the

                                        7
<PAGE>

        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 (18) and (19) below) and none of such shares are
        included in the table above as being beneficially owned by them.
(10)    Includes 8,750 shares of Common Stock issuable upon exercise of options
        granted under the Plan.
(11)    Includes 338,889 shares of Common Stock issuable upon exercise of
        options granted under the Plan.
(12)    Includes 11,250 shares of Common Stock issuable upon exercise of options
        granted under the Plan.
(13)    Includes 192,000 shares of Common Stock issuable upon exercise of
        options granted under the Plan.
(14)    Includes 1,290,745 shares of Common Stock issuable upon exercise of
        options granted under the 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;
        41,710 shares of Common Stock issuable upon conversion of 31.7 shares of
        Series E Preferred Stock; 172,995 shares of Common Stock; 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; 1,274,078 shares of Common Stock issuable upon conversion of
        968.3 shares of Series E Preferred Stock; 5,287,082 shares of Common
        Stock; 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 an exempted limited duration company formed
        under the laws of the Cayman Islands. QIH Management Investor, L.P.
        ("QIHMI"), an investment advisory firm organized as a Delaware limited
        partnership, is a minority shareholder of, 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 Fund Management LLC,
        a Delaware limited liability company ("SFM"), is the sole managing
        member of QIH Management. George Soros is the Chairman of SFM and, in
        such capacity, may be deemed to have voting and dispositive power over
        securities held for the account of QIP. 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 of QIHMI, QIH Management, SFM, LLC and
        Mr. Soros has its or his principal office at 888 Seventh Avenue, 33rd
        Floor, New York, New York 10106. QIP's principal address is Kaya
        Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. 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 4,324,468 shares of Common Stock issuable upon exercise of
        options granted under the Plan.
(19)    Mr. Morris resigned as an executive officer of the Company in November
        2003.

                                        8
<PAGE>

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 Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series A Preferred Stock of the Company, (ii) each of the
Company'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 /(6)/                            -                    -
Melissa Payner-Gregor                               -                    -
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 Fund Management
        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. 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 an exempted limited duration company
        formed under the laws of the Cayman Islands. QIH Management Investor,
        L.P. ("QIHMI"), an investment advisory firm organized as a Delaware
        limited partnership, is a minority shareholder of, 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 Fund
        Management LLC, a Delaware limited liability company ("SFM"), is the
        sole managing member of QIH Management. George Soros is the Chairman of
        SFM and, in such capacity, may be deemed to have voting and dispositive
        power over securities held for the account of QIP QIP is a Cayman
        Islands limited duration company with its principal address at Kaya
        Flamboyan 9, Willemstad, Curacao, 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. Mr. Soros, the sole
        shareholder of QIH Management, has entered into an

                                        9
<PAGE>

        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. Mr. Soros, as Chairman of SFM LLC, may be deemed to have sole
        voting power and sole investment power with respect to the QIP A Shares.
        Accordingly, each of QIHMI, QIH Management, SFM LLC and Mr. Soros may be
        deemed to be 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.
(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.
(6)     Mr. Morris resigned as an executive officer of the Company in
        November 2003.

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 Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series B Preferred Stock of the Company, (ii) each of the
Company'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                                    -                    -
Melissa Payner-Gregor                               -                    -
Jonathan B. Morris /(6)/                            -                    -
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 Fund Management
        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. Messrs. Moszkowski and Wassong disclaim
        beneficial

                                       10
<PAGE>

        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 an exempted limited duration company
        formed under the laws of the Cayman Islands. QIH Management Investor,
        L.P. ("QIHMI"), an investment advisory firm organized as a Delaware
        limited partnership, is a minority shareholder of, 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 Fund
        Management LLC, a Delaware limited liability company ("SFM"), is the
        sole managing member of QIH Management. George Soros is the Chairman of
        SFM and, in such capacity, may be deemed to have voting and dispositive
        power over securities held for the account of QIP QIP is a Cayman
        Islands limited duration company with its principal address at Kaya
        Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. The sole general
        partner of QIP is QIHMI, which 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. Mr. Soros, the sole
        shareholder of QIH Management, 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. Mr. Soros, as
        Chairman of SFM LLC, may be deemed to have sole voting power and sole
        investment power with respect to the QIP B Shares. Accordingly, each of
        QIHMI, QIH Management, SFM LLC and Mr. Soros may be deemed to be
        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.
(5)     Represents both (i) 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 Shares. The principal
        office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
        10106.
(6)     Mr. Morris resigned as an executive officer of the Company in November
        2003.

                                       11
<PAGE>

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 Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series C Preferred Stock of the Company, (ii) each of the
Company'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                                    -                    -
Melissa Payner-Gregor                               -                    -
Jonathan B. Morris /(6)/                            -                    -
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 Fund Management
        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. 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 an exempted limited duration company
        formed under the laws of the Cayman Islands. QIH Management Investor,
        L.P. ("QIHMI"), an investment advisory firm organized as a Delaware
        limited partnership, is a minority shareholder of, 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 Fund
        Management LLC, a Delaware limited liability company ("SFM"), is the
        sole managing member of QIH Management. George Soros is the Chairman of
        SFM and, in such capacity, may be deemed to have voting and dispositive
        power over securities held for the account of QIP QIP is a Cayman
        Islands limited duration company with its principal address at Kaya
        Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. The sole general
        partner of QIP is QIHMI, which is vested with investment discretion with
        respect to portfolio assets held for the account of QIP. The

                                       12
<PAGE>

        sole general partner of QIHMI is QIH Management. Mr. Soros, the sole
        shareholder of QIH Management, 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. Mr. Soros, as
        Chairman of SFM LLC, may be deemed to have sole voting power and sole
        investment power with respect to the QIP C Shares. Accordingly, each of
        QIHMI, QIH Management, SFM LLC and Mr. Soros may be deemed to be
        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.
(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.
(6)     Mr. Morris resigned as an executive officer of the Company in November
        2003.

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 Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series D Preferred Stock of the Company, (ii) each of the
Company'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                                    -                   -
Melissa Payner-Gregor                               -                   -
Jonathan B. Morris /(6)/                            -                   -
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%.

(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.

                                       13
<PAGE>

(3)     Messrs. Moszkowski's and Wassong's address is c/o Soros Fund Management
        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. Messrs. Moszkowski and Wassong disclaim
        beneficial ownership of the shares of Series D 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 D Preferred Stock held in the name of
        QIP (the "QIP D Shares"). QIP is an exempted limited duration company
        formed under the laws of the Cayman Islands. QIH Management Investor,
        L.P. ("QIHMI"), an investment advisory firm organized as a Delaware
        limited partnership, is a minority shareholder of, 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 Fund
        Management LLC, a Delaware limited liability company ("SFM"), is the
        sole managing member of QIH Management. George Soros is the Chairman of
        SFM and, in such capacity, may be deemed to have voting and dispositive
        power over securities held for the account of QIP QIP is a Cayman
        Islands limited duration company with its principal address at Kaya
        Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. The sole general
        partner of QIP is QIHMI, which 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. Mr. Soros, the sole
        shareholder of QIH Management, 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. Mr. Soros, as
        Chairman of SFM LLC, may be deemed to have sole voting power and sole
        investment power with respect to 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 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.
(6)     Mr. Morris resigned as an executive officer of the Company in November
        2003.

                                       14
<PAGE>

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 Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series E Preferred Stock of the Company, (ii) each of the
Company'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                                     -                  -
Melissa Payner-Gregor                                -                  -
Jonathan B. Morris /(6)/                             -                  -
Quantum Industrial Partners LDC                  968.3/(4)/          96.8%
George Soros                                     1,000/(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 Fund Management
        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. Messrs. Moszkowski and Wassong disclaim
        beneficial ownership of the shares of Series D 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 E Preferred Stock held in the name of
        QIP (the "QIP E Shares"). QIP is an exempted limited duration company
        formed under the laws of the Cayman Islands. QIH Management Investor,
        L.P. ("QIHMI"), an investment advisory firm organized as a Delaware
        limited partnership, is a minority shareholder of, 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 Fund
        Management LLC, a Delaware limited liability company ("SFM"), is the
        sole managing member of QIH Management. George Soros is the Chairman of
        SFM and, in such capacity, may be deemed to have voting and dispositive
        power over securities held for the account of QIP QIP is a Cayman
        Islands limited duration company with its principal address at Kaya
        Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. The sole general
        partner of QIP is QIHMI, which is vested with investment discretion with
        respect to portfolio assets held for the account of QIP. The

                                       15
<PAGE>

        sole general partner of QIHMI is QIH Management. Mr. Soros, the sole
        shareholder of QIH Management, 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. Mr. Soros, as
        Chairman of SFM LLC, may be deemed to have sole voting power and sole
        investment power with respect to the QIP E Shares. Accordingly, each of
        QIHMI, QIH Management, SFM LLC and Mr. Soros may be deemed to be
        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. (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 ED Shares. The principal
        office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
        10106. (6) Mr. Morris resigned as an executive officer of the Company in
        November 2003.

                        EXECUTIVE OFFICERS OF THE COMPANY

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

Name                    Age     Positions and Offices Presently Held
----                    ---     ------------------------------------
E. Kenneth Seiff         40     Chairman of the Board of Directors, Chief
                                Executive Officer and Treasurer

Melissa Payner-Gregor    45     President

Patrick C. Barry         41     Chief Financial Officer and Chief Operating
                                Officer
----------

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

Patrick C. Barry served as an Executive Vice President from July 1998 to
September 2000 and as our Chief Financial Officer since August 1998. In
September 2000, Mr. Barry assumed the role of Chief Operating Officer and has
also served us in that capacity since such time. From June 1996 to July 1998,
Mr. Barry served as the Chief Financial Officer and the Vice President of
Operations of Audible, Inc., an Internet commerce and content provider. From
March 1995 to June 1996, Mr. Barry was the 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.

                                       16
<PAGE>

             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 Company in attracting and retaining outstanding executives and senior
management personnel. The design and implementation of such program continually
evolves as the Company 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
Company's financial performance by rewarding the achievement of short-term and
long-term objectives of the Company.

        Compensation Program Components. Currently, the three principal
components of the Company'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 Company'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, based on individual and corporate goals that are set
annually and, in some instances, every six months. Bonuses paid to each
executive are 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 three or four
years (often 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 Company. The Option Plan/Compensation Committee
believes that granting stock options creates an incentive to promote the
long-term interests of the Company and aligns the economic benefit to be derived
therefrom by the Company's executives with those of the Company'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 Company.

        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
Company. 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 2003, Mr. Seiff received an annual base
salary of $275,000.


        Short-term Incentive Compensation. Mr. Seiff received a performance
bonus of $75,000 for fiscal 2003.

        Long-term Incentive Compensation. During fiscal 2003, Mr. Seiff was
granted 1,000,000 options to purchase Common Stock.

                                       17
<PAGE>

        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 Company'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 Company 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 Company 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 sets forth information concerning the compensation
paid by us during the fiscal years ended December 31, 2003, 2002 and 2001 to our
Chief Executive Officer and our three other executive officers who received
total compensation from us in excess of $100,000 in the year 2003 (the "Named
Executive Officers").

<TABLE>
<CAPTION>
                                                                                              LONG TERM
                                                         ANNUAL COMPENSATION                 COMPENSATION
                                            ----------------------------------------------   ------------
                                                                                              SECURITIES
                                                                              OTHER ANNUAL    UNDERLYING
NAME AND PRINCIPAL POSITION          YEAR     SALARY           BONUS          COMPENSATION      OPTIONS
---------------------------          ----   ---------        ---------        ------------   ------------
<S>                                  <C>    <C>              <C>              <C>               <C>
E. Kenneth Seiff                     2003   $ 274,999        $  75,000        $      2,926      1,000,000/(1)/
Chief Executive Officer and          2002   $ 274,999        $  50,000/(4)/   $      3,782      1,000,000/(1)/
 Treasurer                           2001   $ 267,308        $  81,750        $      1,000             --

Patrick C. Barry                     2003   $ 225,000               --        $        590             --
Chief Financial Officer and Chief    2002   $ 224,999        $  35,000/(4)/   $        590      1,000,000/(1)/
 Operating Officer                   2001   $ 249,039/(2)/   $  44,000/(5)/   $        590             --

Melissa Payner-Gregor /(7)/          2003   $ 112,500        $      --        $         --      1,200,000/(1)//(6)/

President                            2002   $      --        $      --        $         --             --
                                     2001   $      --        $      --        $         --             --

Jonathan B. Morris(3)                2003   $ 225,000        $      --        $        320             --
Executive Vice President             2002   $ 224,369        $  35,000/(4)/   $        330      1,000,000/(1)//(3)/
                                     2001   $ 249,039/(2)/   $  40,000/(5)/   $        330             --
</TABLE>

(1)     Options granted at an exercise price equal to 100% of the fair market
        value on the date of grant.
(2)     Includes amounts paid pursuant to retroactive salary adjustments.
(3)     Mr. Morris resigned as an executive officer of the Company in November
        2003.
(4)     Represents amounts earned in 2002, but paid in fiscal 2003.

                                       18
<PAGE>

(5)     Represents amounts earned in 2001, but paid in fiscal 2002 and 2003.
(6)     Of this amount, options to purchase 200,000 shares are subject to
        stockholder approval of the Plan Amendments.
(7)     Ms. Payner-Gregor commenced employment with the Company in September
        2003.

EMPLOYMENT AGREEMENTS

        The Company has entered into employment agreements with each of the
Named Executive Officers who is currently employed by it. 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.
Ms. Payner-Gregor's annual bonus for each fiscal year during the term of her
agreement, cannot be less than 3% of the Company's net income for such fiscal
year, subject to a cap equal to 200% of her base salary. Her bonus for 2004 is
subject to a minimum floor of $100,000. Ms. Payner-Gregor's employment agreement
provided that, in the event that she relocated herself and her family to the New
York City area on or before August 31, 2004 she would also be entitled to an
additional bonus of $75,000 and an additional stock option grant to purchase
100,000 shares of Common Stock at $1.56 per share. In May 2004, based on the
fact that Ms. Payner-Gregor was in the process of relocating herself and her
family to the New York City area, the Compensation Committee determined to award
the bonus and options described above as of that date, rather than waiting for
her to complete her move. In addition, she was granted options to purchase an
additional 100,000 shares of Common Stock with an exercise price equal to the
market price on the date of grant. Mr. Seiff's annual base salary is $275,000,
Ms. Payner-Gregor's annual base salary is $450,000, and the annual base salary
of Mr. Barry is $225,000. The employment agreement for each of Messrs. Seiff and
Barry terminates on June 30, 2005, and Ms. Payner-Gregor's terminates on March
1, 2007, unless both parties fail to provide notice of their desire not to renew
such agreement at least 90 days prior to the end of the term of such agreement
in which case the employment agreement shall automatically renew for a
successive one-year term. Each such employment agreement obligates the Company
to make certain severance payments equal to six months' salary in connection
with a termination by the Company of such Named Executive Officer's employment,
other than for cause, and also provides for the immediate vesting of any stock
options held by such Named Executive Officer under such circumstances. Each such
employment agreement also provides for the immediate vesting of any stock
options held by such Named Executive Officer 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 Company's stockholders,
each such Named Executive shall receive a bonus equal to a percentage of the
proceeds received by the Company's stockholders.

                                       19
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

        The following table contains information concerning the grant of stock
options under the Plan to the Named Executives Officers during the fiscal year
ended December 31, 2003:

<TABLE>
<CAPTION>
                                         Individual Grants                                 Potential Realizable Value
                       ----------------------------------------------------                at Assumed Annual Rates of
                            Number of          % of Total                                   Stock Price Appreciation
                           Securities        Options Granted    Exercise or                      for Option Term
                       Underlying Options    to Employees in     Base Price   Expiration   --------------------------
Name                       Granted (#)        Fiscal Year (%)       ($)          Date           5%            10%
----                   ------------------    ----------------   -----------   ----------   ------------   -----------
<S>                         <C>                   <C>             <C>          <C>         <C>            <C>
E. Kenneth Seiff            1,000,000             39.65%          $  0.98      1/24/13     $  1,134,473   $ 1,304,380

Melissa Payner-Gregor       1,200,000 /(1)/       47.58%          $  1.56      9/19/13     $  2,167,074   $ 2,491,632
</TABLE>

    (1) Of this total amount, options to purchase 200,000 shares of Common Stock
        are subject to stockholder approval of the Plan Amendments.

The Company does not currently grant stock appreciation rights.

OPTION HOLDINGS

        The following table sets forth information with respect to the Named
Executive Officers concerning the number and value of unexercised options held
at December 31, 2003.

<TABLE>
<CAPTION>
                                                           Securities Underlying             Value of Unexercised
                                                           Unexercised Options at           In-the-Money Options at
                             Shares           Value        December 31, 2003 (#)           December 31, 2003 ($)(1)
                          acquired on       Realized    ---------------------------       ---------------------------
Name                       exercise #           $       Exercisable   Unexercisable       Exercisable   Unexercisable
----                      -----------      ----------   -----------   -------------       -----------   -------------
<S>                         <C>            <C>            <C>             <C>             <C>           <C>
E. Kenneth Seiff                   --              --     2,084,167       1,020,833       $ 4,032,742   $   3,168,958
Patrick C. Barry                   --              --     1,144,912         500,000       $   694,062   $   1,570,000
Melissa Payner-Gregor              --              --       100,000       1,100,000/(3)/  $   249,000   $   3,168,958
Jonathan B. Morris (2)      1,525,000      $3,877,510        20,000              --       $    62,800              --
</TABLE>

(1) Represents the value of unexercised, in-the-money stock options at
    December 31, 2003, using the $4.05 closing price of the Common Stock on that
    date.
(2) Mr. Morris resigned as an executive officer of the Corporation in
    November 2003.
(3) Of this total amount, options to purchase 200,000 shares of Common Stock are
    subject to stockholder approval of the Plan Amendments.

                                       20
<PAGE>

DIRECTORS' COMPENSATION

        The Company'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
Company. Additionally, each non-employee director receives an option to purchase
3,750 shares of Common Stock under the 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 Plan.

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, 1998 though December 31, 2003. Cumulative total return
values were calculated assuming an investment of $100 on December 31, 1998 and
reinvestment of dividends.

                                 Bluefly, Inc.,
                      Comparison of Cumulative Total Return
                                December 31, 2003
                        [Performance Graph Appears Hear]

                                                NASDAQ          NASDAQ
     Measurement Date      Bluefly, Inc.     Market Index    Retail Index
     ----------------      -------------     ------------    ------------
     December 31, 1998         100.0             100.0           100.0
     December 31, 1999         101.9             185.4            87.7
     December 31, 2000           5.6             111.8            53.8
     December 31, 2001          18.8              88.7            74.4
     December 31, 2002          16.2              61.3            63.2
     December 31, 2003          40.0              91.7            88.0

        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 Company pursuant to the Securities Act or the Exchange Act except
to the extent the Company 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

        In connection with the Company's loan facility, the Company entered into
a Reimbursement Agreement with affiliates of Soros Private Equity that own a
majority of the Company's Common Stock (collectively, "Soros") in March 2001
pursuant to which Soros issued a standby letter of credit in favor of Rosenthal
to guarantee a portion of the Company's obligations under the loan facility (the
"Soros Guarantee"), the Company agreed to reimburse Soros for any amounts it
pays to Rosenthal pursuant to such guarantee and the Company granted Soros a
subordinated lien on substantially all of our assets, including our cash
balances, in order to secure our reimbursement obligations.

                                       21
<PAGE>

        In consideration for the issuance of the Soros Guarantee in March 2001,
pursuant to the Reimbursement Agreement, the Company 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
initially August 15, 2003 and subsequently until November 15, 2003, the Company
issued to Soros, in March 2002, a warrant to purchase 60,000 shares of the
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, the
Company 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 our Common Stock on the date of issuance), exercisable at
any time prior to March 17, 2013.

        In April 2004, the Company amended the Loan Facility, and in connection
therewith, provided its lender with a pledge of $1.25 million of cash collateral
as a replacement to the Soros Guarantee. Accordingly, the Soros Guarantee and
the Reimbursement Agreement were canceled, although the warrants issued to Soros
in connection therewith remain outstanding.

        Under the Loan Facility, Soros has the right to purchase all of the
Company's obligations from its lender at any time during its term.

Financing Transactions with Soros

        January 2003 Convertible Promissory Note Financing. In January 2003, the
Company 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 "January 2003
Financing"). The promissory notes together with any accrued interest were
convertible into equity securities that the Company 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 (including Soros, or any
of its affiliates) in such subsequent round of financing. Interest on the notes
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 Company's assets, the merger or
consolidation of the Company into another entity or any change of control of the
Company and (iii) prepayment at the Company's option, at any time or from time
to time, upon five days notice to the holder. The Company's obligations under
the notes were subordinated to its obligations under its loan facility, although
such subordination did not effect Soros' conversion rights with respect to the
notes. As part of the March 2003 Financing, these notes were converted into
Series D Preferred Stock.

        March 2003 Series D Preferred Stock Financing. In March 2003, the
Company 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 Company's
obligations under the demand promissory notes issued to Soros in September 2002
(the "March 2003 Financing").

        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

                                       22
<PAGE>

it were to convert such shares into Common Stock immediately prior to the
liquidation of the Company. The Series D Preferred Stock ranks pari passu with
our other classes of Preferred Stock, and senior to our Common Stock, with
respect to the payment of distributions on liquidation, dissolution or winding
up of the Company and with respect to the payment of dividends. 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 $0.76 per share of face value per
share of Common Stock. 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 Company 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 (including Soros, or any of its
affiliates), 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.

        Beginning on November 13, 2004, the Company 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 Company's liquidation. The Series D Preferred Stock votes on an as
converted basis, and the Company is prohibited from taking certain actions
without the approval of a majority of the shares of Series D Preferred Stock. In
addition, Soros received registration rights with respect to the Common Stock
issuable upon conversion of the Series D Preferred Stock and pre-emptive rights
with respect to future issuances of our capital stock.

        As part of the March 2003 Financing, Soros agreed to provide the Company
with up to $1 million in additional financing (the "2003 Standby Commitment
Amount") on a standby basis at any time prior to January 1, 2004, provided that
the Company's cash balances were less than $1 million at that time (the "2003
Standby Commitment"). Such financing was to be made in one or more tranches as
determined by the members of the Company's Board of Directors who are not
Preferred Designees, and any and all draws against the 2003 Standby Commitment
Amount 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. Subject to certain limitations, the 2003 Standby
Commitment Amount was to be reduced on a dollar-for-dollar basis by the gross
cash proceeds received by the Company or any of its subsidiaries from the
issuance of any equity or convertible securities after March 12, 2003.

        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 Company recording a beneficial conversion feature in the
approximate amount of $225,000. This non-cash charge, which is analogous to a
dividend, resulted in an adjustment to the Company's computation of Loss Per
Share in the first quarter of 2003.

        May 2003 Series E Preferred Stock Financing. In accordance with the
terms of the 2003 Standby Commitment, in May 2003, Soros invested an additional
$1.0 million in the Company through the purchase of 1,000 shares of Series E
Convertible Preferred Stock and thereby fulfilled the 2003 Standby Commitment in
full. The terms of the Series E Preferred Stock are substantially similar to the
terms of the Series D Preferred Stock.

        July 2003 Convertible Promissory Note Financing. In July 2003 Soros
invested $2.0 million in the Company. Under the terms of the transaction, the
Company issued $2 million of convertible promissory notes that bear interest at
a rate of 12% per annum and had a maturity date of January 12, 2004 (the "July
Notes"). In January 2004, Soros agreed to extend the maturity date on the July
Notes to March 1, 2005 and in February 2004, agreed to further extend the
maturity date to May 1, 2005. Interest on the notes is payable only upon
repayment of the principal amount, whether at maturity or upon a mandatory or
optional prepayment. The July Notes together with

                                       23
<PAGE>

any interest that has accrued, are convertible into equity securities of the
Company sold in any subsequent round of financing, at the holder's option, at a
price that is equal to the lowest price per share accepted by any investor
(including Soros, or any of its affiliates) in such subsequent round of
financing. The conversion of the July Notes is subject to certain limitations
until such time as the Note Conversion Provisions are approved by the Company's
stockholders.

        October 2003 Convertible Promissory Note Financing. In October 2003,
Soros invested an addition $2.0 million in the Company. Under the terms of the
transaction, the Company issued $2 million of convertible promissory notes with
substantially the same terms as the July Notes, except that the maturity date of
these notes was April 14, 2004 (the "October Notes," and, together with the July
Notes, the "Convertible Notes"). In January 2004, Soros agreed to extend the
maturity date on the October Notes to March 1, 2005 and in February 2004, agreed
to further extend the maturity date to May 1, 2005.

        Stockholder approval of the conversion provisions of the Convertible
Notes is being sought pursuant to this Proxy Statement. See Item 3 below.

Other Related Party Transactions

        Jonathan Morris, a former Executive Vice President of the company, was
retained as a consultant at a rate of $4,500 per week from December 2003 to
March 2004.

        We believe that each of the transactions described above was on terms
fair to us and our stockholders, and at least as favorable to us as those
available from unaffiliated third parties.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Exchange Act requires the Company'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
Company with copies of all such reports. To the Company's knowledge, based
solely on a review of copies of such reports furnished to the Company and
certain representations of the Reporting Persons, the Company believes that
during the 2003 fiscal year all Reporting Persons complied with all applicable
Section 16(a) reporting requirements.

                             ITEM 2. PLAN AMENDMENTS

        On March 5, 1997, the Board of Directors adopted, and the stockholders
approved, the Bluefly, Inc. 1997 Stock Option Plan. The Plan originally provided
for the issuance of options (each an "Option") to purchase up to an aggregate of
200,000 shares of Common Stock. At the 1998, 1999, 2000 and 2002 annual
meetings, the stockholders approved amendments to the Plan which increased the
aggregate number of shares of Common Stock which may be the subject of Options
granted pursuant to the Plan to 500,000 shares, 1,500,000 shares, 5,400,000
shares and 12,200,000 shares, respectively. These shares are issuable under the
Plan pursuant to either Incentive Stock Options ("ISOs") qualifying under
Section 422 of the Code, granted to officers and key employees of the Company,
or Non-Qualified Stock Options ("NQSOs") granted to officers, key employees,
consultants and non-employee directors. The Company currently has 83 officers
and key employees, and six non-employee directors participating in the Plan. The
Plan is designed to provide an incentive to officers, key employees, consultants
and non-employee directors of the Company by making available to them an
opportunity to acquire a proprietary interest or to increase their proprietary
interest in the growth and performance of the Company. As of May 31, 2004,
Options to purchase 9,369,842 shares of Common Stock had been granted and remain
outstanding under the Plan, and Options to purchase 2,053,133 shares of Common
Stock under the Plan had been exercised.

                                       24
<PAGE>

PROPOSED AMENDMENTS

        In June 2004, the Board of Directors approved amendments to the Plan,
subject to stockholder approval, which would (a) increase the aggregate number
of shares of Common Stock that may be the subject of options granted pursuant to
the Plan from 12,200,000 shares to 14,200,000 shares and (b) increase the
aggregate number of shares of Common Stock that may be the subject of options
granted pursuant to the Plan to any participant in any fiscal year from
1,000,000 to 2,000,000.

        The Board of Directors recommended that the Plan Amendments be presented
to the Company's stockholders for approval. The Board of Directors adopted the
Plan Amendments to allow for future grants under the Plan necessary for the
Company to remain competitive in its recruiting efforts and for the Company to
retain existing executives and other key employees. In determining the
appropriate size of the increase, the Board of Directors took into account the
size of the option programs of a number of similar companies as well as the
Company's future hiring plans. The Board of Directors also took into account the
significant increase in the total number of shares of Common Stock outstanding
over the last two years.

        If the stockholders fail to approve the Plan Amendment, the Company
would likely be severely constrained in its ability to attract and retain
executives, other key employees, consultants and directors, and in motivating
and retaining skilled management personnel and directors necessary for the
Company's success.

        The following is a summary of the material provisions of the Plan.

        Eligibility. Options under the Plan may be awarded to key employees,
consultants and non-employee directors; provided, however, that Incentive Stock
Options may be granted only to key employees of the Company.

        Administration of the Plan. The Option Plan/Compensation Committee
administers the Plan. The Option Plan/Compensation Committee has the full power
and authority, subject to the provisions of the Plan, to designate participants,
grant Options and determine the terms of all Options, except that non-employee
directors are, in addition to discretionary grants, automatically granted
Options both upon becoming members of the Board of Directors and annually
pursuant to the formula described below. The Plan currently provides that no
participant may be granted Options to purchase more than 1,000,000 shares of
Common Stock in a fiscal year (to be increased to 2,000,000 shares in a fiscal
year, assuming that the Plan Amendments are approved). The Option
Plan/Compensation Committee is required to make adjustments with respect to
Options granted under the Plan in order to prevent dilution or expansion of the
rights of any holder. The Plan requires that the Option Plan/Compensation
Committee be composed of at least two directors, each of whom is an "outside
director" as that term is defined for purposes of Section 162(m) of the Code.
The Plan also requires that the Option Plan/Compensation Committee members be
"Non-Employee Directors" within the meaning of Rule 16b-3 under the Exchange
Act. Each member of the Option Plan/Compensation Committee is an "outside
director" as that term is defined for purposes of Section 162(m) of the Code and
is a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange
Act.

        Amendment. The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board
of Directors, but no amendment without the approval of the stockholders of the
Company shall be made if stockholder approval would be required under Section
162(m) of the Code, Section 422 of the Code, Rule 16b-3 under the Exchange Act
or any other law or rule of any governmental authority, stock exchange or other
self-regulatory organization to which the Company is subject. Neither the
amendment, suspension or termination of the Plan shall, without the consent of
the holder of such Option, alter or impair any rights or obligations under any
Option theretofore granted.

        Options Issued Under Stock Option Plan. The terms of specific Options
are determined by the Option Plan/Compensation Committee. The per share exercise
price of the Common Stock subject to an ISO shall not be less than 100% of the
fair market value of the shares of Common Stock on the date of grant. However,
in the case

                                       25
<PAGE>

of an ISO granted to a holder of shares representing more than 10% of the total
combined voting power of the Company (a "10% stockholder"), the per share
exercise price shall not be less than 110% of the fair market value of the
Common Stock on the date of the grant. The per share exercise price of the
Common Stock subject to a NQSO will be the price determined by the Option
Plan/Compensation Committee. The term of each NQSO will be specified by the
Option Plan/Compensation Committee, which will generally not exceed 10 years
from the date of grant. However, the term of ISOs must not exceed 10 years after
the date of the grant (five years, if granted to a 10% stockholder). In
addition, the fair market value of shares of Common Stock subject to ISOs
(determined as of the date such ISOs are granted) exercisable for the first time
by any individual during any calendar year may in no event exceed $100,000.

        Upon the exercise of an Option, the Option holder shall pay the Company
the exercise price plus the amount of the required federal and state withholding
taxes due with respect to the exercise of such exercise, if any. At the Option
Plan/Compensation Committee's discretion, the Plan allows the participant to pay
the exercise price (i) in cash, shares of Common Stock, outstanding Options or
other consideration or any combination thereof or (ii) pursuant to a
broker-assisted cashless exercise program established by the Option
Plan/Compensation Committee, provided in each case that such methods avoid
"short-swing" trading profits to the participant under Section 16(b) of the
Exchange Act. The Plan also allows participants to elect to have shares withheld
upon exercise for the payment of withholding taxes.

        The unexercised portion of any Option granted to an officer or key
employee under the Plan generally will be terminated (i) no later than three
months after the date on which the optionee's employment is terminated for any
reason other than (A) Cause (as defined in the Plan), (B) retirement or mental
or physical disability, or (C) death; (ii) immediately upon the termination of
the optionee's employment for Cause; (iii) (A) in the case of any ISO, three
months after the date on which the optionee's employment is terminated by reason
of retirement or one year after the optionee's employment is terminated by
reason of mental or physical disability and (B) in the case of any NQSO, three
months after the date on which the optionee's employment is terminated by reason
of retirement or mental or physical disability which period may be extended in
the discretion of the Option Plan/Compensation Committee up to one year after
the date on which the optionee's employment is terminated by reason of
retirement or mental or physical disability; or (iv) (A) 12 months after the
date on which the optionee's employment is terminated by reason of his death or
(B) three months after the date on which the optionee shall die if such death
occurs during the three-month period following the termination of the optionee's
employment by reason of retirement or mental or physical disability. The Option
Plan/Compensation Committee has in the past, and may in the future, extend the
period of time during which an optionee may exercise options following the
termination of his or her employment.

        Under the Plan, an Option generally may not be transferred by the
optionee other than by will or by the laws of descent and distribution. During
the lifetime of an optionee, an Option may be exercised only by the optionee or,
in certain instances, by the optionee's guardian or legal representative, if
any.

        Directors' Options. The Plan provides that each non-employee director,
who has not previously received a grant of NQSOs, automatically will be granted
a NQSO to purchase 3,750 shares of Common Stock on the date of appointment or
election, subject to the provisions of the Plan. The Plan further provides that
each non-employee director who is serving on the Board of Directors on April 30
of a year during the term of the Plan automatically will receive a NQSO to
purchase 3,750 shares of Common Stock on May 1 of the following year. The
exercise price of the shares of Common Stock subject to Options granted
automatically to each non-employee director shall be 100% of the fair market
value of the shares of Common Stock on the date of grant. In addition to Options
which may be automatically granted to non-employee directors, the Plan provides
that non-employee directors generally may be granted Options at the discretion
of the Option Plan/Compensation Committee. Options granted to non-employee
directors only may be exercised within ten years of the date of grant. Options
granted to non-employee directors terminate (i) 30 days after termination of the
director's service as a director of the Company for any reason other than
retirement or mental or physical disability or death, (ii) three months after
the date the director ceases to

                                       26
<PAGE>

serve as a director of the Company due to retirement or physical or mental
disability, which period may be extended at the discretion of the Option
Plan/Compensation Committee up to one year after the date on which the director
ceases to serve as a director of the Company due to retirement physical or
mental disability or (iii) (A) 12 months after the date the director ceases to
serve as a director due to his death or (B) three months after the death of the
director if such death shall occur during the three-month period following the
date the director ceased to serve as a director of the Company due to physical
or mental disability. Except as discussed herein, Options granted to
non-employee directors are on the same terms and conditions as all other NQSOs
granted pursuant to the Plan.

        As of May 31, 2004, the following individuals and groups had been
granted, Options under the Plan to purchase shares in the amounts indicated: E.
Kenneth Seiff (Chairman of the Board, Chief Executive Officer and Treasurer):
3,405,000 shares, all of which are currently outstanding; Melissa Payner-Gregor
(President): 1,400,000 shares, all of which are currently outstanding and
200,000 of which are subject to stockholder approval of the Plan Amendments;
Patrick C. Barry (Chief Operating Officer and Chief Financial Officer):
1,644,912 shares, all of which are currently outstanding; Robert G. Stevens
(Director): 195,750 shares (including 175,000 shares granted to Mr. Stevens as
an executive officer of the Company), all of which are currently outstanding;
Josephine Esquivel (Director): 15,000 shares, all of which are currently
outstanding; Alan Kane (Director): 11,250 shares, all of which are currently
outstanding; Martin Miller (Director): 32.000 shares, all of which are currently
outstanding; Neal Moszkowski (Director): 22,500 shares, all of which are
currently outstanding; David Wassong (Director): 15,000 shares, all of which are
currently outstanding; Jonathan Morris (former Executive Vice President):
1,645,000 shares, none of which are currently outstanding; all current executive
officers as a group: 6,549,912 shares; all current non-executive officer
directors as a group: 276,500 shares (including 175,000 shares granted to Mr.
Stevens as an executive officer of the Company); and all employees, including
officers other than executive officers, as a group: 2,543,430 shares. As of May
31, 2004, the market value of the Common Stock underlying outstanding Options
was approximately $25,298573.

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

        Although the Company cannot currently determine the number of shares
subject to Options that may be granted in the future to executive officers or
non-employee directors, each of the executive officers and non-employee
directors of the Company has an interest in the approval of the Plan Amendment
in so far as they are likely to be recipients of future Options. In addition,
Options to purchase 200,000 shares of Common Stock, which were issued to Ms.
Payner-Gregor in September 2003, are subject to the stockholder approval of the
Plan Amendments. See "Option Grants in the Last Fiscal Year."

FEDERAL INCOME TAX CONSEQUENCES

        Set forth below is a description of the federal income tax consequences
under the Code of the grant and exercise of the benefits awarded under the Plan.

        There will be no federal income tax consequences to employees,
directors, consultants or the Company on the grant of a NQSO. On the exercise of
a NQSO, the employee, director or consultant generally will have taxable
ordinary income, subject, in the case of an employee, to withholding, in an
amount equal to the excess of the fair market value of the shares of Common
Stock received on the exercise date over the option price of the shares. The
Company will be entitled to a tax deduction in an amount equal to such excess,
provided the Company complies with applicable reporting. Any ordinary income
realized by an employee, director or consultant upon exercise of a NQSO will
increase his tax basis in the Common Stock thereby acquired. Upon the sale of
Common Stock acquired by exercise of a NQSO, employees, directors and
consultants will realize capital gain or loss, which capital gain may be subject
to reduced rates of tax if such stock was held for more than one year prior to
the sale.

        An employee, director or consultant who surrenders shares of Common
Stock in payment of the exercise price of a NQSO will not recognize gain or loss
on his surrender of such shares, but will recognize ordinary income on the
exercise of the NQSO as described above. Of the shares received in such an
exchange, that number of shares equal to the number of shares surrendered will
have the same tax basis and capital gains holding period as the shares

                                       27
<PAGE>

surrendered. The balance of the shares received will have a tax basis equal to
their fair market value on the date of exercise, and the capital gains holding
period will begin on the date of exercise.

        With respect to ISOs, no compensation income is recognized by an
optionee, and no deduction is available to the Company upon either the grant or
exercise of an ISO. However, the difference between the exercise price of an ISO
and the market price of the Common Stock acquired on the exercise date will be
included in alternative minimum taxable income of the optionee for the purposes
of the "alternative minimum tax." Generally, if an optionee holds the shares
acquired upon exercise of ISOs until the later of (i) two years from the grant
of the ISOs and (ii) one year from the date of acquisition of the shares upon
exercise of an ISO, any gain recognized by the optionee on a sale of such shares
will be treated as capital gain. The gain recognized upon the sale is the
difference between the Option price and the sale price of the underlying Common
Stock. The net federal income tax effect on the holder of ISOs is to defer,
other than for alternative minimum tax purposes, until the shares are sold,
taxation of any increase in the value of the Common Stock from the time of grant
to the time of exercise. If the optionee sells the shares prior to the
expiration of the holding period set forth above, the optionee will realize
ordinary compensation income in the amount equal to the difference between the
exercise price and the fair market value of the Common Stock on the date of
exercise. The compensation income will be added to the optionee's basis for
purposes of determining the gain on the sale of the shares. Such gain will be
capital gain if the shares are held as capital assets. If the application of the
above-described rule would result in a loss to the optionee, the compensation
income required to be recognized thereby would be limited to the excess, if any,
of the amount realized on the sale over the basis of the shares sold. If an
optionee disposes of shares obtained upon exercise of an ISO prior to the
expiration of the holding period described above, the Company will be entitled
to a deduction in the amount of the compensation income that the optionee
recognizes as a result of the disposition, subject to the Company satisfying its
reporting obligations.

        If an optionee is permitted to, and does, make the required payment of
the Option price by delivering shares of Common Stock, the optionee generally
will not recognize any gain as a result of such delivery, but the amount of
gain, if any, which is not so recognized will be excluded from his basis in the
new shares received. However, the use by an optionee of shares previously
acquired pursuant to the exercise of an ISO to exercise an Option will be
treated as a taxable disposition if the transferred shares have not been held by
the optionee for the requisite holding period described above.

        If the Company delivers cash, in lieu of fractional shares, or shares of
Common Stock to an employee pursuant to a cashless exercise program, the
employee will recognize ordinary income equal to the cash paid and the fair
market value of any shares issued as of the date of exercise. An amount equal to
any such ordinary income will be deductible by the Company, provided it complies
with applicable reporting requirements.

        If an optionee is permitted to, and does, exercise an ISO later than
three months (one year in the event of the optionee's disability, as defined in
Code Section 22(e)(3)) of the optionee's termination of employment (other than
by reason of death), the optionee will recognize income, and the Company
generally will be entitled to a deduction, upon exercise of the Option in
accordance with the rules for NQSOs described above, provided it complies with
applicable reporting requirements.

        Section 162(m) of the Code, which generally disallows a tax deduction
for compensation over $1,000,000 paid to the Chief Executive Officer and certain
other highly compensated employees ("covered employees") of publicly held
corporations, provides that "performance-based" compensation will not be subject
to the $1,000,000 deduction limitation. Because an employer is not, except in
the case of a disqualifying disposition, entitled to a deduction upon the grant
or exercise of an ISO in any event, this provision generally does not affect the
Company's tax treatment with regard to ISOs. The compensation element of NQSOs
granted by "outside directors" under a plan approved by stockholders with an
exercise price equal to the fair market

                                       28
<PAGE>

value of the underlying stock as of the date of grant is considered
performance-based compensation, if certain requirements are met. The Plan meets
such requirements and, accordingly, the compensation element of NQSOs with an
exercise price equal to the fair market value of the underlying stock as of the
date of grant will not be subject to the deduction limitation of Section 162(m).

        The Plan is not subject to any provisions of the Employee Retirement
Income Security Act of 1974 and is not required to be qualified under Section
401(a) of the Code.

        The Board of Directors recommends a vote FOR approval of the Plan
Amendment.

EQUITY COMPENSATION PLAN INFORMATION (as of December 31, 2003)

<TABLE>
<CAPTION>
                                                                                              Number of securities
                                                                                             remaining available for
                                                                                              future issuance under
                                Number of securities to be     Weighted-average exercise    equity compensation plans
                                  issued upon exercise of        price of outstanding         (excluding securities
                                   outstanding options,          options, warrants and      reflected in column (a))
Plan Category                     warrants and rights(a)              rights (b)                       (c)
-----------------------------   --------------------------   ---------------------------   --------------------------
<S>                                      <C>                          <C>                           <C>
Equity compensation plans
approved by security holders             7,184,468                    $   2.17                      3,270,508
                                --------------------------   ---------------------------   --------------------------
Equity compensation plans not
approved by security holders             1,323,902                    $   1.34                         65,110
                                --------------------------   ---------------------------   --------------------------
Total                                    8,508,370                    $   2.04                      3,335,618
                                --------------------------   ---------------------------   --------------------------
</TABLE>

        The following is a summary of the material provisions of the Bluefly,
Inc. 2000 Plan Stock Option Plan (the "2000 Plan"), the Company's only equity
compensation plan that has not been approved by our stockholders.

        Eligibility. Key employees of the Company, who are not officers or
directors of the Company and its affiliates, and consultants to the Company are
eligible to be granted options.

        Administration of the 2000 Plan. The Option Plan/Compensation Committee
administers the 2000 Plan. The Option Plan/Compensation Committee has the full
power and authority, subject to the provisions of the 2000 Plan, to designate
participants, grant options and determine the terms of all options. The 2000
Plan provides that no participant may be granted options to purchase more than
1,000,000 shares of Common Stock in a fiscal year. The Option Plan/Compensation
Committee is required to make adjustments with respect to options granted under
the 2000 Plan in order to prevent dilution or expansion of the rights of any
holder. The 2000 Plan requires that the Option Plan/Compensation Committee be
composed of at least two directors.

        Amendment. The 2000 Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board
of Directors, but no amendment without the approval of our stockholders shall be
made if stockholder approval would be required under any law or rule of any
governmental authority, stock exchange or other self-regulatory organization to
which we are subject. Neither the amendment, suspension or termination of the
2000 Plan shall, without the consent of the holder of an option under the 2000
Plan, alter or impair any rights or obligations under any option theretofore
granted.

                                       29
<PAGE>

        Options Issued Under 2000 Plan. The Option Plan/Compensation Committee
determines the term and exercise price of each option under the 2000 Plan and
the time or times at which such option may be exercised in whole or in part, and
the method or methods by which, and the form or forms in which, payment of the
exercise price may be paid.

        Upon the exercise of an option under the 2000 Plan, the option holder
shall pay us the exercise price plus the amount of the required federal and
state withholding taxes, if any. The 2000 Plan also allows participants to elect
to have shares withheld upon exercise for the payment of withholding taxes.

        The unexercised portion of any option granted to a key employee under
the 2000 Plan generally will be terminated (i) 30 days after the date on which
the optionee's employment is terminated for any reason other than (a) Cause (as
defined in the 2000 Plan), (b) retirement or mental or physical disability, or
(c) death; (ii) immediately upon the termination of the optionee's employment
for Cause; (iii) three months after the date on which the optionee's employment
is terminated by reason of retirement or mental or physical disability; or (iv)
(A) 12 months after the date on which the optionee's employment is terminated by
reason of his death or (B) three months after the date on which the optionee
shall die if such death occurs during the three-month period following the
termination of the optionee's employment by reason of retirement or mental or
physical disability. The Option Plan/Compensation Committee has in the past, and
may in the future, extend the period of time during which an optionee may
exercise options following the termination of his or her employment.

        Under the 2000 Plan, an option generally may not be transferred by the
optionee other than by will or by the laws of descent and distribution. During
the lifetime of an optionee, an option under the 2000 Plan may be exercised only
by the optionee or, in certain instances, by the optionee's guardian or legal
representative, if any.

                                       30
<PAGE>

                       ITEM 3. NOTE CONVERSION PROVISIONS

        As discussed above under the caption "Certain Relationships and Related
Transactions," in July and October 2003, the Company issued to Soros the
Convertible Promissory Notes. The aggregate principal amount of the Convertible
Promissory Notes is $4.0 million, and, as of May 31, 2004, the aggregate amount
accrued and unpaid interest outstanding under the Convertible Promissory Notes
was $358,000.

        As a Nasdaq SmallCap Market - listed issuer, the Company is subject to
the requirement that it obtain stockholder approval for any issuance of
securities that represent 20% of the Common Stock or voting power outstanding
before such issuance and is convertible into Common Stock at a price less than
the greater of book or market value. The Convertible Notes, together with any
interest that has accrued, are convertible into equity securities of the Company
sold in any subsequent round of financing, at the holder's option, at a price
that is equal to the lowest price per share accepted by any investor (including
Soros or any of its affiliates) in such subsequent round of financing.
Nasdaq takes the position that "future-priced" securities, such as the
Convertible Promissory Notes, come within the coverage of the Nasdaq stockholder
approval rules because the number of shares of Common Stock issuable upon
conversion is not determinable. Accordingly, the Board of Directors has
determined that it is advisable to submit the Note Conversion Provisions to the
approval of the Company's stockholders. Pending such approval, the maximum
number of shares that may be issued upon conversion of the Convertible
Promissory Notes may not exceed the amount the could be acquired without
stockholder approval under Nasdaq rules. 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 Voting Stock to determine the outcome of the vote with respect to the
Note Conversion Provisions.

        As holder of a majority of the issued and outstanding Voting Stock,
Soros has substantial influence over whether, and the terms upon which, the
Company may consummate any subsequent round of financing. Moreover, Soros has
historically provided the Company with much of its needed capital. Although
there can be no assurance that the Company 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 Note Conversion Provisions are not approved.

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

                         INDEPENDENT PUBLIC ACCOUNTANTS

        The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP ("PwC") as independent accountants for the fiscal
year ending December 31, 2004. The Company's financial statements for the 2003
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, our
independent accountants, for the audit of our consolidated financial statements,
including the reviews of our condensed consolidated financial statements
included in its quarterly reports on Form 10-Q, for fiscal 2003 and 2002 were
approximately $106,000 and $67,000, 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 us during fiscal 2003 and 2002
for assurance and related services in connection with the audit or review of our
consolidated financial statements.

                                       31
<PAGE>

TAX FEES

        PwC did not bill us for any professional services rendered to us during
fiscal 2003 and 2002 for tax compliance, tax advice or tax planning.

OTHER FEES

        PwC did not bill us for any other professional services rendered during
fiscal 2003 and 2002 other than those described under the caption "Audit Fees."

AUDIT COMMITTEE PRE-APPROVAL POLICIES

        Our policy is that, before PwC is engaged by us 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 Company's bylaws provide that a stockholder who intends to present a
proposal for stockholder vote at the Company's next annual meeting must give
written notice to the Secretary of the Company 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 Company before April 29, 2005. 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 Company'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
Company's proxy statement and form of proxy for the next annual meeting, such
proposal must be received by the Company at its principal executive offices no
later than the close of business on March 1, 2005 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 Company. Directors, officers and employees of the Company 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 Company may reimburse them for
any attendant expenses.

        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: June 29, 2004

                                       32

