<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
LOGO
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5961 13-3914035
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
435 HUDSON STREET
NEW YORK, NEW YORK 10014
(212) 807-9060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN I. KAHN
435 HUDSON STREET
NEW YORK, NEW YORK 10014
(212) 807-9060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES OF COMMUNICATIONS TO:
JEFFREY A. HORWITZ, ESQ. LARRY A. BARDEN, ESQ.
EDWARD W. KERSON, ESQ. SIDLEY & AUSTIN
PROSKAUER ROSE GOETZ & MENDELSOHN ONE FIRST NATIONAL PLAZA, SUITE 4400
LLP CHICAGO, ILLINOIS 60603-2279
1585 BROADWAY (312) 853-7000
NEW YORK, NEW YORK 10036-8299
(212) 969-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
<CAPTION>
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 2,702,500 shares $12.00 $32,430,000 $9,828
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Includes 352,500 shares of Common Stock, which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 31, 1996
PROSPECTUS
2,350,000 SHARES
LOGO
COMMON STOCK
Of the 2,350,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 350,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $10.00 and $12.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol DLIA.
-----------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- --------------------------------------------------------------------------------
Total (3)................. $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Company and certain Selling Stockholders have granted the Underwriters
a 30-day option to purchase up to 352,500 additional shares of Common
Stock, solely to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Pro- ceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively.See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1996 at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST OPPENHEIMER & CO., INC.
, 1996
<PAGE>
[TEXT AND PHOTOS TO COME.]
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent public accountants
and will make available copies of quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
"dELiA*s" is a registered trademark of the Company in the United States.
Trade names and trademarks of other companies appearing in this Prospectus are
the property of their respective holders.
2
<PAGE>
[TEXT AND PHOTOS TO COME.]
<PAGE>
[TEXT AND PHOTOS TO COME.]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
THE COMPANY
dELiA*s is a direct marketer of casual apparel and related accessories to
girls and young women primarily between the ages of 10 and 24 (an age group
known as "Generation Y"). The Company believes that it is one of a limited
number of direct marketers distributing an apparel-based catalog exclusively
for girls and young women of Generation Y. The Company offers a carefully
edited assortment of recognized and emerging brands of teen apparel and
accessories, complemented by dELiA*s own branded products. Merchandise ranges
from basics, such as jeans, shorts and t-shirts, to more fashion-oriented
apparel and accessories, such as woven and knit junior dresses, swimwear,
sunglasses, watches, costume jewelry and cosmetics. The Company believes that
its selection and presentation of merchandise have contributed to a growing
recognition of dELiA*s as a teen fashion resource.
With the large "baby boom" generation maturing and having children, the
younger segments of the U.S. population are increasing in size. According to
the U.S. Census Bureau, the population of 10 to 24 year-olds is currently 55
million and is expected to grow by 13% to more than 62 million by 2005.
According to data from independent research firms, teens spent approximately
$109 billion in 1995, of which apparel accounted for over one-third of such
spending. As a result of the growing population and spending patterns of
Generation Y and the limited number of national apparel retailers and
catalogers exclusively targeting this age group, the Company believes that
Generation Y is a large and underserved market that represents a significant
direct marketing opportunity.
dELiA*s catalogs are designed to create a distinctive and entertaining
shopping experience by combining the feel and editorial flair of a teen-focused
fashion magazine with the convenience of direct mail shopping. The catalogs
include colorful layouts with creative, high-impact phrases and feature teen
models who convey a culture and attitude unique to dELiA*s. Merchandise items
are styled and arranged to encourage customers to create their own outfits,
which typically can be purchased for under $100.
The Company believes that its proprietary customer database is one of its key
competitive advantages. This database has been developed primarily through
referrals, word-of-mouth, returns of catalog request cards and targeted
advertising. The Company believes that this database yields response rates that
exceed average response rates for the consumer catalog industry and that this
database would be difficult to replicate. As of September 30, 1996, the
Company's database included over one million names, including approximately
200,000 customers who had made purchases from the Company within the preceding
36 months. The Company has customers in all 50 U.S. states and Japan.
dELiA*s plans to increase catalog mailings from an anticipated 7 million in
fiscal 1996 to approximately 18 million in fiscal 1997, and to increase the
number of catalog editions from five in fiscal 1996 to seven in fiscal 1997.
The Company's operations are supported by its integrated, state-of-the-art
telephone and management information systems, which allow teleservice
representatives to provide real-time product availability and order status
information. Currently, the Company employs 220 teleservice representatives to
provide 24-hour, seven-day-a-week customer service.
dELiA*s goal is to be the leading direct marketer of casual apparel,
accessories and other related products to Generation Y girls and young women.
The Company plans to build on its core catalog business and to leverage the
dELiA*s brand identity to develop new channels of distribution and products
aimed at the Generation Y market.
The Company was incorporated in Delaware in October 1996 and is a successor
to a business founded in September 1993. The Company's executive offices are
located at 435 Hudson Street, New York, New York 10014, and its telephone
number is (212) 807-9060.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................. 2,000,000 shares
Common Stock offered by the Selling Stockholders.... 350,000 shares
Common Stock to be outstanding after the offering... 12,000,000 shares (1)
Use of proceeds..................................... For working capital and general
corporate purposes and repayment of
notes held by certain stockholders
Proposed Nasdaq National Market symbol.............. DLIA
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 9,
1993 SIX MONTHS
(INCEPTION) TO FISCAL YEAR 1994 FISCAL YEAR 1995 ENDED JULY 31,
JANUARY 31, ENDED ENDED ----------------
1994 JANUARY 31, 1995 JANUARY 31, 1996 1995 1996
-------------- ---------------- ---------------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales............. $ -- $ 139 $5,652 $ 1,301 $ 8,372
Gross profit.......... $ -- $ 50 $2,574 $ 625 $ 4,414
Net income (loss)..... $(33) $(332) $ 27 $ (170) $ 785
Pro forma net income
(loss) (2)........... $(19) $(202) $ 18 $ (102) $ 468
Pro forma net income
per share (3)........ $ 0.00 $ 0.05
Shares used in the
calculation of
pro forma net income
per share (3)........ 10,098 10,098
SELECTED OPERATING DATA:
Number of catalogs
mailed............... -- 26 1,700 550 2,450
House names (4)....... -- 17 290 132 720
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996
----------------------
ACTUAL AS ADJUSTED (5)
------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $1,343 $20,756
Working capital........................................ 1,342 20,755
Total assets........................................... 3,626 23,039
Total stockholders' equity............................. 1,773 21,186
</TABLE>
- --------------------
(1) Excludes an aggregate of 1,500,000 shares of Common Stock reserved for
issuance under the Company's 1996 Stock Incentive Plan and a stock option
agreement between the Company and an executive. See "Management--Stock
Incentive Plan" and "Management--Stock Option Agreement."
(2) Computed on the basis described in Note 6 of Notes to Financial Statements
and assuming the pro forma tax provisions described therein. Prior to this
offering, the Company will effect the Reorganization described under "The
Reorganization," in which the Company will convert from a limited liability
company to a C corporation.
(3) See Note 2 of Notes to Financial Statements for an explanation of the
determination of shares used in computing pro forma net income per share.
(4) House names represents the number of customers who have made at least one
purchase or have requested a catalog from the Company in the preceding 36
months, determined at the end of the applicable fiscal period.
(5) As adjusted gives effect to: (i) the portion of the LLC Distribution
described in "Dividend Policy" that depended on the Company's results of
operations from inception through July 31, 1996 and (ii) the sale of
2,000,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $11.00 per share and the
application of the estimated proceeds therefrom, including a portion
thereof used to repay the Investor Notes to be distributed in connection
with the LLC Distribution. See "Capitalization," "Dividend Policy" and "Use
of Proceeds."
--------------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Description of
Capital Stock," "Underwriting" and Notes to Financial Statements. In addition,
unless otherwise indicated, all information in this Prospectus gives effect to
the Reorganization (as defined under "The Reorganization") that is to be
effected prior to the completion of this offering. As used in this Prospectus,
references to "dELiA*s" or the "Company" prior to the Reorganization mean
dELiA*s LLC and its predecessor, and, thereafter, dELiA*s Inc. All references
in this Prospectus to a particular fiscal year refer to the year ended January
31 following the particular year (e.g., "fiscal 1996" refers to the fiscal year
ending January 31, 1997).
4
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby. This Prospectus contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as those discussed elsewhere in this
Prospectus.
Limited Operating History. The Company has a limited operating history, and
therefore it is difficult to predict the Company's future catalog response
rates (the rates at which catalog recipients respond to catalog mailings by
ordering products), merchandise return rates, success in identifying fashion
trends and other elements that affect the Company's results of operations.
Although the Company had net income in fiscal 1995 and the first six months of
fiscal 1996, the Company incurred losses of $33,000 from September 9, 1993
(inception) to January 31, 1994 and $332,000 in fiscal 1994. There can be no
assurance the Company will achieve or sustain growth in revenues or maintain
profitability in future periods.
Seasonal and Quarterly Fluctuations. The Company is subject to seasonal
fluctuations in its merchandise sales and results of operations. The Company
expects its sales and operating results generally to be lower in the first and
second quarters than in the third and fourth quarters of each fiscal year
(which include the back-to-school and holiday seasons). The Company's
quarterly results may fluctuate as a result of numerous factors, including the
timing, quantity and cost of catalog mailings (including sale circulars), the
response rates to such mailings, the timing of merchandise deliveries, market
acceptance of the Company's merchandise (including new merchandise categories
or products introduced), the mix, pricing and presentation of products offered
and sold, the hiring and training of additional personnel, the timing of
inventory writedowns, the incurrence of other operating costs and factors
beyond the Company's control, such as general economic conditions and actions
of competitors. Accordingly, the results of operations in any quarter will not
necessarily be indicative of the results that may be achieved for a full
fiscal year or any future quarter. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Fashion Trends and Industry Risks. The Company's success depends, in part,
on management's ability to anticipate the fashion tastes of its customers and
to offer merchandise that appeals to their preferences on a timely and
affordable basis. The fashion tastes of the Company's customers are expected
to change frequently and the failure of the Company successfully to
anticipate, identify or react to changes in styles, trends or brand
preferences of its customers could lead to, among other things, excess
inventories and price markdowns, which could have a material adverse effect on
the Company. In addition, misjudgments in apparel selection could adversely
affect the Company's image with its customers, which could have a material
adverse effect on the Company.
The apparel and accessories industries are cyclical. Purchases of apparel
and accessories tend to decline during recessionary periods and may decline at
other times. There can be no assurance the Company will be able to maintain
its historical rate of growth, particularly if the retail environment
declines. A recession in the national or regional economies or uncertainties
regarding future economic prospects, among other things, could affect consumer
spending habits and have a material adverse effect on the Company. The
Company's business is sensitive to consumer spending patterns and preferences.
Shifts in consumer discretionary spending away from casual apparel and
accessories to other consumer goods also could have a material adverse effect
on the Company.
Ability to Manage Growth. The recent growth in the Company's operating
income has resulted largely from increases in the number of catalogs the
Company mails and the number of products included in its catalogs, as well as
increases in response rates. This growth has placed significant demands on the
Company's management, administrative, operational and financial resources. The
Company intends to continue to pursue an aggressive growth strategy for the
foreseeable future and its future operating results will largely depend on
5
<PAGE>
its ability to manage a larger business. Managing its growth will require the
Company to continue to implement and improve its operations and financial and
management information systems and to continue to expand, motivate and
effectively manage its workforce. The Company plans to continue to increase
the number of catalogs it mails and the frequency of such mailings and intends
to broaden the range of products offered in its catalogs (including additional
dELiA*s-branded products). These actions could result in lower response rates
and operating margins. Furthermore, as the Company's sales increase, the
Company anticipates maintaining higher inventory levels in an effort to
continue to maintain satisfactory fulfillment rates for its catalog customers.
This anticipated increase in inventory levels may expose the Company to
greater risk of excess inventories and inventory obsolescence, which could
have a material adverse effect on the Company.
The Company is exploring a number of new business opportunities, including
opening a retail store, developing traditional or electronic publishing
ventures ancillary to its existing business and expanding its use of
electronic interactive media for promotional and customer development
purposes. There can be no assurance the Company will pursue or successfully
implement any or all of these plans. Failure to implement successfully any of
these plans, if pursued, could have a material adverse effect on the Company.
See "Business--Growth Strategy."
The Company expects from time to time to consider acquisitions or
investments within and outside the direct mail, retail and apparel industries.
The Company has never made an acquisition, and if it does make an acquisition,
there can be no assurance it will do so on favorable terms or that it will be
able successfully to integrate any acquired business with its existing
operations.
Dependence on Key Vendors. The Company's business depends, in part, on the
Company's ability to purchase current-season brand-name apparel at competitive
prices, in sufficient quantities and of acceptable quality. Although the
Company attempts to maintain relationships with a large number of vendors, six
vendors accounted for approximately 50% of the net sales generated by the
Company's spring 1996 catalog, and five vendors accounted for approximately
53% of the net sales generated by the Company's summer 1996 catalog. Apparel
produced by Urban Outfitters accounted for approximately 24% of net sales for
each of the spring 1996 and summer 1996 catalogs. While the Company believes
its relationship with Urban Outfitters is good, the Company does not have a
long-term contract with Urban Outfitters or any other supplier. In addition,
many of the Company's smaller vendors have limited resources, production
capacities and operating histories. The failure of key vendors to expand with
the Company, the loss of one or more key vendors, a material change in the
Company's current purchase terms or a limitation on the Company's ability to
procure products could have a material adverse effect on the Company.
Dependence on Key Personnel. The success of the Company has largely depended
upon the efforts and abilities of its senior management, including the
Company's co-founders, Stephen I. Kahn, Chairman of the Board, President and
Chief Executive Officer, and Christopher C. Edgar, Executive Vice President
and Chief Operating Officer. The loss of one or more of its key employees
could have a material adverse effect on the Company. The Company will enter
into employment agreements with Messrs. Kahn and Edgar and intends to purchase
$2,000,000 in key-man life insurance on each. See "Management."
The direct marketing and apparel experience of a significant number of the
Company's senior management personnel is limited to their experience with the
Company. The Company's future success will depend on the ability of the
Company's management to retain key managers and employ additional qualified
senior operating management. There can be no assurance that the Company will
be successful in attracting or retaining additional qualified personnel.
Competition. The apparel and accessories industries are highly competitive,
and the Company expects competition in these markets to increase. The Company
competes with traditional department-store retailers, as well as specialty
apparel and accessory retailers for teen and young-adult customers. The
Company also competes with other direct marketers. Many of the Company's
competitors are larger and have substantially greater financial, distribution
and marketing resources than the Company.
6
<PAGE>
There are few barriers to entry in the teen apparel and accessories market
and the Company expects other catalogers, as well as additional store-based
retailers and apparel manufacturers, to enter this market. The Company also
could face competition from manufacturers of apparel and accessories
(including the Company's current vendors), who could market their products
directly to retail customers or make their products more readily available in
retail stores or through other catalogs. In addition, competitors could enter
into exclusive distribution arrangements with the Company's vendors and deny
the Company access to their products. Increased competition could result in
pricing pressures, marketing expenditures and loss of market share, and could
have a material adverse effect on the Company.
The Company expects that the direct marketing industry will be affected by
technological changes in distribution and marketing methods, such as on-line
catalogs, retail kiosks and Internet shopping. The Company believes its
success will depend, in part, on its ability to adapt to new technologies and
to respond to competitors' actions in these areas. Adapting to new
technologies could require significant capital expenditures by the Company.
There can be no assurance that the Company will remain competitive in response
to technological changes.
Fluctuations in Postage and Paper Expenses. Postage and paper expenses, in
the aggregate, equalled approximately 11% of the Company's net sales in each
of fiscal 1995 and the first six months of fiscal 1996. While the Company
passes on to customers the costs of overnight and ground delivery of
merchandise, it has not passed on, and has no future plans to pass on, the
costs of catalog mailings and paper to its customers. Material increases in
paper or catalog delivery costs could have a material adverse effect on the
Company.
Reliance on Information Systems. The Company's success depends, in part, on
its ability to provide prompt, accurate and complete service to its customers
on a competitive basis, and to purchase and promote products, manage
inventory, ship products, manage sales and marketing and maintain efficient
operations through its telephone and management information systems. The
Company anticipates upgrading its management information systems in the fourth
quarter of fiscal 1996 and plans to continue to update its management
information systems in the future to support its growth. A significant
disruption in its management information systems could adversely affect the
Company's relations with its customers and vendors and its ability to manage
its operations. While the Company has arranged for back-up computer and
telephone systems, there can be no assurance that extended or repeated
reliance on these back-up systems would not have a material adverse effect on
the Company.
Reliance on Third-Party Fulfillment and Parcel Services. All the Company's
orders for merchandise are currently being handled by a single third-party
fulfillment company at a single facility near Lancaster, Pennsylvania. In the
future, the Company may consider managing its own fulfillment operations. Any
disruption in fulfillment operations could have a material adverse effect on
the Company and its reputation with customers. In addition, strikes or other
service interruptions by the Company's shippers or parcel services could have
a material adverse effect on the Company's ability to deliver merchandise on a
timely basis. See "Business--Operations."
The Company attempts to deliver its catalogs to its customers at timely
seasonal intervals. The failure of the Company to deliver catalogs at
appropriate times or postal delays or disruptions in the mailing of catalogs,
could affect the demand for the Company's products and could have a material
adverse effect on the Company. See "Business--Operations--Distribution and
Fulfillment."
International Business Risks. The Company recently began to distribute its
catalog in Japan and intends to increase distribution there and to explore
distribution opportunities in other international markets. Approximately 1% of
the Company's net sales for the first six months of fiscal 1996 were from
sales to customers outside the United States, substantially all of whom were
located in Japan. In addition, certain of the Company's vendors procure
products from outside the United States, and the Company may in the future
purchase merchandise for its dELiA*s-branded apparel directly from non-U.S.
manufacturers. The Company's international business is subject to a number of
risks generally associated with doing business
7
<PAGE>
abroad, including the opening and management of foreign offices and
distribution centers, maintenance of uniform quality of merchandise,
development of customer lists and marketing channels, disruptions or delays in
shipping, fluctuations in the value of foreign currencies, exposure to
potentially adverse tax consequences, imposition of import/export duties and
quotas, and unexpected regulatory, economic and political changes in foreign
markets. There can be no assurance these factors will not have a material
adverse effect on the Company. Furthermore, expansion into new international
markets may present competitive and merchandising challenges different from
those the Company currently faces. There can be no assurance the Company will
expand internationally or that any such expansion will result in profitable
operations. See "Business--Growth Strategy."
Dependence on Intellectual Property. The Company has taken steps to protect
its intellectual property rights (including the dELiA*s name, the dELiA*s logo
and the daisy ("*") symbol). There can be no assurance that the actions taken
by the Company to establish and protect its trademarks and other proprietary
rights will prevent imitation of its products and services or infringement of
its intellectual property rights by others. In addition, there can be no
assurance others will not resist or seek to block sales of the Company's
products as violative of their trademark and proprietary rights. See
"Business--Intellectual Property."
List Development and Maintenance. The Company mails catalogs to names in its
proprietary database (which are primarily derived from word-of-mouth inquiries
and responses to the Company's advertising) and to potential customers whose
names are obtained from purchased and rented lists. Approximately 60% of the
names of persons to whom the Company mailed catalogs in the two months ended
September 30, 1996 were derived from purchased or rented lists, and the
Company anticipates continuing its use of such lists. Names derived from
purchased or rented lists may generate lower response rates than names derived
from word-of-mouth requests. Accordingly, the Company anticipates that overall
response rates would decline if it increased its use of purchased and rented
lists relative to its use of names in its database. In addition, the Company's
database primarily contains names of teen girls and young women. As these
individuals age beyond their teens, they may no longer purchase products aimed
at younger individuals. Accordingly, the Company must constantly update its
mailing lists to identify new, prospective teen customers. Failure to do so
could have a material adverse effect on the Company.
Recently, there has been increasing public concern regarding the
compilation, use and distribution of information about teens and children.
Federal legislation has been introduced in the U.S. Congress that proposes
restrictions on persons, principally list brokers, that sell, purchase or
otherwise use for commercial purposes personal information about teens (under
the age of 16) and children. The Company is not a list broker but it does mail
catalogs to persons whose names were derived from purchased or rented lists.
The Company may increase its use of purchased and rented lists or, in the
future, decide to sell lists containing information about teens.
Consequently,the proposed legislation, or other similar laws or regulations
that may be enacted, could impair the Company's ability to collect customer
names or profit from future plans to sell demographic information relating to
the teen population. Furthermore, additional legislation or regulations could
limit the Company's ability to continue to compile personal information on
teens or to use that information in the course of its business, which could
have a material adverse effect on the Company.
Sales Tax Collection. At present, the Company does not collect sales or
other similar taxes in respect of shipments of goods into most states.
However, various states have sought to impose state sales tax collection
obligations on out-of-state mail-order companies, such as the Company. A
successful assertion by one or more states that the Company should have
collected or be collecting sales taxes on the sale of products could have a
material adverse effect on the Company.
Control by Principal Stockholder. At the completion of this offering,
Stephen I. Kahn, the Chairman, Chief Executive Officer and President of the
Company, will beneficially own approximately 71.9% (approximately 69.5%, if
the Underwriters' over-allotment option is exercised in full) of the
outstanding shares of Common Stock, including 4,105,163 shares he will own
directly and an additional 4,768,243 shares in the aggregate subject to a
stockholders agreement among certain of the Company's existing stockholders
(the
8
<PAGE>
"Stockholders Agreement") and agreements with holders of restricted stock.
Under the Stockholders Agreement, Mr. Kahn is entitled, among other things, to
vote and restrict the transfer of all the shares subject to the Stockholders
Agreement, and, under the agreements with holders of restricted stock, Mr.
Kahn is entitled to vote such holders' shares. Therefore, Mr. Kahn can control
the election of directors of the Company and the outcome of all issues
submitted to a vote of stockholders of the Company. The foregoing, together
with certain provisions in the Company's certificate of incorporation, may
make it more difficult for a third party to acquire, and may discourage
acquisition bids for, the Company and could limit the price that certain
investors might be willing to pay for shares of Common Stock. In addition,
stockholders may take any action by written consent in accordance with the
General Corporation Law of the State of Delaware and the Company's bylaws,
which may allow Mr. Kahn to direct corporate action without advance notice to
other stockholders. See "Principal and Selling Stockholders" and "Description
of Capital Stock."
Anti-Takeover Provisions. Certain provisions of the Company's certificate of
incorporation and bylaws may make it more difficult for a third party to
acquire, or may discourage acquisition bids for, the Company and could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. These provisions, among other things, (a) divide the
board of directors into three classes, (b) require the affirmative vote of the
holders of at least 66 2/3% of the shares to approve a sale, lease, transfer
or exchange of all or substantially all the assets of the Company, (c) require
the affirmative vote of the holders of at least 66 2/3% of the shares to
remove a director or to fill a vacancy on the board of directors, (d) require
the affirmative vote of the holders of at least 66 2/3% of the shares to amend
or repeal certain provisions of the certificate of incorporation and (e)
require the affirmative vote of the holders of at least 66 2/3% of the shares
or two-thirds of the members of the board of directors to amend or repeal the
bylaws of the Company. In addition, the rights of holders of Common Stock will
be subject to, and may be adversely affected by, the rights of any holders of
Preferred Stock that may be issued in the future and that may be senior to the
rights of the holders of Common Stock. Under certain conditions, section 203
of the General Corporation Law of the State of Delaware would prohibit the
Company from engaging in a "business combination" with an "interested
stockholder" (in general, a stockholder owning 15% or more of the Company's
outstanding voting stock) for a period of three years. See "Description of
Capital Stock."
Absence of Dividends. Following the completion of this offering, the Company
intends to retain any future earnings for use in its business and, therefore,
does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."
Absence of Prior Public Market; Possible Volatility of Stock Price. There
has been no public market for the Common Stock prior to this offering, and
there can be no assurance an active public market for the Common Stock will
develop or continue after this offering. The initial public offering price for
the Common Stock will be determined by negotiations among the Company, the
Selling Stockholders and the representatives of the Underwriters (the
"Representatives"). See "Underwriting." There can be no assurance the market
price of the Common Stock will not decline below the initial public offering
price. The Company believes factors such as actions of competitors and
quarterly variations in operating results, as well as changes in market
conditions, analysts' estimates and the stock market may cause the market
price of the Common Stock to fluctuate significantly. Further, the stock
market has historically experienced volatility that sometimes has been
unrelated to operating performance. In addition, future sales of Common Stock
by the Company's existing stockholders following the completion of this
offering and the expiration of the 180-day lock-up period referred to in
"Shares Eligible for Future Sale" below could have an adverse effect on the
market price of the Common Stock. See "--Shares Eligible for Future Sale"
below, "Shares Eligible for Future Sale" and "Underwriting."
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market following this offering (including shares issued
upon the exercise of stock options) by current holders of the Company's Common
Stock and stock options, or the perception that such sales might occur, could
adversely affect the market price of the Common Stock and the Company's
ability to raise additional equity capital. Upon the completion of this
offering, 12,000,000 shares of Common Stock will be outstanding. The shares of
9
<PAGE>
Common Stock sold in this offering will be freely tradeable by persons other
than "affiliates" of the Company without restriction under the Securities Act
of 1933, as amended (the "Securities Act"). All other outstanding shares are
subject to lock-up commitments, pursuant to which such shares may not be sold
or otherwise disposed of for a period of 180 days after the date of this
Prospectus (the "Lock-Up Period") without the prior written consent of
Hambrecht & Quist LLC. Such shares consist of an aggregate of 7,323,556 shares
that are subject to lock-up agreements (the "Lock-Up Agreements") with
Hambrecht & Quist LLC and an aggregate of 2,326,444 shares that are subject to
restrictions on transfer pursuant to the Stockholders Agreement or the
Restricted Stock Plan, which restrictions the Company has agreed with Hambrecht
& Quist LLC not to waive during the Lock-Up Period. Hambrecht & Quist LLC may
release all or any portion of the shares subject to the Lock-Up Agreements.
After termination of the Lock-Up Period, all such shares will become eligible
for sale in the public market only in compliance with the registration
requirements of the Securities Act or pursuant to a valid exemption from
registration. See "Management--Restricted Stock Plan," "Principal and Selling
Stockholders" and "Shares Eligible for Future Sale."
Dilution. Investors in this offering will incur an immediate dilution in net
tangible book value per share of Common Stock of $9.24 (based on an initial
public offering price of $11.00). See "Dilution."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company at an assumed initial public offering
price of $11.00 per share are estimated to be $19,860,000 ($21,420,075, if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the net proceeds for working capital and general corporate purposes.
The Company also is evaluating a future investment in its fulfillment
operations. In addition, the Company intends to use a portion of the net
proceeds to repay the Investor Notes issued as part of the LLC Distribution
(each as defined in "Dividend Policy"). Pending such uses, the net proceeds
will be invested in investment-grade, interest-bearing securities. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
To date, the Company has neither declared nor paid any cash dividends (other
than the LLC Distribution). The Company currently intends to retain its
earnings for future growth and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
In connection with the Reorganization described below under "The
Reorganization," prior to the completion of this offering, dELiA*s LLC will
make a distribution (currently assumed to be $3.0 million) to certain of its
members, a portion of which is intended to be used for the payment by such
members of taxes attributable to them by virtue of their respective ownership
interests in dELiA*s LLC. The distribution (the "LLC Distribution") will be
paid in cash, to the extent of cash on hand at the date of distribution, less
$100,000, and the balance (currently assumed to be $1.0 million) will be paid
in the form of non-interest-bearing promissory notes issued by dELiA*s LLC to
such members (the "Investor Notes"). The actual amount of the LLC Distribution
will vary depending on the Company's results of operations prior to such
distribution. The Company, which will assume the obligations of dELiA*s LLC
under the Investor Notes as part of the Reorganization, will apply a portion
of the net proceeds of this offering to repay the Investor Notes upon the
completion of this offering. See "Use of Proceeds."
THE REORGANIZATION
The Company is a successor to a business originally founded in September
1993. In 1995, the successor business began to operate as a New York limited
liability company under the name "dELiA*s LLC." As a limited liability
company, dELiA*s LLC was treated for income tax purposes as a partnership with
taxes on the income generated by dELiA*s paid by its members. In October 1996,
dELiA*s Inc. was incorporated in Delaware. Prior to the completion of this
offering, dELiA*s LLC and dELiA*s Inc. will engage in a reorganization
transaction (the "Reorganization") pursuant to which dELiA*s LLC will
contribute its assets to dELiA*s Inc. and dELiA*s Inc. will assume, and agree
to pay, perform and discharge, all liabilities of dELiA*s LLC (except for
income tax liabilities). In connection with the Reorganization, dELiA*s Inc.
will issue 10,000,000 shares of Common Stock to dELiA*s LLC, of which 698,568
shares will be restricted under the Company's Restricted Stock Plan. See
"Management--Restricted Stock Plan." The LLC Distribution and the distribution
of the 10,000,000 shares of Common Stock of dELiA*s Inc. will be effected in
accordance with the dELiA*s LLC operating agreement. As a result of the
distribution of Common Stock, the members of dELiA*s LLC will become
stockholders of the Company and, as soon as practicable after the completion
of this offering, the separate existence of dELiA*s LLC will cease.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1996 (i) on an actual basis, reflecting the completion of the
Reorganization without giving effect to the LLC Distribution and (ii) on an
adjusted basis, to give effect to the portion of the LLC Distribution that
depended on the Company's results of operations from inception through July
31, 1996, the sale of 2,000,000 shares of Common Stock offered by the Company
at an assumed initial offering price of $11.00 per share and the application
of the estimated net proceeds therefrom. See "Dividend Policy,"
"Reorganization" and "Use of Proceeds." This table should be read in
conjunction with the Financial Statements and Notes thereto included in this
Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1996
-------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' Equity:
Preferred Stock, par value $.01 per share;
Authorized--1,000,000 shares;
Shares issued and outstanding--none................... $ -- $ --
Common Stock, par value $.01 per share;
Authorized--50,000,000 shares
Issued and outstanding--10,000,000 and 12,000,000
shares, respectively (1).............................. 100 120
Note receivable from stockholder (2)................... (50) (50)
Deferred compensation (3).............................. (191) (191)
Additional paid-in capital............................. 1,467 21,307
Retained earnings (4).................................. 447 --
------ -------
Total stockholders' equity............................ 1,773 21,186
------ =======
Total capitalization................................. $1,773 $21,186
====== =======
</TABLE>
- ---------------------
(1) Excludes 1,250,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan and 250,000 shares of Common Stock
reserved for issuance pursuant to a non-plan stock option agreement
between the Company and an executive. See "Management--Stock Incentive
Plan" and "Management--Stock Option Agreement."
(2) See Note 8 of Notes to Financial Statements.
(3) See Note 7 of Notes to Financial Statements.
(4) No adjustment has been made to give effect to the portion of the LLC
Distribution that depends on the Company's results of operations from
August 1, 1996 through the date of the distribution.
12
<PAGE>
DILUTION
As of July 31, 1996, the Company's pro forma net tangible book value, after
giving effect to the Reorganization and the portion of the LLC Distribution
that depended on the Company's results of operations from inception through
July 31, 1996, was $1,282,000, or approximately $0.13 per share of Common
Stock based on 10,000,000 shares of Common Stock outstanding. Pro forma net
tangible book value per share represents the amount of total stockholders'
equity less intangible assets divided by the number of outstanding shares of
Common Stock. The net proceeds to the Company from the sale of 2,000,000
shares in this offering at an assumed initial public offering price of $11.00
per share will increase the pro forma net tangible book value of the Company
at July 31, 1996 to $21,142,000, or approximately $1.76 per share of Common
Stock. This would result in an increase in the Company's pro forma net
tangible book value of $19,860,000, or $1.63 per share of Common Stock, to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $9.24 per share to investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1)............ $11.00
Pro forma net tangible book value per share before offering.. $0.13
Increase per share attributable to new investors............. 1.63
-----
Pro forma net tangible book value per share after the
offering...................................................... 1.76
------
Dilution per share to new investors............................ $ 9.24
======
</TABLE>
The following table sets forth, on a pro forma basis as of July 31, 1996
after giving effect to the Reorganization, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid to the Company by existing stockholders
and to be paid by the investors in this offering (at an assumed initial public
offering price of $11.00 per share and before deducting estimated offering
expenses and underwriting discounts and commissions):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
--------------------- ---------------------- PER
NUMBER (1) PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders (1)....... 10,000,000 83.3% $ 1,567,000 6.6% $ 0.16
New investors (1)....... 2,000,000 16.7 22,000,000 93.4 11.00
---------- ----- ----------- -----
Total................. 12,000,000 100.0% $23,567,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing shareholders to 9,650,000 or approximately 80.4%
(9,450,000 shares or approximately 77.8% if the Underwriters' over-
allotment option is exercised in full) of the number of shares of Common
Stock outstanding after this offering. See "Principal and Selling
Stockholders."
13
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
financial statements of the Company set forth elsewhere in this Prospectus,
which have been prepared in accordance with generally accepted accounting
principles. The data as of July 31, 1996 and for the six month period ended
July 31, 1996 are derived from the Company's financial statements which have
been audited by Deloitte & Touche LLP, independent auditors, which financial
statements are included elsewhere herein. The data at January 31, 1996 and
January 31, 1995 and for each of the two fiscal years ended January 31, 1996
and January 31, 1995 and for the period from September 9, 1993 (inception) to
January 31, 1994 are derived from the Company's financial statements which
have been audited by Richard A. Eisner & Company, LLP, independent auditors,
which financial statements are included elsewhere herein. The data at July 31,
1995 and for the six month period ended July 31, 1995 are derived from the
Company's unaudited financial statements for such period, and, in the opinion
of the Company's management, contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the results of
operations for such interim periods. This following selected data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and Notes
appearing elsewhere in this Prospectus. All financial data has been restated
to give effect to the Reorganization. Results for the six months ended July
31, 1996 are not necessarily indicative of the Company's results that may be
achieved for the fiscal year ending January 31, 1997 or any future period.
<TABLE>
<CAPTION>
SEPTEMBER 9,
1993 SIX MONTHS
(INCEPTION) TO FISCAL YEAR 1994 FISCAL YEAR 1995 ENDED JULY 31,
JANUARY 31, ENDED ENDED ----------------
1994 JANUARY 31, 1995 JANUARY 31, 1996 1995 1996
-------------- ---------------- ---------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales............. $ -- $ 139 $5,652 $ 1,301 $ 8,372
Cost of sales......... -- 89 3,078 676 3,958
----- ----- ------ ------- -------
Gross profit.......... -- 50 2,574 625 4,414
Selling, general and
administrative
expenses............. 34 384 2,569 808 3,638
Interest income, net.. 1 2 25 13 20
----- ----- ------ ------- -------
Income (loss) before
provision for income
taxes................ (33) (332) 30 (170) 796
Provision for income
taxes................ -- -- 3 -- 11
----- ===== ------ ------- -------
Net income (loss)..... $ (33) $(332) $ 27 $ (170) $ 785
===== ===== ====== ======= =======
Pro forma net income
(loss) (1)........... $ (19) $(202) $ 18 $ (102) $ 468
===== ===== ====== ======= =======
Pro forma net income
per share (2)........ $ 0.00 $ 0.05
====== =======
Shares used in the
calculation of
pro forma net income
per share (2)........ 10,098 10,098
====== =======
SELECTED OPERATING DATA:
Number of catalogs
mailed............... -- 26 1,700 550 2,450
House names (3)....... -- 17 290 132 720
<CAPTION>
JANUARY 31,
-----------
1995 1996 JULY 31, 1996
---- ---- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ 704 $ 675 $1,343
Working capital....... 826 720 1,342
Total assets.......... 870 1,266 3,626
Total stockholders'
equity............... 835 962 1,773
</TABLE>
- ---------------------
(1) Computed on the basis described in Note 6 of Notes to Financial Statements
and assuming the pro forma tax provisions described therein. Prior to this
offering, the Company will effect the Reorganization, in which the Company
will convert from a limited liability company to a C corporation.
(2) See Note 2 of Notes to Financial Statements for an explanation of the
determination of shares used in computing pro forma net income per share.
(3) House names represents the number of customers who have made at least one
purchase or have requested a catalog from the Company in the preceding 36
months, determined at the end of the applicable fiscal period.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section entitled "Risk Factors" as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
The Company was founded in 1993 and distributed its first catalog in 1994
through a network of on-campus college representatives. In early 1995, in an
effort to broaden the reach of its catalogs, the Company changed its primary
channel of distribution from college representatives to direct mail. This
change has resulted in a substantial increase in the Company's sales. In order
to support its direct marketing operations, the Company has made significant
capital expenditures for telephone and management information systems and has
hired and maintained an in-house workforce of teleservice representatives.
The Company initially mailed catalogs to persons responding to
advertisements and to names on rented lists. The Company has built a
proprietary list of "house names" (past buyers and persons who have requested
catalogs as a result of word-of-mouth or advertising), which contained
approximately one million names as of September 30, 1996. A significant
portion of the Company's catalogs are mailed to house names, supplemented by
purchased and rented lists. The Company believes that the response rates
generated from its house list are typically higher than can be realized from
purchased or rented lists.
The Company plans to increase catalog mailings from an anticipated 7 million
in fiscal 1996 to approximately 18 million in fiscal 1997. The Company mailed
four editions of its catalog in fiscal 1995, and anticipates mailing at least
five editions in fiscal 1996 and seven editions in fiscal 1997. Response rates
in fiscal 1996 have increased for each season's catalog compared to the
corresponding seasonal catalog in fiscal 1995. The Company believes such
increases are due, in part, to an increase in the proportion of house names
used in the Company's catalog mailings and, in part, to more effective
merchandising and catalog design. While the Company has achieved response rate
increases on a year-to-year basis, the Company has from time to time
(including fiscal 1996) experienced decreases in response rates from catalog
to catalog within a fiscal year. Response rates are influenced by a number of
factors including the timing of catalog mailings, market acceptance of the
Company's merchandise, the mix and presentation of products and actions of
competitors, and there can be no assurance that the Company will achieve
response rate increases in the future. Average order size has also fluctuated
seasonally. Generally, the average size of orders from the Company's fall and
winter catalogs is larger than the average size of orders from its spring and
summer catalogs.
The Company is currently attempting to increase the flexibility of its
catalog publishing schedule and reduce the lead time for inventory purchases
to take better advantage of early indicators of customer purchasing patterns
and reduce its exposure to the risk of inventory obsolescence. In the third
quarter of fiscal 1996, the Company began mailing catalogs to selected
portions of its house list that typically respond at higher rates. The Company
mailed its first sale circular in August 1996 and its first targeted
supplemental catalog in October 1996. In part to facilitate its targeted
publishing strategy, the Company has developed an in-house art department to
allow for shorter and more flexible publishing schedules. In addition,
recently, at the Company's request, certain of the Company's vendors have
agreed to purchase raw materials in advance and in excess of the Company's
initial purchase orders. This allows the Company to place orders later in a
season in response to early indicators of customer demand while reducing the
Company's inventory risk. Although
15
<PAGE>
the Company sometimes shares the risk of these raw material orders with such
vendors, these advance purchases limit its exposure to the greater risk of
unsold finished goods. The Company believes these actions have helped to
improve its overall profitability in fiscal 1996.
The Company believes that as its revenue base grows and it further
penetrates its target market, the Company may not be able to sustain the
levels of growth in net sales and growth in operating income experienced in
fiscal 1995 and the first six months of fiscal 1996.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statement of operations to
net sales. Any trends reflected by the following table may not be indicative
of future results.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------------------
SIX MONTHS
FISCAL YEAR 1994 FISCAL YEAR 1995 ENDED JULY 31,
ENDED ENDED -----------------
JANUARY 31, 1995 JANUARY 31, 1996 1995 1996
---------------- ---------------- ------- -------
<S> <C> <C> <C> <C>
Net sales................ 100.0% 100.0% 100.0% 100.0%
Cost of sales............ 64.0% 54.5% 52.0% 47.3%
------ ----- ------- -------
Gross profit............. 36.0% 45.5% 48.0% 52.7%
Selling, general and
administrative
expenses................ 276.3% 45.4% 62.1% 43.4%
Interest income, net..... 1.4% 0.4% 1.0% 0.2%
------ ----- ------- -------
Income (loss) before
provision for income
taxes................... (238.9%) 0.5% (13.1%) 9.5%
Provision for income
taxes................... -- -- -- 0.1%
------ ----- ------- -------
Net income (loss)........ (238.9%) 0.5% (13.1%) 9.4%
====== ===== ======= =======
Pro forma net income
(loss) (1).............. (145.3%) 0.3% (7.8%) 5.6%
====== ===== ======= =======
</TABLE>
- ---------------------
(1) Computed on the basis described in Note 6 of Notes to Financial Statements
and assuming the pro forma tax provisions described therein. Prior to this
offering, the Company will effect the Reorganization, in which the Company
will convert from a limited liability company to a C corporation.
COMPARISON OF SIX MONTHS ENDED JULY 31, 1995 AND 1996
Net sales. Net sales increased approximately $7.1 million, from $1.3 million
in the first six months of fiscal 1995 to $8.4 million in the first six months
of fiscal 1996. The increase in net sales was primarily due to an increase in
the number of catalogs mailed, as well as an increase in response rates and
average order size. The Company increased the number of catalogs it mailed
from approximately 550,000 in the first six months of fiscal 1995 to 2.5
million in the first six months of fiscal 1996. Sales per catalog from the
spring 1996 and summer 1996 catalogs, both of which were mailed in the first
six months of fiscal 1996, increased by 45% over the comparable catalogs
mailed in the first six months of fiscal 1995. The increase in sales per
catalog was primarily caused by the increase in response rates over the same
period, and to a lesser extent by a slight increase in average order size. The
slight increase in average order size resulted from a combination of factors,
including increased prices on certain existing items, and the addition of
certain more expensive items in the Company's catalogs.
Gross margin. Gross margin increased from 48.0% in the first six months of
fiscal 1995 to 52.7% in the first six months of fiscal 1996. The increase in
gross margin was due to improved sourcing of merchandise, including larger
volume discounts from suppliers, as well as changes in product mix and higher
selling prices. To a lesser degree, gross margin increased as certain related
fixed costs of merchandising were spread over increased sales. These
improvements were partially offset by an increased reserve for returns
consistent with the Company's recent growth and an increased inventory
markdown reserve based upon management's evaluation of merchandise inventories
as of July 31, 1996 and anticipated inventory dispositions.
16
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $2.8 million, from $808,000 in
the first six months of fiscal 1995 to $3.6 million in the first six months of
fiscal 1996. Selling, general and administrative expenses decreased as a
percentage of net sales from 62.1% in the first six months of fiscal 1995 to
43.4% in the first six months of fiscal 1996. The reduction in selling,
general and administrative expenses as a percentage of net sales was due
primarily to the leveraging of certain fixed costs over a larger revenue base.
The reduction was partially offset by a charge of approximately $270,000 in
the first six months of fiscal 1996 related to the processing of names of
catalog requesters through a third party service. In addition, the reduction
was partially offset by the Company's higher expenditures on corporate
salaries and additional information systems in anticipation of future sales
growth.
COMPARISON OF FISCAL YEARS 1994 AND 1995
Net sales. Net sales increased approximately $5.6 million, from $139,000 in
fiscal 1994 to $5.7 million in fiscal 1995. The increase in net sales was due
primarily to the change in the Company's primary channel of distribution from
on-campus college representatives to direct mail and the corresponding
increase in the number of catalogs distributed. The Company increased catalog
mailings from approximately 25,500 catalogs in fiscal 1994 to approximately
1.7 million catalogs in fiscal 1995.
Gross margin. Gross margin increased from 36.0% in fiscal 1994 to 45.5% in
fiscal 1995. The increase in gross margin was due to the leveraging of certain
fixed costs over a larger revenue base, improved sourcing of merchandise,
including sourcing in larger quantities from a broader range of vendors, as
well as a change in merchandise mix to higher margin apparel and accessories.
The increase in gross margin in fiscal 1995 was partially offset by the
Company's decision to liquidate excess inventory through charitable donations
in the fourth quarter of fiscal 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $2.2 million, from $384,000 in
fiscal 1994 to $2.6 million in fiscal 1995. Selling, general and
administrative expenses decreased as a percentage of net sales from 276.3% in
fiscal 1994 to 45.4% in fiscal 1995. This reduction in selling, general and
administrative expenses as a percentage of net sales was due primarily to the
fact that revenues increased faster than expenses. The reduction in expenses
as a percentage of net sales was partially offset by a higher corporate
payroll and higher expenditures for management information systems and
telephone systems related to the Company's infrastructure growth.
INCEPTION THROUGH JANUARY 31, 1994
The Company was founded in September 1993 and distributed its first catalog
in March 1994. Accordingly, the Company had no net sales and an operating loss
of $33,000 in the interim period ended January 31, 1994.
17
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of operations
data for the six quarters ended July 31, 1996, as well as such data expressed
as a percentage of the Company's total net sales for the periods indicated.
This data has been derived from unaudited financial statements that, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of such information
when read in conjunction with the Company's annual audited financial
statements and notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
FISCAL 1995 FISCAL 1996
------------------------------------- -----------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31,
1995 1995 1995 1996 1996 1996
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 557 $ 744 $1,543 $2,808 $3,709 $4,663
Cost of sales........... 278 398 762 1,640 1,725 2,233
----- ----- ------ ------ ------ ------
Gross profit............ 279 346 781 1,168 1,984 2,430
Selling, general and
administrative
expenses............... 337 471 674 1,087 1,489 2,149
Interest income, net.... 7 6 5 7 9 11
----- ----- ------ ------ ------ ------
Income (loss) before
provision for income
taxes.................. (51) (119) 112 88 504 292
Provision for income
taxes.................. -- -- -- 3 7 4
----- ----- ------ ------ ------ ------
Net income (loss)....... $ (51) $(119) $ 112 $ 85 $ 497 $ 288
===== ===== ====== ====== ====== ======
Pro forma net income
(loss) (1)............. $ (30) $ (70) $ 67 $ 51 $ 297 $ 171
===== ===== ====== ====== ====== ======
<CAPTION>
PERCENTAGE OF TOTAL NET SALES
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 49.9% 53.5% 49.3% 58.4% 46.5% 47.9%
----- ----- ------ ------ ------ ------
Gross profit............ 50.1% 46.5% 50.7% 41.6% 53.5% 52.1%
Selling, general and
administrative
expenses............... 60.5% 63.3% 43.7% 38.7% 40.1% 46.0%
Interest income, net.... 1.3% 0.8% 0.3% 0.2% 0.2% 0.2%
----- ----- ------ ------ ------ ------
Income (loss) before
provision for income
taxes.................. (9.1%) (16.0%) 7.3% 3.1% 13.6% 6.3%
Provision for income
taxes.................. -- -- -- 0.1% 0.2% 0.1%
----- ----- ------ ------ ------ ------
Net income (loss)....... (9.1%) (16.0%) 7.3% 3.0% 13.4% 6.2%
===== ===== ====== ====== ====== ======
Pro forma net income
(loss) (1)............. (5.4%) (9.4%) 4.3% 1.8% 8.0% 3.7%
===== ===== ====== ====== ====== ======
</TABLE>
- --------
(1) Computed on the basis described in Note 6 of Notes to Financial Statements
and assuming the pro forma tax provisions described therein. Prior to this
offering, the Company will effect the Reorganization, in which the Company
will convert from a limited liability company to a C corporation.
The Company is subject to seasonal fluctuations in its merchandise sales and
results of operations. The Company expects its net sales and results of
operations generally to be lower in the first and second quarters than in the
third and fourth quarters of each fiscal year (which include the back-to-
school and holiday seasons). The Company's quarterly results may fluctuate as
a result of numerous factors, including the timing, quantity and cost of
catalog mailings, the timing of sale circulars and liquidations, the timing of
merchandise deliveries, market acceptance of the Company's merchandise
(including new merchandise categories or products introduced), the mix of
products sold, the hiring and training of additional personnel, the timing of
inventory writedowns, the incurrence of other operating costs and factors
beyond the Company's control, such as general economic conditions and actions
of competitors. Accordingly, the results of operations in any quarter will not
necessarily be indicative of the results that may be achieved for a full
fiscal year or any future quarter. See "Risk Factors--Seasonal and Quarterly
Fluctuations."
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has met its operating and cash requirements
through funds generated from operations and the private sales of equity
securities. All of the Company's working capital needs have been satisfied by
cash provided by operations since the third quarter of fiscal 1995. Cash
provided by operations in the first six months of fiscal 1996 was $908,000
while cash used in operations was $173,000 during the first six months of
fiscal 1995. This was primarily due to lower selling, general and
administrative expenses as a percentage of net sales and higher gross margins.
Cash provided by operations was $40,000 in fiscal 1995, as compared to cash
used in operations of $422,000 in fiscal 1994.
Cash used in investing in the first six months of fiscal 1996 was $240,000
and $50,000 in the first six months of fiscal 1995. Cash used in investing in
fiscal 1995 was $169,000 and $7,000 in fiscal 1994. The Company expects to
make capital expenditures of approximately $1.0 million to upgrade its
management information systems in the fourth quarter of fiscal 1996 and the
first quarter of fiscal 1997. The Company expects to make additional capital
expenditures of $750,000 for additional technology upgrades in the last three
quarters of fiscal 1997. The Company also anticipates capital expenditures of
at least $250,000 in property, plant and equipment, including leasehold
improvements and office equipment.
Cash and cash equivalents increased by approximately $668,000 from January
31, 1996 to July 31, 1996 primarily due to increased cash provided by
operations relative to cash used by operations and decreased by $29,000 from
January 31, 1995 to January 31, 1996. During the fiscal year prior to this
offering, the Company has operated as a limited liability company with taxes
paid by its members. In anticipation of its conversion to a Delaware
corporation, the Company, as part of the Reorganization, intends to make a
cash distribution to certain members of the limited liability company.
Following the Reorganization, the Company will not be a flow-through entity
and will be liable for applicable income taxes. See "Dividend Policy" and "The
Reorganization."
The Company has a revolving line of credit for seasonal working capital,
collateralized by all of the Company's assets other than inventory. The
maximum amount available under the line of credit is $1.5 million. The
interest rate on the line of credit is the lending bank's prime rate (8.25% at
July 31, 1996) plus 2%. The Company has not drawn on this line.
The Company believes that its cash on hand, together with cash generated by
operations and the proceeds of this offering, will be sufficient to meet its
capital and operating requirements through fiscal 1997. The Company's future
capital requirements, however, depend on numerous factors, including, without
limitation, the success of its marketing, sales and distribution efforts.
There can be no assurance that additional funds, if required, will be
available to the Company on favorable terms or at all.
INFLATION
The Company does not believe that inflation has had a material adverse
effect on net sales or results of operations. The Company has generally been
able to pass on increased costs related to inflation through increases in its
prices to customers.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable, and is
effective for fiscal years beginning after December 15, 1995. The adoption of
SFAS No. 121 did not have an effect on the Company's financial position or
results of operations.
19
<PAGE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company beginning February 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
expense to be measured based on the fair value of the equity instrument
awarded. Companies are permitted, however, to continue to apply Accounting
Principles Board Opinion No. 25 ("APB No. 25"), which recognizes compensation
costs based on the intrinsic value of the equity instrument awarded. The
Company will continue to apply APB No. 25 to its stock-based compensation
awards to employees. The required disclosures of pro forma effects on net
income and earnings per share did not apply during the six-month period ended
July 31, 1996 or prior years.
20
<PAGE>
BUSINESS
dELiA*s is a direct marketer of casual apparel and related accessories to
girls and young women, primarily between the ages of 10 and 24 (an age group
known as "Generation Y"). The Company believes that it is one of a limited
number of direct marketers distributing an apparel-based catalog exclusively
targeting girls and young women of Generation Y and that its selection and
presentation of merchandise have contributed to a growing recognition of
dELiA*s as a Generation Y fashion resource. The Company's broad assortment of
merchandise includes recognized and emerging brands complemented by dELiA*s own
branded products. Merchandise ranges from basics, such as jeans, shorts and t-
shirts to more fashion-oriented apparel and accessories, such as woven and knit
junior dresses, swimwear, sunglasses, watches, costume jewelry and cosmetics.
The Company's distinctive catalogs, with their eye-catching layouts accented by
creative, high-impact editorial, are designed to express a culture and attitude
unique to dELiA*s. Each catalog carries a broad array of merchandise typically
presented in coordinated outfits that can be purchased for under $100.
dELiA*s mailed its first catalog in March 1994 and mailed approximately 1.7
million in fiscal 1995. The Company plans to increase catalog mailings from an
anticipated 7 million in fiscal 1996 to approximately 18 million in fiscal
1997. As of September 30, 1996, the Company's proprietary database had grown to
over one million house names, including approximately 200,000 customers who had
made at least one purchase from the Company within the preceding 36 months. The
Company's customers are located in all 50 states, as well as Japan, with sales
to customers in any single state comprising not more than 11% of total sales in
the first six months of fiscal 1996.
THE GENERATION Y MARKET
With the large "baby boom" generation maturing and having children, the
younger segments of the U.S. population have been increasing in recent years.
This increase follows a period of decline in the teen population, which the
Company believes contributed to a less favorable market for teen-focused
retailers. According to the U.S. Census Bureau, Generation Y (ages 10 to 24
years) currently numbers more than 55 million people and is expected to grow by
13% to more than 62 million by 2005. These children of the "baby boom"
generation are larger in number and growing more rapidly as a group than the
generation ahead of them.
HISTORICAL AND PROJECTED U.S. POPULATION OF 10 TO 24 YEAR-OLDS
<TABLE>
U.S. Polulation (age 10-24) in Thousands
<CAPTION>
Years "Gen Y" Population
<S> <C>
1985 56653
55586
54726
54249
53683
1990 54286
54070
54253
54517
54656
1995 54865
55037
55505
56248
57158
2000 58134
59170
60027
60770
61358
2005 61766
62133
62403
62658
62964
2010 63147
Source: U.S. Census Bureau statistics
</TABLE>
21
<PAGE>
The teen population (ages 12 to 19) represents the core of Generation Y. The
increase in the U.S. teen population has been accompanied by an increase in
the amount of money teens spend. According to one independent consumer
research firm, total teen spending in 1995 was $109 billion, an increase of
10% from 1994. Another independent research firm estimated that apparel
accounted for 34% of teen spending in 1995 and was the largest single category
of teen spending.
The Company believes that the members of Generation Y are influenced by new
media and information sources and that new consumer brands have emerged that
have become the choice of Generation Y. Although a variety of retailers and
catalogers offer teen merchandise, the Company believes that a limited number
of national retailers or catalogers cater exclusively to the Generation Y
market. The Company believes that in addition to creating a cultural
environment that caters to teen purchasers, retailers and catalogers must be
accessible to this population, many of whom are too young to drive, have
working parents with limited time to take them shopping or do not have
convenient access to teen-focused retailers. Based on these factors, the
Company believes that Generation Y is a large and underserved market that
represents a significant direct marketing opportunity.
GROWTH STRATEGY
The Company's goal is to be the leading direct marketer of casual fashion
apparel, related accessories and other products to Generation Y girls and
young women and to build on its recognition as a fashion resource. Key
elements of the Company's strategy to accomplish its goal include the
following:
Grow Core Catalog Business. dELiA*s believes that significant opportunities
exist to penetrate further its target market through the increased use of
catalogs. The Company's proprietary database consists of approximately one
million house names, compared to a total estimated Generation Y female
population of over 25 million. The Company intends to increase the number of
catalogs mailed from an anticipated 7 million in fiscal 1996 to approximately
18 million in fiscal 1997, and to expand the number of editions of its
catalogs. The Company believes it can use its proprietary database to develop
targeted mailings to specific customer segments. It also may broaden the range
of products offered in its catalogs (including additional dELiA*s-branded
products). In addition, the Company recently began to distribute catalogs in
Japan and plans to increase its distribution of catalogs in Japan in fiscal
1997. The Company is also exploring distribution opportunities in other
international markets.
Focus on Brand Name Merchandise. The Company believes teens are very brand-
conscious, and wear branded apparel to project an image to their peers. The
Company monitors leading young women's magazines (including Sassy, Seventeen
and YM), television channels (such as MTV) and other trend-setting media to
identify brands and styles that it believes are attracting the attention of
the teen market. A typical dELiA*s catalog features merchandise from a diverse
group of more than 50 vendors. Brands currently offered through dELiA*s
catalogs include nationally recognized names, such as Dickie's, Kenneth Cole
and Vans, as well as brands recognized within the teen market, including Free
People (Urban Outfitters) and Roxy (Quiksilver). dELiA*s also strives to
obtain merchandise from emerging designers, a strategy the Company believes
differentiates dELiA*s from other retailers and helps to establish dELiA*s as
a fashion resource for girls and young women. Emerging brands currently
featured in dELiA*s catalogs include Dollhouse, Lip Service, Little Earth
Products, Madhouse, Yak Pak and 26 Red Sugar.
Develop and Leverage the dELiA*s Brand Identity. The Company believes the
dELiA*s brand stands for fresh, progressive teen style and that the Company
has become a fashion resource for Generation Y girls and young women. The
dELiA*s brand identity is comprised of several components, including up-to-
date merchandise offerings, dELiA*s-branded products, the promotion of
emerging brands and dELiA*s distinctive catalog design. dELiA*s reaches out to
its target audience through its colorful, high-impact catalogs, which are
designed to resemble a youthful fashion digest and to enhance the dELiA*s
brand identity. The Company believes that successfully establishing strong
relationships with its target customers through its catalogs will enable
dELiA*s to leverage its name and database to develop additional distribution
channels
22
<PAGE>
and complementary product offerings in the future. These opportunities may
include developing a non-traditional, youth-oriented magazine (or 'zine),
developing other traditional or electronic publishing ventures and opening a
retail store.
Build Proprietary Customer Database. The Company believes the dELiA*s
customer database, which includes demographic data as well as purchasing
patterns and preferences, would be difficult for competitors to replicate and
offers opportunities for cross-marketing, sales of new products and the
development of additional distribution channels. The Company's proprietary
database of over one million house names includes approximately 200,000
customers who have made at least one purchase in the preceding 36 months.
During the eight months ended September 30, 1996, more than 500,000 new names
were added to the Company's database. The database has been developed
primarily through referrals, word-of-mouth, returns of catalog request cards
and targeted classified advertising in selected magazines, including Sassy,
Seventeen and YM. The Company believes over 90% of the names in the database
have been derived from these sources. The Company believes that its database
yields response rates that exceed average response rates for the consumer
catalog industry.
Invest in Customer Service Infrastructure. During fiscal 1996, the Company
has made significant investments in integrated, state-of-the-art telephone and
management information systems. These systems allow teleservice
representatives to provide real-time product availability and order status
information to customers and to monitor sales patterns and inventory levels
more closely. In addition, the Company has expanded its customer service
operations, including an increase in the number of its teleservice
representatives from approximately 50 on February 1, 1996 to approximately 150
on July 31, 1996. The Company focuses on hiring and training energetic,
service-oriented teleservice representatives who can understand and relate to
dELiA*s customers, with the goals of providing a convenient shopping
experience, offering useful product information and promoting customer
loyalty.
MERCHANDISING AND MARKETING
dELiA*s offers a carefully edited assortment of recognized and emerging
brands of teen apparel and accessories, complemented by dELiA*s-branded
merchandise. The Company believes teens are very brand-conscious, particularly
in their apparel choices, and rely on their favorite brands to help them
project an image to their peers. The Company monitors leading young women's
magazines (including Sassy, Seventeen and YM), television channels (such as
MTV) and other trend-setting media to identify brands and styles that it
believes are attracting the attention of the teen market. The Company's buyers
regularly attend apparel shows and meet with vendors and, in some cases, the
editorial staffs of young women's magazines, to stay abreast of popular
brands, fashions and styles.
The Company's catalogs feature a broad assortment of merchandise, ranging
from basics, such as jeans, shorts and t-shirts to more fashion-oriented
apparel and accessories, such as woven and knit junior dresses, swimwear,
sunglasses, watches, costume jewelry and cosmetics to enable its customers to
fulfill many of their fashion needs. The Company presents coordinated outfits
in its catalogs that reflect dELiA*s style. Merchandise is presented in a
manner designed to encourage customers to create their own outfits. The
Company believes the presentation of coordinated outfits increases average
order size and enhances sales.
The following table sets forth the principal product categories offered by
dELiA*s and the percentage of the Company's net sales (through July 31, 1996)
from its spring 1996 and summer 1996 catalogs represented by each category.
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
FROM SPRING 1996 AND
SUMMER 1996 CATALOGS
PRODUCT CATEGORY (THROUGH JULY 31, 1996)
---------------- -----------------------
<S> <C>
Apparel............................................ 69%
Footwear........................................... 16%
Accessories........................................ 8%
Cosmetics.......................................... 7%
---
100%
</TABLE>
23
<PAGE>
In the fall of 1995, the Company began to market products under the dELiA*s
brand name. Currently dELiA*s-branded products consist primarily of cosmetics,
t-shirts and footwear. Approximately 10% of the Company's net sales (through
July 31, 1996) from its spring 1996 and summer 1996 catalogs was attributable
to dELiA*s-branded products.
The Company seeks to develop strong relationships with numerous vendors and
designers in order to maintain ongoing access to recognized and emerging
brands. A typical dELiA*s catalog features merchandise from a diverse group of
more than 50 vendors. The Company believes the strong customer acceptance of
its catalog helps make the Company a preferred outlet for certain of its
vendors, some of whom occasionally provide the Company with merchandise on an
exclusive basis. Brands currently offered through dELiA*s catalogs include
nationally recognized names, such as Dickie's, Kenneth Cole and Vans, as well
as brands recognized within the teen market, including Free People (Urban
Outfitters) and Roxy (Quiksilver). dELiA*s also strives to obtain merchandise
from emerging designers, a strategy the Company believes differentiates
dELiA*s from other retailers and helps to establish dELiA*s as a fashion
resource for girls and young women. Emerging brands in the Company's catalog
currently include Dollhouse, Lip Service, Little Earth Products, Madhouse, Yak
Pak and 26 Red Sugar. Apparel produced by Urban Outfitters accounted for
approximately 24% of net sales in each of the spring 1996 and summer 1996
catalogs. The Company believes that a limitation on its ability to obtain
products from Urban Outfitters could have a material adverse effect on the
Company. No other supplier's products accounted for more than 8% of net sales
from the spring 1996 and summer 1996 catalogs. Six vendors accounted for
approximately 50% of the net sales generated by the Company's spring 1996
catalog, and five vendors accounted for approximately 53% of the net sales
generated by the Company's summer 1996 catalog.
The Company believes its exposure to fashion risk is mitigated in part by
relatively short lead times associated with the purchasing of its merchandise
and by its ongoing monitoring of sales patterns. On average, approximately
three-quarters of stock-keeping units ("SKUs") in the Company's spring and
fall catalogs are carried over to the summer and winter catalogs,
respectively; approximately one-sixth of SKUs in the summer and winter
catalogs is carried over to the fall and spring catalogs, respectively. The
Company believes its close working relationships with vendors also enhance its
ability to identify fashion trends.
CATALOGS
dELiA*s catalogs are designed to create a distinctive and entertaining
shopping experience and to offer customers more than the typical apparel
catalog by combining the feel and editorial flair of a teen-focused fashion
magazine with the convenience of direct mail shopping. The catalogs are filled
with colorful, eye-catching layouts and creative, high-impact phrases. The
catalogs feature teen models whose expressions and poses convey the dELiA*s
attitude. For example, on a typical page, coordinated outfits featuring plaids
and stripes appear beside the editorial soundbite, "oPPositeS AtTract &
AbsTrAcT & DeTrAcT & SuBtRaCt & inTeRaCt. oK." Similarly, the headline on a
page featuring dELiA*s neon and metallic-colored makeup reads, "MakIn' uP Is
nOt hARd tO Do."
dELiA*s catalogs are created and produced in-house by the Company's
designers, with the assistance of free-lance photographers and production
artists. These in-house capabilities allow the Company to control its catalog
production schedule, decreasing the lead times necessary to produce catalogs
and reducing the costs of preparing pages for printing. These capabilities
also provide the Company with greater flexibility and creativity in catalog
production and merchandise selection.
In fiscal 1996, the Company intends to publish at least five seasonal
catalogs (spring, summer, fall, late fall and winter). A typical catalog,
which follows a magazine-type format, contains approximately 50 pages and 500
SKUs. The Company's four principal seasonal catalogs are mailed to persons
listed in the Company's proprietary database, as well as to persons from
rented lists. The Company mailed its late fall 1996 catalog, and intends to
mail future supplemental catalogs to prior purchasers and selected catalog
requesters. In addition, the Company arranges for bulk distribution of its
catalogs on college campuses. In
24
<PAGE>
August 1996, the Company mailed its first sale circular. This four-page
circular featured over 200 SKUs. The Company may from time to time in the
future mail additional sale circulars. The Company anticipates mailing seven
catalog editions in fiscal 1997.
In fiscal 1996, the Company anticipates distributing approximately 7 million
catalogs in all 50 states. The Company intends to increase the number of
catalogs mailed to approximately 18 million in fiscal 1997. The Company
believes it can leverage its proprietary database to develop targeted mailings
to specific customer segments, and intends to begin more frequent mailings of
supplemental catalogs to repeat customers.
The Company recently began to distribute catalogs in Japan and intends to
increase its distribution of catalogs in Japan in fiscal 1997. These catalogs
are mailed directly to Japanese customers and are also being distributed
through an arrangement with a direct marketing division of Sony Corporation.
OPERATIONS
The primary components of the Company's operations, as described below,
include its proprietary database, teleservices and order entry, customer
service and returns and distribution and fulfillment.
Proprietary Database Development. The Company has developed its proprietary
customer database primarily through referrals, word-of-mouth, returns of
catalog request cards and targeted classified advertising in selected
magazines, including Sassy, Seventeen and YM. The Company believes over 90% of
the names in the database have been derived from these sources, which the
Company believes generate higher response rates than purchased or rented
lists. During the eight months ended September 30, 1996, more than 500,000 new
names were added to the Company's database. As of September 30, 1996, the
Company's proprietary database had grown to one million names, including
approximately 200,000 customers who had made at least one purchase from the
Company within the preceding 24 months. The Company's database contains a
person's name, gender, residence, age, family status and historical
transaction data (including, among other things, referral source, history of
orders, payment method, average order size and product purchase information).
Teleservices and Order Entry. The Company provides its customers with 24-
hour, seven-day-a-week, toll-free telephone access. Approximately 70% of the
Company's orders are received by phone and 30% by mail, facsimile and
electronic mail. Teleservice representatives process orders directly into the
Company's management information system, which provides customer order history
and information, product specifications, available substitutes and
accessories, expected ship date and order number. The teleservice
representatives are provided with a sales script, are versed in product sizes,
colors and features and are trained to cross-sell accessories and related
products and provide information about promotional items. Teleservice
representatives are trained to transfer calls to customer service personnel as
appropriate.
The Company believes its customers are particularly sensitive to the way
merchants and salespeople communicate with them. The Company strives to hire
energetic, service-oriented teleservice representatives who can understand and
relate to customers. Teleservice representatives, many of whom are college
students, participate in a training program, which includes a mentor system
for working with more experienced personnel. After training, teleservice
representatives are monitored to review performance and are re-trained
periodically. As teleservice representatives gain experience, they may be
trained and promoted in other areas, such as customer service.
The Company currently has 120 in-house phone stations and recently installed
a new state-of-the-art telephone system. The Company anticipates upgrading its
management information systems in the fourth quarter of fiscal 1996 and plans
to continue to update the system in the future to support its growth. The
Company's approximately 220 (as of October 30, 1996) full- and part-time
teleservice representatives have the capacity to handle approximately 2,000
calls per hour. The Company also uses an outside teleservices provider for
overflow orders and orders placed between 3 a.m. and 7 a.m., Eastern Standard
Time. The Company processes telephone orders in an average of two to four
minutes, depending upon the nature of the order and whether the customer is a
first-time or repeat customer.
25
<PAGE>
Customer Service and Returns. dELiA*s maintains a separate customer service
department. Customer service inquiries are principally concerned with order
and refund status. Customer service representatives are carefully screened,
specially trained and often promoted from within based on level of product
knowledge, service ability and order accuracy. The Company has a 45-day
unconditional return policy for its products. For each of fiscal 1995 and the
first six months of fiscal 1996, customer returns were less than 17% of net
sales, which the Company believes is below the catalog industry average.
Return experience is closely monitored to identify trends in product
offerings, product defects and quality issues.
Distribution and Fulfillment. A majority of the Company's orders are shipped
within 24 hours of credit approval. In cases in which the order is placed
using another person's credit card and it exceeds a specified threshold, the
order is shipped only after the Company has received oral confirmation from
the cardholder. Customers generally receive orders within three to five
business days after shipping. During fiscal 1996, approximately 95% of all
shipments have been made through United Parcel Service or the United States
Postal Service. A shipping and handling fee is charged on each customer order,
based on the total price of the order. The Company's fulfillment systems
automatically determine the most cost effective method of shipping each order.
dELiA*s currently uses an unaffiliated, third-party fulfillment contractor
to process and fulfill orders. The Company manages this process through two
on-site employees. The third-party contractor uses an integrated picking,
packing and shipping system via an on-line connection to the Company's in-
house server. The system monitors the in-stock status of each item ordered,
processes the order and generates warehouse selection tickets and packing
slips for order fulfillment operations. dELiA*s, through this contractor, is
currently making an average of 2,000 shipments a day (and the Company believes
that the contractor has the capacity to ship up to 10,000 orders a day).
During the first six months of fiscal 1996, the Company shipped over 250,000
packages. The Company's agreement with the third-party contractor has a one-
year term and expires on April 30, 1997. The Company may consider performing
its own order processing and fulfillment operations in the future.
Because the Company generally purchases its merchandise prior to the receipt
of customer orders, inventory management is an increasingly important
component of the Company's operations. From time to time, the Company
purchases large quantities of merchandise to ensure availability or realize
volume savings. When the Company believes it has excessive inventory, the
Company often runs promotional sales of the excess items through programs
targeted at phone-in customers. In addition, in August 1996, the Company
mailed its first sale circular and may from time to time mail additional sale
circulars in the future. The Company also has used third-party liquidators,
tent sales and charitable donations to dispose of excess inventory and may
consider other liquidation options, including outlet stores, in the future.
INTELLECTUAL PROPERTY
The dELiA*s name and logo have been registered by the Company with the U.S.
Patent and Trademark Office. Other applications for registration of the
Company's trademarks, including the daisy ("*") symbol, are currently pending.
The Company also uses the trademarks, trade names, logos and endorsements of
its suppliers with their permission. The Company is not aware of any pending
conflicts concerning its marks or its use of others' intellectual property
rights.
COMPETITION
The teen apparel and accessories industries are highly competitive, and the
Company expects competition in these markets to increase. The Company competes
for teen and young adult customers with traditional department store
retailers, alternative and vintage clothing stores located primarily in
metropolitan areas and mall-based teen-focused retailers, such as Gadzooks,
Hot Topic, Pacific Sunwear of California, Urban Outfitters and The Wet Seal.
To a lesser degree, the Company competes with other direct marketers, such as
Tweeds and J. Crew. Many of the Company's competitors are larger and have
substantially greater financial, distribution and marketing resources than the
Company. The Company believes the principal competitive factors in its
business are merchandise selection, customer service, brand image and price.
26
<PAGE>
There are few barriers to entry in the teen apparel and accessories market
and the Company expects other catalogers, as well as additional store-based
retailers and apparel manufacturers, to enter this market. The Company also
could face competition from manufacturers of apparel and accessories
(including the Company's current vendors), who could market their products
directly to retail customers or make their products more readily available in
retail stores or through catalogs. In addition, competitors could enter into
exclusive distribution arrangements with the Company's vendors and deny the
Company access to their products.
The Company expects that the direct marketing industry will be affected by
technological changes in distribution and marketing methods, such as on-line
catalogs, retail kiosks and Internet shopping. The Company believes its
success will depend, in part, on its ability to adapt to new technologies and
to respond to competitors' actions in these areas. See "Risk Factors--
Competition."
EMPLOYEES
At July 31, 1996, the Company had approximately 180 employees, of which six
held executive and administrative positions, ten were employed in product
acquisition and planning, 160 were employed in direct marketing operations and
two were employed in catalog production. None of the Company's employees is
represented by a collective bargaining unit. The Company considers its
relations with its employees to be good.
PROPERTIES
The Company leases its New York offices at 435 Hudson Street, New York, New
York, which occupy approximately 14,000 square feet. The lease expires in
2003. The Company believes its facilities are well-maintained and in good
operating condition. The Company expects to expand its New York offices to
accommodate anticipated growth. The Company's third-party fulfillment
contractor provides warehouse space near Lancaster, Pennsylvania to the
Company for inventory storage.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings that management
believes would have a material adverse effect on the Company's financial
position or results of operations.
27
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company and their ages as of October
14, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen I. Kahn................ 31 Chairman of the Board, Chief Executive
Officer, President and Director
Christopher C. Edgar........... 31 Executive Vice President, Chief Operating
Officer and Director
Evan Guillemin................. 31 Chief Financial Officer, Treasurer and
Secretary
S. Roger Horchow............... 68 Director
Sidney S. Kahn................. 59 Director
Geraldine Karetsky............. 55 Director
</TABLE>
Stephen I. Kahn has served as Chairman of the Board, President and Chief
Executive Officer of dELiA*s since co-founding the Company in 1993. Prior to
that, he worked at PaineWebber Group, Inc., first as a management associate
(from 1988 to 1989) and then as an associate in the merchant banking group
(from 1989 to 1993). In the merchant banking group, he was involved in the
acquisition, marketing and restructuring of the firm's portfolio investments,
including apparel and retailing properties. He also served as a director of
Hawthorne Broadcasting Corp., a PaineWebber portfolio company engaged in the
ownership and operation of radio stations. Mr. Kahn holds a B.A. from Yale
College, an M.A. from Oxford University and an M.B.A. from Columbia Business
School.
Christopher C. Edgar has served as Executive Vice President of dELiA*s and
as a member of the board of managers of dELiA*s LLC since co-founding the
Company in 1993 and presently serves as dELiA*s Chief Operating Officer. Mr.
Edgar oversees catalog publishing, marketing, merchandising and inventory
management. From 1992 to 1993, Mr. Edgar was a Nicholson Fellow and student in
the doctoral program in comparative literature at Columbia University. From
1989 to 1992, he worked as an analyst for SNL Securities, a financial industry
information service, and as a journalist for the Charlottesville Observer.
Mr. Edgar received a B.A. from Yale College and an M.A. from Columbia
University.
Evan Guillemin has served as Chief Financial Officer of dELiA*s since July
1996. Prior to joining the Company, he served briefly as an associate with,
and later a director of acquisitions for, K-III Communications Corporation, a
media investment company. From 1992 to 1994, he was executive vice president
of The New York Observer Co., with responsibility for the sales, marketing and
finance for that company's regional newspaper group. Prior to that, he helped
start SDC Publishing Co., a financial publishing unit of Thomson Corporation,
where he served as an editor and managed new product development and
acquisitions from 1989 to 1992. Mr. Guillemin received a B.A. from Yale
College and an M.B.A. from Harvard Business School.
S. Roger Horchow joined the board of directors of the Company in October
1996. He was the founder and chairman of the Horchow Collection, a direct
marketer of specialty home and fashion products, from 1973 until 1990. Mr.
Horchow was vice president of mail order for Neiman Marcus Group, Inc. from
1971 to 1973. Mr. Horchow has been a director of Fieldcrest Cannon, Inc., a
manufacturer of home-furnishing textile products, since 1994. He is also a
director of Public Radio International, White House Endowment Fund,
Smithsonian Institution and serves on the Board of Governors of the Yale
University Art Gallery. He has been chairman of R. Horchow Productions, Inc.,
a theatrical production company, since 1990. Mr. Horchow received a B.A. from
Yale College.
Sidney S. Kahn has served as a member of the board of managers of dELiA*s
LLC since its founding and joined the Company's board of directors in October
1996. He has been a private investor specializing in venture capital
investments since 1987. From 1977 to 1987 he was a senior officer of E.F.
Hutton & Co., Inc., a wholly-owned subsidiary of the E.F. Hutton Group, Inc.,
and from 1966 to 1977 he was a managing
28
<PAGE>
director and partner of Lehman Brothers. He has been a director of Orion
Network Systems, Inc., an operator of satellite-based communications services,
since 1990 and a number of privately held corporations, including Telogy
Networks, Inc., a communications software developer. He received a B.A. from
Yale College and is a member of the Board of Governors of the Yale University
Art Gallery.
Geraldine Karetsky has served as a member of the board of managers of
dELiA*s LLC since 1994 and joined the Company's board of directors in October
1996. She is a private investor and venture capitalist. She received a B.A.
from Smith College.
Sidney S. Kahn is Stephen I. Kahn's father. Ms. Karetsky is Stephen I.
Kahn's aunt and Sidney S. Kahn's sister. There are no other family
relationships among the directors and executive officers of the Company.
KEY EMPLOYEES
Charlene Benson has been Creative Director of dELiA*s since the fall of
1994. Prior to joining the Company, she was art director of Mademoiselle. She
has received awards from the Society of Publications for her work in US
magazine, GQ and The Sunday New York Times.
Karen Christensen has been a Senior Vice President and Controller of the
Company since January 1995. Prior to joining the Company, Ms. Christensen
practiced law for two years.
Ilka Eberly has been Buying Manager of dELiA*s since July 1996. Prior to
joining the Company, Ms. Eberly was a divisional merchandise manager of Urban
Outfitters, where she worked from 1990 to 1996.
Lisa Higgins joined dELiA*s in 1994 as one of the original buyers and is
currently Senior Vice President of Merchandising of the Company. Prior to
joining the Company, Ms. Higgins worked in the retailing division of Esprit
from 1990 until 1992.
Robert Karetsky has been a Senior Vice President of dELIA*s since October
1994. Prior to joining the Company, he worked in a variety of capacities in
education. Mr. Karetsky is the son of Geraldine Karetsky, a nephew of Sidney
S. Kahn and a cousin of Stephen I. Kahn.
Mary Obert has been Merchandise Production Manager of dELiA*s since August
1996. Prior to joining the Company, she was a production designer at Planet
Claire from 1995 to 1996 and a production manager and assistant designer at
Living Doll from 1992 to 1995. Prior to 1992, Ms. Obert was an assistant
designer at Urban Outfitters and Betsey Johnson.
Julie Scott has been Vice President of International Marketing of dELiA*s
since September 1996. Prior to joining the Company, she worked in client
acquisitions at Abacus Direct Corp., a database marketing company, as well as
in licensing and sales in Japan at a variety of companies including Marvel
Comics, Calvin Klein, Hermes and Dentsu.
Kent Trowbridge has been Senior Vice President and Director of Operations of
dELiA*s since February 1995. Prior to joining the Company, Mr. Trowbridge was
a research analyst and money manager at Sherwood Securities from 1994 to 1995.
Seth Walter has served as Vice President of Inventory Management of dELiA*s
since November 1995. Prior to joining the Company, Mr. Walter was an inventory
manager at Williams-Sonoma, where he worked from 1990 to 1995.
BOARD COMMITTEES
Audit Committee. Upon the completion of this offering, the board of
directors will establish an audit committee, a majority of whose members will
be directors who are neither members of the Company's management nor members
of the Kahn family. The audit committee will make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public
29
<PAGE>
accountants, review the independence of the independent public accountants,
consider the range of audit and non-audit fees and review the adequacy of the
Company's internal accounting controls.
Compensation Committee. Upon the completion of this offering, the board of
directors will establish a compensation committee, a majority of whose members
will be directors who are neither members of the Company's management nor
members of the Kahn family. The compensation committee will approve the
salaries and other benefits of the executive officers of the Company and
administer certain compensation plans of the Company. In addition, the
compensation committee will consult with the Company's management regarding
pension and other benefit plans and compensation policies and practices of the
Company.
BOARD ELECTIONS
The Company's board of directors is divided into three classes. Directors of
each class are elected at the annual meeting of stockholders held in the year
in which the term for the class expires and will serve thereafter for three
years. See "Description of Capital Stock--Anti-Takeover Effect of Provisions
of the Certificate of Incorporation and Bylaws." The terms of each of the
current directors of the Company are as follows: term expiring in 1997--S.
Roger Horchow; term expiring in 1998--Sidney S. Kahn and Geraldine Karetsky;
and term expiring in 1999--Christopher C. Edgar and Stephen I. Kahn.
DIRECTOR COMPENSATION
The Company intends to pay its directors who are not employees of the
Company $1,500 for each directors' meeting and each committee meeting attended
(plus reimbursement for out-of-pocket expenses). Under the Company's 1996
Stock Incentive Plan (the "Incentive Plan"), each non-employee director will
be granted, effective at the completion of this offering, an option to
purchase 40,000 shares of Common Stock at an exercise price per share equal to
the initial public offering price. All options granted to non-employee
directors will become exercisable at the rate of 20% on each of the first five
anniversaries of the date of grant, assuming the non-employee director is a
director on those dates, and all such options generally will be exercisable
for a period of ten years from the date of grant. Upon a Change of Control (as
defined in the Incentive Plan), all options (which have not yet expired) will
automatically become exercisable. Directors who are employees of the Company
will not be compensated for services as directors. See "Management--1996 Stock
Incentive Plan."
EXECUTIVE COMPENSATION
Stephen I. Kahn, the Company's Chairman of the Board, President and Chief
Executive Officer received $25,000 in salary in fiscal 1995. He did not
receive any other compensation from the Company in fiscal 1995, and did not
receive any compensation in fiscal 1994 or the period from September 9, 1993
(inception) to January 31, 1994. The aggregate dollar value of all perquisites
and other personal benefits, securities or property awarded to, earned by or
paid to Mr. Kahn did not exceed the lesser of $50,000 or 10% of his total
annual salary during any fiscal year. No officer of the Company received
$100,000 or more in salary and bonus in fiscal 1995. In fiscal 1996, the
annual salary rate of the Company's executive officers has been as follows:
Mr. Kahn $35,000, Mr. Edgar $50,000 and Mr. Guillemin $50,000. No bonuses have
been paid in fiscal 1996.
EMPLOYMENT AGREEMENTS
Prior to the completion of this offering, Messrs. Kahn and Edgar (the
"Executives") will enter into three-year agreements with the Company providing
for the continuation of their employment as Chairman of the Board and
President and as Chief Operating Officer and Executive Vice President,
respectively, at minimum salaries of $100,000 a year for each Executive,
subject to annual upward adjustment in proportion to the increase in the
consumer price index plus such increases in salary and such bonuses as the
board of directors may from time to time approve. If an Executive dies, or, as
a result of disability, is unable to perform substantially all his duties for
a period of nine consecutive months, the Company may terminate his
30
<PAGE>
employment (not earlier than 30 days and not later than 90 days after the
expiration of the nine-month period), in which event the Executive (or his
heirs or estate) will be entitled to his salary for the remainder of the term
of the agreement. Evan Guillemin will enter into an employment agreement with
the Company providing for the continuation of his employment as Chief
Financial Officer, at a salary of $100,000 a year, on substantially the same
terms and conditions as Messrs. Kahn and Edgar, except that the term of Mr.
Guillemin's agreement will expire on July 31, 2001.
RESTRICTED STOCK PLAN
Under the Company's Restricted Stock Plan, the Company has outstanding
restricted stock awards to 12 employees covering an aggregate of 698,568
shares of Common Stock. Each such employee will be entitled to retain his
shares, without consideration, if he continues to be employed after the 30th
month following the date of grant; if such employment terminates earlier for
any reason, the employee will forfeit all his rights to the restricted stock.
Until the employee is entitled to retain his shares, Stephen I. Kahn is
entitled to vote all such shares and the employee has no rights as a
stockholder in respect of those shares. The Company will not make any
additional awards under the Restricted Stock Plan.
STOCK OPTION AGREEMENT
Mr. Guillemin and the Company have entered into a stock option agreement,
pursuant to which the Company has granted Mr. Guillemin an option to purchase
up to an aggregate of 250,000 shares of Common Stock at the price per share to
the public in this offering (the "Exercise Price"). The option becomes
exercisable as to 50,000 shares on each of July 21, 1997, 1998, 1999, 2000 and
2001. If Mr. Guillemin's employment terminates before July 21, 2001 as a
result of his death or disability, or if the Company terminates his employment
other than for cause or if the Company effects a Constructive Discharge (as
defined in Mr. Guillemin's employment agreement) of Mr. Guillemin, the option
will become exercisable as to all 250,000 shares; if Mr. Guillemin's
employment terminates other than as set forth above, the portion of the option
that is not exercisable at the date of termination will not thereafter become
exercisable. The Company may purchase all the shares previously purchased by
Mr. Guillemin pursuant to the option and terminate all further rights under
the option in exchange for an amount equal to (i) the product of (A) the
Average Price of a Share (as defined in the stock option agreement) and (B)
the sum of (1) the number of shares being purchased plus (2) the number of
shares subject to the option being terminated, reduced by (ii) the product of
the Exercise Price and the number of shares subject to the option being
terminated. Upon a merger, consolidation or sale of substantially all the
assets of the Company, the option will become immediately exercisable as to
50% of the shares as to which the option has not yet become exercisable, with
the balance of the option not then exercisable becoming exercisable in equal
amounts on each July 21 thereafter through July 21, 2001. Finally, if Mr.
Guillemin's employment terminates before July 22, 1997, Stephen I. Kahn will
have the option to purchase from Mr. Guillemin 100,000 shares of Common Stock
for $50,000.
1996 STOCK INCENTIVE PLAN
A maximum of 1,250,000 shares of Common Stock may be issued or used for
reference purposes pursuant to the Incentive Plan. No awards will have been
made under the Incentive Plan prior to this offering. At the time of this
offering, an option to purchase 40,000 shares of Common Stock at an exercise
price equal to the initial public offering price will be granted to each non-
employee director of the Company. See "--Director Compensation." The maximum
number of shares of Common Stock subject to each of stock options or stock
appreciation rights that may be granted to any individual under the Incentive
Plan is 100,000 for each fiscal year of the Company during the term of the
Incentive Plan. If a stock appreciation right is granted in tandem with a
stock option, it shall apply against the individual limits for both stock
options and stock appreciation rights, but only once against the maximum
number of shares available under the Incentive Plan.
The Incentive Plan provides for the following types of awards to eligible
employees: (i) stock options, including incentive stock options and non-
qualified stock options; (ii) stock appreciation rights, in tandem with stock
options or freestanding; and (iii) restricted stock. In addition, the
Incentive Plan provides for the non-discretionary award of stock options to
non-employee directors of the Company. Awards may be granted singly, in
combination or in tandem, as determined by the compensation committee.
31
<PAGE>
Under the Incentive Plan, the compensation committee may grant awards in the
form of incentive stock options or non-qualified stock options. The
compensation committee will determine the number of shares subject to the
option, the term of the option (which may not exceed ten years, or, in the
case of an incentive stock option granted to a ten percent stockholder of the
Company, five years), the exercise price per share of stock subject to the
option, the vesting schedule (if any) and the other material terms of the
option. Generally, no option may have an exercise price less than the fair
market value of the Common Stock at the time of grant (or, in the case of an
incentive stock option granted to a ten percent stockholder of the Company,
110% of fair market value).
The option price upon exercise may, to the extent determined by the
compensation committee at or after the time of grant, be paid in cash, in
shares of Common Stock, in shares of restricted stock valued at fair market
value on the payment date as determined by the compensation committee (without
regard to any forfeiture restrictions applicable to restricted stock), by a
reduction in the number of shares of Common Stock issuable upon exercise of
the option or by such other method as is approved by the compensation
committee. If an option is exercised by delivery of shares of restricted
stock, the shares of Common Stock acquired pursuant to the exercise of the
option will generally be subject to the same restrictions as were applicable
to such restricted stock. All options may be made exercisable in installments,
and the exercisability of options may be accelerated by the compensation
committee. The compensation committee may at any time offer to buy an option
previously granted on such terms and conditions as the compensation committee
shall establish. The Compensation Committee may in its discretion reprice
options or substitute options with lower exercise prices in exchange for
outstanding options that are not incentive stock options, provided that the
exercise price of substitute options or repriced options may not be less than
the fair market value at the time of such repricing or substitution. Options
may also, at the discretion of the compensation committee, provide for
"reloads," whereby a new option is granted for the same number of shares as
the number of shares of Common Stock or restricted stock used to pay the
option price upon exercise.
The Incentive Plan also authorizes the compensation committee to award
shares of restricted stock. Upon the award of restricted stock, the recipient
has all rights of a stockholder with respect to the shares, including the
right to receive dividends currently, unless otherwise specified by the
compensation committee at the time of grant. Unless otherwise determined by
the committee at grant, payment of dividends, if any, will be deferred until
the date the relevant share of restricted stock vests.
Recipients of restricted stock are required to enter into a restricted stock
award agreement with the Company which states the restrictions to which the
shares are subject and the date or dates or criteria on which such
restrictions will lapse. Within the limits of the Incentive Plan, the
compensation committee may provide for the lapse of such restrictions in
installments in whole or in part or may accelerate or waive such restrictions
at any time.
The Incentive Plan also authorizes the compensation committee to grant stock
appreciation rights ("SARs") either with a stock option ("Tandem SARS") or
independent of a stock option ("Non-Tandem SARs"). A SAR is a right to receive
a payment either in cash or Common Stock as the compensation committee may
determine, equal in value to the excess of the fair market value of a share of
Common Stock on the date of exercise over the reference price per share of
Common Stock established in connection with the grant of the SAR. The
reference price per share covered by an SAR will be the per share exercise
price of the related option in the case of a Tandem SAR and will be not less
than the per share fair market value of the Common Stock on the date of grant
(or any other date chosen by the committee) in the case of a Non-Tandem SAR
subject to any exception that applies to stock options.
A Tandem SAR may be granted at the time of the grant of the related stock
option or, if the related stock option is a non-qualified stock option, at any
time thereafter during the term of the stock option. A Tandem SAR generally
may be exercised only at the times and to the extent the related stock option
is exercisable. A Tandem SAR is exercised by surrendering the same portion of
the related option. A Tandem SAR expires upon the termination of the related
stock option.
32
<PAGE>
A Non-Tandem SAR will be exercisable as provided by the compensation
committee and will have such other terms and conditions as the compensation
committee may determine. A Non-Tandem SAR may have a term no longer than ten
years from its date of grant. A Non-Tandem SAR is subject to acceleration of
vesting or immediate termination upon termination of employment in certain
circumstances.
The compensation committee also is authorized to grant "limited SARS,"
either as Tandem SARs or Non-Tandem SARS. Limited SARs would become
exercisable only upon the occurrence of a Change of Control (as defined in the
Incentive Plan) or such other event as the compensation committee may
designate at the time of grant or thereafter.
Unless determined otherwise by the compensation committee at the time of
grant, upon a Change of Control, all vesting and forfeiture conditions,
restrictions and limitations in effect with respect to any outstanding award
will immediately lapse and any unvested awards will automatically become 100%
vested. However, unless otherwise determined by the compensation committee at
the time of grant, no acceleration of exercisability will occur with regard to
certain options the compensation committee reasonably determines in good faith
prior to a Change of Control will be honored or assumed or new rights
substituted therefor by a successor immediately following the Change of
Control.
The Incentive Plan provides for nondiscretionary awards of options to
purchase Common Stock to each non-employee director. See "--Director
Compensation."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation policies and decisions, including those relating to salary,
bonuses and benefits of executive officers, have been set or made by the board
of directors since the formation of the Company. Upon completion of this
offering, the board of directors will create a compensation committee, which
will recommend to the board the compensation to be paid to the Company's
executive officers. See "--Board Committees" above.
33
<PAGE>
CERTAIN TRANSACTIONS
From March 8, 1995 until immediately prior to the Reorganization, the
Company has been a limited liability company, the members of which, rather
than the Company itself, have been responsible for payment of taxes on the
Company's income. Upon the Reorganization, the Company is becoming a C
corporation, which will be responsible for the payment of taxes. The Company
has made non-interest-bearing loans to Stephen I. Kahn and Christopher C.
Edgar, each of whom is a director and officer of the Company, in amounts
estimated to equal the taxes on the portion of the income of the Company that
was attributed to them by virtue of their respective ownership interests in
the Company during its existence as a limited liability company. Those loans,
each of which was for an amount less than $60,000, will be repaid by Mr. Kahn
and Mr. Edgar upon the completion of this offering. In addition, the Company
has made a non-interest-bearing loan in the amount of $50,000 to Evan
Guillemin to finance Mr. Guillemin's acquisition of an equity interest in the
Company.
In connection with the Reorganization, certain existing members of dELiA*s
LLC will receive a portion of the LLC Distribution, which may include certain
cash distributions and/or the receipt of an Investor Note. See "The
Reorganization."
34
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information, with respect to the Company's
Common Stock beneficially owned by (i) each person known by the Company to be
the beneficial owner of more than 5% of the shares of Common Stock, (ii) each
director individually, (iii) each executive officer individually and (iv) all
executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING (1) THE OFFERING (1)
----------------------- SHARES -----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED (2) NUMBER PERCENT
- ---------------- ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
- ---------------
Stephen I. Kahn (3)..... 8,898,406 89.0% 250,000 8,623,406 71.9%
435 Hudson Street
New York, New York
10014
Geraldine Karetsky (4).. 1,423,955 14.2 -- 1,423,955 11.9
1660 Silverking Drive
Aspen, Colorado 81611
Sidney S. Kahn (4)...... 1,192,118 11.9 25,000 1,167,118 9.7
14 East 60th Street
New York, New York
10022
Christopher C. Edgar 768,915 7.7 75,000 693,915 5.8
(5)....................
435 Hudson Street
New York, New York
10014
Robert Karetsky......... 663,157 6.6 -- 663,157 5.5
435 Hudson Street
New York, New York
10014
OTHER EXECUTIVE OFFICERS
AND DIRECTORS
- ------------------------
Evan Guillemin (6)...... 102,682 1.0 -- 102,682 0.9
435 Hudson Street
New York, New York
10014
S. Roger Horchow (7).... * * -- * *
Directors and executive
officers as a group
(6 individuals)........ 9,770,003 97.7 350,000 9,420,003 78.5
</TABLE>
- --------
* Less than 1%.
(1) Based on the estimated amount of the LLC Distribution and the related
stock distribution that will be made by dELiA*s LLC prior to this
offering, which amount will be determined prior to the date of this
Prospectus. See "Dividend Policy" and "The Reorganization."
(2) In the event that the Underwriters exercise the over-allotment option, up
to an additional 352,500 shares of Common Stock may be sold as follows:
the Company, 152,500 shares; Stephen I. Kahn, 150,000 shares; Christopher
C. Edgar, 25,000 shares; and Sidney S. Kahn, 25,000 shares.
(3) Includes 4,105,163 shares of Common Stock (3,855,163 shares after the
offering) directly owned by Mr. Kahn and 4,768,243 shares that Mr. Kahn
has the sole power to vote pursuant to the Stockholders Agreement and
agreements with certain employee holders of restricted stock, of which Mr.
Kahn also has the shared power to restrict the disposition of 1,626,076 of
those shares. See "--Stockholders Agreement" and "Management--Restricted
Stock Plan."
(4) Includes 147,174 shares of stock owned as trustees for The Ruth Kahn Trust
f/b/o Sidney S. Kahn, which Sidney S. Kahn and Geraldine Karetsky have the
shared power to vote or to dispose of.
(5) Does not include 60,682 shares of Common Stock owned by Mr. Edgar subject
to the Restricted Stock Plan, which Mr. Edgar does not have the power to
vote or to dispose of.
(6) Does not include 250,000 shares of Common Stock issuable pursuant to a
stock option agreement between Mr. Guillemin and the Company. Pursuant to
that agreement, Mr. Guillemin's option does not begin to become
exercisable until July 21, 1997. See "Management--Stock Option Agreement."
(7) Does not include 40,000 shares of Common Stock issuable pursuant to an
option that will be granted upon the completion of this offering. See
"Management--Director Compensation."
35
<PAGE>
STOCKHOLDERS AGREEMENT
Certain members of Stephen I. Kahn's family and trusts for the benefit of
such persons (the "Family Stockholders") and Stephen I. Kahn will enter into a
stockholders agreement with the Company (the "Stockholders Agreement") which,
subject to certain exceptions, prohibits the Family Stockholders from
transferring the shares of Common Stock they will own upon the completion of
the Reorganization for a period of two years from the date of the
Reorganization. Thereafter, the Family Stockholders will be able to transfer
such shares in accordance with the limitations imposed on "affiliates" under
Rule 144 under the Securities Act. The Stockholders Agreement will permit each
of the Family Stockholders to cause the Company to register shares of Common
Stock concurrently with offerings of Common Stock by Stephen I. Kahn. The
Company will generally be required to bear the expenses of all such
registrations, except underwriting discounts and commissions. In addition, the
Stockholders Agreement will give Stephen I. Kahn the right to vote all the
shares of Common Stock owned by the Family Stockholders on all matters that
come before the stockholders of the Company. The Family Stockholders (not
including Stephen I. Kahn), collectively, will own 33.9% of the outstanding
Common Stock upon the completion of this offering. The Stockholders Agreement
will expire on the tenth anniversary of the completion of the Reorganization.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock having a par value of $.01 per share and 1,000,000 shares of
Preferred Stock having a par value of $.01 per share.
The following description of the Company's capital stock and certain
provisions of the Company's certificate of incorporation and bylaws is
qualified in its entirety by the provisions of the certificate of
incorporation and bylaws (which are included as exhibits to the Registration
Statement of which this Prospectus is a part) and the General Corporation Law
of the State of Delaware.
COMMON STOCK
There will be 12,000,000 shares of Common Stock outstanding after the
completion of this offering. An aggregate of 1,500,000 shares of Common Stock
are reserved for issuance under the Incentive Plan and a non-plan stock option
agreement between the Company and an executive.
All outstanding shares of Common Stock are, and the shares offered hereby
will be, fully paid and nonassessable. The holders of Common Stock are
entitled to one vote for each share held of record on all matters voted upon
by stockholders and may not cumulate votes. Thus, the owners of a majority of
the Common Stock outstanding may elect all of the directors if they choose to
do so, and the owners of the balance of such shares would not be able to elect
any directors. Subject to the rights of holders of any future series of
undesignated Preferred Stock that may be designated, each share of outstanding
Common Stock is entitled to participate equally in any distribution of net
assets made to the stockholders in liquidation, dissolution or winding up of
the Company and is entitled to participate equally in dividends as and when
declared by the board of directors. There are no redemption, sinking fund,
conversion or preemptive rights with respect to the shares of Common Stock.
All shares of Common Stock have equal rights and preferences.
PREFERRED STOCK
The board of directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 1,000,000 shares of Preferred Stock in one or more
series with such designations and such powers, preferences and rights, and
such qualifications, limitations or restrictions (which may differ with
respect to each series) as the board may fix by resolution.
The board of directors is empowered to set the terms of such shares
(including terms with respect to redemption, sinking fund, dividend,
liquidation, preemptive, conversion and voting rights and preferences).
Accordingly, the board of directors, without stockholder approval, may issue
shares of Preferred Stock with terms (including terms with respect to
redemption, sinking fund, dividend, liquidation, preemptive, conversion and
voting rights and preferences) that could adversely affect the voting power
and other rights of holders of the Common Stock.
At present, no shares of Preferred Stock are outstanding and the Company has
no present plans to issue any shares of Preferred Stock.
The undesignated Preferred Stock may have the effect of discouraging an
attempt, through the acquisition of a substantial number of shares of Common
Stock, to acquire control of the Company with a view to effecting a merger,
sale or exchange of assets or a similar transaction. For example, the board of
directors could issue such shares as a dividend to holders of Common Stock or
place such shares privately with purchasers who may side with the board of
directors in opposing a takeover bid. The anti-takeover effects of the
undesignated Preferred Stock may deny stockholders the receipt of a premium on
their Common Stock and may also have a depressive effect on the market price
of the Common Stock.
37
<PAGE>
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to the provisions of section 203 of the General
Corporation Law of the State of Delaware. Subject to certain exceptions,
section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained such status
with the approval of the board of directors or unless the business combination
is approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns,
or within three years did own, 15% or more of the corporation's voting stock.
ANTI-TAKEOVER EFFECT OF PROVISIONS OF THE CERTIFICATION OF INCORPORATION AND
BYLAWS
Certain provisions of the certificate of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the board of
directors and in the policies formulated by the board of directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company, such as an unsolicited
acquisition proposal. Because these provisions could have the effect of
discouraging a third party from acquiring control of the Company, they may
inhibit fluctuations in the market price of shares of Common Stock that could
otherwise result from actual or rumored takeover attempts and, therefore could
deprive stockholders of an opportunity to realize a takeover premium. These
provisions also may have the effect of limiting the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock and of preventing changes in the management of the Company.
Restrictions on Certain Business Combinations. The Company's certificate of
incorporation provides that if stockholder approval is required for the
adoption of any agreement for the merger or consolidation of the Company with
another corporation or for the sale, lease, transfer or exchange of all or
substantially all the assets of the Company, then the affirmative vote of the
holders of at least 66 2/3% of the shares entitled to vote on the matter will
required to approve such action.
Election and Removal of Directors. The Company's board of directors is
divided into three classes of directors serving staggered terms. One class of
directors will be elected at each annual meeting of stockholders for a three-
year term. See "Management--Election of Directors." At least two annual
meetings of stockholders, instead of one, generally will be required to change
the majority of the Company's board of directors. Any director may be removed
with or without cause at any time by the affirmative vote of the holders of at
least 66 2/3% of the shares entitled to vote at a special meeting of
stockholders called for that purpose and the vacancies thus created may be
filled at that same meeting by the affirmative vote of the holders of at least
66 2/3% of the shares entitled to vote at such meeting. Ordinary vacancies in
the board of directors may also be filled by the affirmative vote of the
holders of at least 66 2/3% of the shares entitled to vote in the election of
directors.
Vote Required to Amend or Repeal Certain Provisions of the Certificate of
Incorporation and Bylaws. The General Corporation Law of the State of Delaware
provides generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
The Company's certificate of incorporation requires the affirmative vote of
the holders of at least 66 /2///3/% of the shares entitled to vote in the
election of directors to amend or repeal certain of its provisions. A vote of
not fewer than 66 2/3% of the holders of shares entitled to vote in the
election of directors is required to amend or repeal the Company's bylaws. The
bylaws may also be amended or repealed by a vote of not fewer than 66 2/3% of
the board of directors, provided that the board of directors may not amend or
repeal any bylaw adopted by the stockholders of the Company. Any such vote
would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any Preferred Stock that might be
outstanding at the time any such amendments are submitted to stockholders.
38
<PAGE>
Stockholder Meetings. Only a majority of the Company's board of directors
(excluding those directors affiliated with or elected by an interested
stockholder), the chairman of the board, the vice chairman of the board or the
president of the Company will be able to call an annual or special meeting of
stockholders. In addition, stockholders may take any action by written
consent.
Requirements for Advance Notification of Stockholder Nomination and
Proposals. The Company's certificate of incorporation establishes advance
notice procedures with regard to stockholder proposals and the nomination,
other than by or at the direction of the board of directors or a committee
thereof, of candidates for election as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be The Bank of
New York.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 12,000,000 shares of Common Stock will be
outstanding and 1,500,000 shares of Common Stock will be reserved for issuance
upon the exercise of outstanding stock options pursuant to the Incentive Plan
and a non-plan stock option agreement between the Company and an executive.
The 2,350,000 shares of Common Stock sold in this offering will be freely
tradeable without restriction under the Securities Act, except for any shares
purchased by an "affiliate" of the Company (as that term is defined under the
rules and regulations of the Securities Act), which will be subject to the
resale limitations of Rule 144 under the Securities Act. The remaining
9,650,000 outstanding shares of Common Stock are "restricted securities" for
purposes of Rule 144 (the "Restricted Securities") and may not be resold in a
public distribution, except in compliance with the registration requirements
of the Securities Act or pursuant to a valid exemption from registration
(including pursuant to Rule 144).
There has been no public market for the Common Stock prior to this offering.
The Company cannot predict the effect, if any, sales of shares of Common Stock
or the availability of shares for sale will have on the market price from time
to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market following completion of this offering could adversely affect the
market price of the Common Stock and the Company's ability to raise additional
equity capital.
SALES OF RESTRICTED SHARES
None of the outstanding shares held by the Company's existing stockholders
will be eligible for resale in the public market pursuant to Rule 144
immediately after this offering. Moreover, all of the Restricted Securities
are subject to lock-up commitments, pursuant to which these shares may not be
sold publicly during the Lock-Up Period without the prior written consent of
Hambrecht & Quist LLC. These shares consist of an aggregate of 7,323,556
shares that are subject to Lock-Up Agreements with Hambrecht & Quist LLC and
an aggregate of 2,326,444 shares that are subject to the restrictions on
transfer contained in the Restricted Stock Plan or the Stockholders Agreement,
which the Company has agreed with Hambrecht & Quist LLC not to waive during
the Lock-Up period. Thus, none of the outstanding shares held by the Company's
existing stockholders will be eligible for sale prior to the expiration or
waiver of the Lock-Up Period. Thereafter, all the Restricted Securities may be
resold in the public market only in compliance with the registration
requirements of the Securities Act or pursuant to a valid exemption from
registration, including pursuant to Rule 144. The Restricted Securities will
begin to be eligible for sale under Rule 144 after the second anniversary of
the Reorganization.
In general, under Rule 144(e), as currently in effect, a stockholder (or
stockholders whose shares are aggregated), including an affiliate, who has
beneficially owned for at least two years shares of Common Stock that are
treated as "restricted securities" would be entitled to sell publicly, within
any three-month period, up to the greater of 1% of the then outstanding shares
of Common Stock (120,000 shares, immediately after the completion of this
offering) or the average weekly reported trading volume in the Common Stock
during the four calendar weeks preceding the date on which notice of sale is
given, provided certain requirements are satisfied. In addition, affiliates of
the Company must comply with additional requirements of Rule 144 in order to
sell shares of Common Stock (including shares acquired by affiliates in this
offering). Under Rule 144, a stockholder deemed not to have been an affiliate
of the Company at any time during the 90 days preceding a sale by him, and who
has beneficially owned for at least three years shares of Common Stock that
are treated as "restricted securities," would be entitled to sell those
shares, without regard to the foregoing requirements.
See "Principal and Selling Stockholders."
REGISTRATION RIGHTS
Pursuant to the Stockholders Agreement, stockholders holding 4,069,675
shares of Common Stock have certain rights to have such shares registered for
resale under the Securities Act. See "Principal and Selling Stockholders--
Stockholders Agreement."
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, Hambrecht & Quist LLC
and Oppenheimer & Co., Inc. (collectively, the "Representatives"), have
severally agreed to purchase from the Company and the Selling Stockholders the
following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC............................................
Oppenheimer & Co., Inc...........................................
---------
Total........................................................ 2,350,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $. per share. The Underwriters may allow and such dealers may re-
allow a concession not in excess of $. per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus,
to purchase up to 352,500 additional shares of Common Stock at the initial
public offering price, less the underwriting discount, set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise this
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to the total number
of shares of Common Stock offered hereby. The Company and the Selling
Stockholders will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Selling Stockholders and other stockholders of the Company, including
the executive officers and directors, who will own in the aggregate 9,650,000
shares of Common Stock after this offering, have agreed that they will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exercisable for or convertible
into shares of Common Stock owned by them during the 180-day period following
the effective date of this Prospectus. The Company has agreed that it will
not, without prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of
41
<PAGE>
Common Stock during the 180-day period following the effective date of this
Prospectus, except that the Company may grant options under its stock plans
and issue securities under, or pursuant to the exercise of options granted
under, its stock plans. Hambrecht & Quist LLC in its sole discretion may
release any of the shares subject to the lock-up at any time without notice.
See "Shares Eligible for Future Sale."
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of Common Stock offered hereby to any accounts over
which they have discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was determined by
negotiation among the Company, the representatives of the Selling Stockholders
and the Representatives. Among the factors considered in determining the
initial public offering price were prevailing market and economic conditions,
revenues and earnings of the Company, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management and other factors deemed
relevant. The estimated initial public offering price range set forth on the
cover of this Prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
Certain matters with respect to the legality of the shares of the Common
Stock offered hereby will be passed upon for the Company by Proskauer Rose
Goetz & Mendelsohn LLP, New York, New York. Certain legal matters relating to
this offering will be passed upon for the Underwriters by Sidley & Austin,
Chicago, Illinois.
EXPERTS
The financial statements as of July 31, 1996 and for the six months in the
period ended July 31, 1996 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements as of January 31, 1996 and 1995 and for each of the
two fiscal years in the period ended January 31, 1996 and for the period
September 9, 1993 (inception) to January 31, 1994 included in this Prospectus
have been audited by Richard A. Eisner & Company, LLP, independent auditors,
as stated in their reports appearing herein, and have been so included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
On August 15, 1996, the Company engaged Deloitte & Touche LLP as its
independent public accountant to audit the Company's financial statements. The
decision to change accountants was approved by the managers of dELiA*s LLC.
Richard A. Eisner & Company, LLP's report on the financial statements for the
Company's two most recent fiscal years did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During the Company's two most recent
fiscal years and all subsequent interim periods preceding the engagement of
Deloitte & Touche LLP, there were no disagreements with Richard A. Eisner &
Company, LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of Richard A. Eisner & Company, LLP, would have caused it to
make a reference to the subject matter of the disagreement in connection with
its report. During the Company's two most recent fiscal years and all
subsequent interim periods prior to engaging Deloitte & Touche LLP, the
Company did not consult with Deloitte & Touche LLP regarding the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements.
42
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or document filed as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the
principal office of the Commission, 450 Fifth Street, N.W., Washington, DC
20549, the New York Regional Office located at 7 World Trade Center, Suite
1300, New York, New York 10048, and the Chicago Regional Office located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or
any part thereof may be obtained at prescribed rates from the Commission's
Public Reference Section at its principal office. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of the Commission's World Wide Web site is
http://www.sec.gov.
43
<PAGE>
DELIA*S INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports............................................. F-2
FINANCIAL STATEMENTS:
Balance Sheets as of January 31, 1995 and 1996 and July 31, 1996.......... F-4
Statements of Operations for the period September 9, 1993 (inception) to
January 31, 1994,
fiscal years ended January 31, 1995 and 1996 and six months ended July
31, 1995 (Unaudited) and 1996............................................ F-5
Statements of Stockholders' Equity for the period September 9, 1993
(inception) to January 31, 1994, fiscal years ended January 31, 1995 and
1996 and six months ended July 31, 1996.................................. F-6
Statements of Cash Flows for the period September 9, 1993 (inception) to
January 31, 1994,
fiscal years ended January 31, 1995 and 1996 and six months ended July
31, 1995 (Unaudited) and 1996............................................ F-7
Notes to Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE>
The accompanying financial statements of dELiA*s Inc. give effect to the
completion of the Reorganization described in Note 13 of Notes to Financial
Statements which will be completed prior to the consummation of the public
offering contemplated by the Registration Statement of which this Prospectus
is a part. The following report is in the form which will be furnished by
Deloitte & Touche LLP upon completion of the Reorganization and assuming that
from October 4, 1996 to the date of such completion no other material events
have occurred that would affect the accompanying financial statements or
required disclosure therein.
INDEPENDENT AUDITORS' REPORT
"To the Board of Directors and Stockholders ofdELiA*s Inc.
New York, New York
We have audited the accompanying balance sheet of dELiA*s Inc. (the
"Company") as of July 31, 1996, and the related statements of operations,
stockholders' equity, and cash flows for the six months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at July 31, 1996, and the
results of its operations and its cash flows for the six months then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
October 4, 1996
New York, New York"
Deloitte & Touche LLP
October 30, 1996
New York, New York
F-2
<PAGE>
The following report is in the form that will be signed upon the
effectiveness of the transactions described in Note 13 of Notes to Financial
Statements.
Richard A. Eisner & Company, LLP
New York, New York
August 14, 1996
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
dELiA*s Inc.
New York, New York
"We have audited the accompanying balance sheets of dELiA*s Inc. as at
January 31, 1995 and January 31, 1996 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended January 31, 1996 and for the period September 9, 1993
(inception) to January 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits."
"We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion."
"In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of dELiA*s Inc. at January
31, 1995 and January 31, 1996, and results of its operations and its cash
flows for each of the years in the two-year period ended January 31, 1996 and
for the period September 9, 1993 (inception) to January 31, 1994 in conformity
with generally accepted accounting principles."
New York, New York
August 14, 1996
With respect to Note 13
, 1996
F-3
<PAGE>
DELIA*S INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31,
-------------- JULY 31,
1995 1996 1996
------ ------ --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 704 $ 675 $1,343
Receivables......................................... -- 27 108
Receivables from related parties.................... -- -- 50
Merchandise inventories............................. 90 221 1,515
Prepaid expenses and other current assets........... 67 101 158
------ ------ ------
Total current assets.............................. 861 1,024 3,174
------ ------ ------
PROPERTY AND EQUIPMENT--Net........................... 6 166 381
OTHER ASSETS.......................................... 3 76 71
------ ------ ------
TOTAL ASSETS.......................................... $ 870 $1,266 $3,626
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................... $ -- $ 63 $1,009
Accrued expenses and other current liabilities...... 35 137 556
Sales return allowance.............................. -- 25 106
Liabilities due to customers........................ -- 76 161
Income taxes payable................................ -- 3 --
------ ------ ------
Total current liabilities......................... 35 304 1,832
------ ------ ------
DEFERRED CREDITS...................................... -- -- 21
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share;
Authorized--1,000,000 shares;
Shares issued and outstanding--none................ -- -- --
Common Stock, par value $.01 per share;
Authorized--50,000,000 shares
Issued and outstanding--8,968,754, 9,198,750 and
10,000,000 shares, respectively................... 90 92 100
Note receivable from stockholder................... -- -- (50)
Deferred compensation.............................. -- -- (191)
Additional paid-in capital.......................... 1,110 1,208 1,467
Retained earnings/(deficit)......................... (365) (338) 447
------ ------ ------
Total stockholders' equity........................ 835 962 1,773
------ ------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $ 870 $1,266 $3,626
====== ====== ======
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
DELIA*S INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 9,
1993 FISCAL YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO JANUARY 31, JULY 31,
JANUARY 31, ------------------- ------------------
1994 1995 1996 1995 1996
-------------- -------- --------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES................ $ -- $ 139 $ 5,652 $1,301 $8,372
COST OF SALES............ -- 89 3,078 676 3,958
----- -------- --------- ------ ------
GROSS PROFIT............. -- 50 2,574 625 4,414
----- -------- --------- ------ ------
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 34 384 2,569 808 3,638
INTEREST INCOME, NET..... 1 2 25 13 20
----- -------- --------- ------ ------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES................... (33) (332) 30 (170) 796
PROVISION FOR INCOME
TAXES................... -- -- 3 -- 11
----- -------- --------- ------ ------
NET INCOME (LOSS)........ $ (33) $ (332) $ 27 $ (170) $ 785
===== ======== ========= ====== ======
Pro Forma Income Data
(Unaudited)
Income (Loss) before
provision for income
taxes as reported..... $ (33) $ (332) $ 30 $ (170) $ 796
Pro forma provision
(benefit) for income
taxes................. (14) (130) 12 (68) 328
----- -------- --------- ------ ------
Pro forma net income
(loss)................ $ (19) $ (202) $ 18 $ (102) $ 468
===== ======== ========= ====== ======
Pro forma net income
per share............. $ 0.00 $ 0.05
========= ======
Shares used in the
calculation of pro
forma net income per
share................. 10,098 10,098
========= ======
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
DELIA*S INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK NOTE
----------------- RECEIVABLE ADDITIONAL RETAINED TOTAL
NUMBER OF FROM DEFERRED PAID-IN EARNINGS/ STOCKHOLDERS'
SHARES AMOUNT STOCKHOLDER COMPENSATION CAPITAL (DEFICIT) EQUITY
---------- ------ ----------- ------------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 9,
1993 (INCEPTION)....... -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 4,702,103 47 -- -- 153 -- 200
Net loss................ -- -- -- -- -- (33) (33)
---------- ----- ----- ----- ------ ----- ------
BALANCE, JANUARY 31,
1994................... 4,702,103 47 -- -- 153 (33) 167
Issuance of common
stock.................. 4,266,651 43 -- -- 957 -- 1,000
Net loss................ -- -- -- -- -- (332) (332)
---------- ----- ----- ----- ------ ----- ------
BALANCE, JANUARY 31,
1995................... 8,968,754 90 -- -- 1,110 (365) 835
Issuance of common
stock.................. 229,996 2 -- -- 98 -- 100
Net income.............. -- -- -- -- -- 27 27
---------- ----- ----- ----- ------ ----- ------
BALANCE, JANUARY 31,
1996................... 9,198,750 92 -- -- 1,208 (338) 962
Issuance of common
stock.................. 801,250 8 (50) (217) 259 -- --
Net income.............. -- -- -- -- -- 785 785
Deferred compensation
expense................ -- -- -- 26 -- -- 26
---------- ----- ----- ----- ------ ----- ------
BALANCE, JULY 31, 1996.. 10,000,000 $ 100 $ (50) $(191) $1,467 $ 447 $1,773
========== ===== ===== ===== ====== ===== ======
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
DELIA*S INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 9,
1993 FISCAL YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO JANUARY 31, JULY 31,
JANUARY 31, ------------------- ------------------
1994 1995 1996 1995 1996
-------------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $(33) $ (332) $ 27 $ (170) $ 785
Adjustments to
reconcile net income
(loss) to net cash
(used in) provided by
operating activities
Depreciation and
amortization....... -- 1 14 4 29
Inventory reserves
for obsolescence... -- 6 25 -- 207
Compensation expense
related to issuance
of Restricted
Stock.............. -- -- -- -- 26
Changes in operating
assets and
liabilities:
Receivables........ -- -- (27) -- (81)
Receivables from
related parties... -- -- -- -- (50)
Merchandise
inventories....... (16) (80) (156) (223) (1,501)
Prepaid expenses
and other current
assets............ (17) (50) (34) (9) (57)
Other assets....... (1) (2) (78) (28) 1
Accounts payable... -- 35 63 134 946
Accrued expenses
and other current
liabilities....... -- -- 102 95 419
Sales return
allowance......... -- -- 25 10 81
Liabilities due to
customers......... -- -- 76 -- 85
Income taxes
payable........... -- -- 3 -- (3)
Deferred credits... -- -- -- -- 21
------ --------- -------- ------- ---------
Net cash (used in)
provided by operating
activities............. (67) (422) 40 (187) 908
------ --------- -------- ------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures.. -- (7) (169) (50) (240)
------ --------- -------- ------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Issuance of common
stock................ 200 1,000 100 100 --
------ --------- -------- ------- ---------
INCREASE (DECREASE) IN
CASH & CASH
EQUIVALENTS............ 133 571 (29) (137) 668
CASH & CASH
EQUIVALENTS--
BEGINNING OF PERIOD.... -- 133 704 704 675
------ --------- -------- ------- ---------
CASH & CASH
EQUIVALENTS--
END OF PERIOD.......... $ 133 $ 704 $ 675 $ 567 $ 1,343
====== ========= ======== ======= =========
SUPPLEMENTARY CASH FLOW
INFORMATION:
Income taxes paid..... $ -- $ -- $ 3 $ -- $ 11
====== ========= ======== ======= =========
Interest paid......... $ -- $ -- $ -- $ -- $ 6
====== ========= ======== ======= =========
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
1. BUSINESS AND BASIS OF PRESENTATION
dELiA*s Inc. (the "Company" or "dInc") is a direct marketer of casual
apparel and related accessories to teen girls and young women primarily
between the ages of 10 and 24. The Company offers a broad selection of
merchandise, presented in distinctively styled catalogs; the first catalog was
mailed in March 1994. The Company maintains a corporate headquarters,
telemarketing and customer service group in New York, New York and utilizes a
third-party fulfillment facility for processing merchandise in Lancaster,
Pennsylvania.
The Company is subject to seasonal fluctuations in its merchandise sales and
results of operations. The Company expects its sales and operating results
generally to be lower in the first and second quarters than in the third and
fourth quarters (which include the back-to-school and holiday seasons) of each
fiscal year.
The Company is a successor to a business originally founded in September
1993. In 1995, the successor business began to operate as a New York limited
liability company under the name dELiA*s LLC ("dLLC"). As a limited liability
company, dLLC was treated for income tax purposes as a partnership with taxes
on the income generated by dLLC paid by its members. In October 1996, dInc was
incorporated in Delaware. Prior to the completion of the initial public
offering described in this Prospectus (the "Offering"), dLLC and dInc will
engage in a reorganization transaction (the "Reorganization") pursuant to
which dLLC will contribute its assets to dInc and dInc will assume, and agree
to pay, perform and discharge, all liabilities of dLLC (except for income tax
liabilities). In connection with the Reorganization, dInc will issue
10,000,000 shares of Common Stock to dLLC, of which 698,568 shares will be
restricted under the Company's Restricted Stock Plan. See Note 10--1996
Restricted Stock Plan. A distribution of cash, notes, and the shares of Common
Stock of dInc will be effected in accordance with the dLLC operating
agreement. The accompanying financial statements and footnotes are presented
to reflect the Reorganization as described in Note 13, which will be accounted
for on a basis similar to a pooling of interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Fiscal Year--The Company's fiscal year ends on January 31.
b. Cash Equivalents--The Company considers all highly liquid investments,
with maturities of 90 days or less when purchased, to be cash equivalents.
Cash equivalents are stated at cost, which approximates market value.
c. Merchandise Inventories--Merchandise inventories, which are all finished
goods, are stated at the lower of cost (determined on a first-in, first-out
basis) or market value. At January 31, 1995, January 31, 1996 and July 31,
1996 inventory reserves for obsolescence were $6,000, $31,000 and $238,000,
respectively.
d. Catalog Costs--The Company accounts for catalog costs in accordance with
the AICPA Statement of Position ("SOP") 93-7, "Reporting on Advertising
Costs." SOP 93-7 requires that the amortization of capitalized advertising
costs should be the amount computed using the ratio that current period
revenues for the catalog cost pool bear to the total of current and estimated
future period revenues for that catalog cost pool.
e. Property and Equipment--Property and equipment are stated at cost.
Furniture, fixtures and equipment are depreciated by the straight-line method
over the estimated useful lives of the respective assets, ranging from 3 to 5
years. Leasehold improvements are amortized ratably over the lesser of the
remaining lease term or useful life of the improvement. See Note 3--Property
and Equipment.
F-8
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
f. Income Taxes--Prior to the Offering, the Company was a limited liability
company ("LLC") and each member's respective portion of dLLC's taxable income
or loss was reportable on such members own federal and state tax returns. As
an LLC, the Company was subject to the New York City income tax on
unincorporated businesses. As discussed in Note 13--Reorganization, the
Company is preparing to effect a reorganization that will change the income
tax status of the Company to a taxable C corporation. At that time, deferred
income tax assets and liabilities will be recorded in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes".
g. Revenue Recognition--Revenue is recognized when merchandise is shipped to
customers.
h. Pro Forma Net Income Per Share--Pro forma net income per share is based
on the weighted average number of common shares and common share equivalents
outstanding. The common shares give effect to the issuance of 10,000,000
shares of Common Stock to dLLC as described in Note 13--Reorganization. A
total of 97,752 additional shares have been added, representing the number of
shares that would need to be sold, on a pro forma basis, to generate the
assumed $1.0 million of net proceeds from the Offering to be utilized by the
Company to repay certain Investor Notes assumed to be $1.0 million, which
notes will be issued to finance the LLC Distribution described in Note 13. At
January 31, 1996 and July 31, 1996, the number of common shares and common
share equivalents used in the calculation of pro forma net income per share
was 10,097,752.
i. Fair Value of Financial Instruments--The following disclosure about the
fair value of financial instruments is made in accordance with the
requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." The carrying amounts reported in the balance sheets for cash and
cash equivalents, receivables and accounts payable approximate fair value
because of the short-term maturity of those financial instruments.
j. Use of Estimates in the Preparation of Financial Statements--The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
k. Recent Accounting Pronouncements--In March 1995, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable, and is effective for fiscal years
beginning after December 15, 1995. The adoption of SFAS No. 121 did not have
an effect on the Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective for the Company beginning February 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
expense to be measured based on the fair value of the equity instrument
awarded. Companies are permitted, however, to continue to apply Accounting
Principles Board Opinion No. 25 ("APB No. 25"), which recognizes compensation
costs based on the intrinsic value of the equity instrument awarded. The
Company will continue
F-9
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
to apply APB No. 25 to its stock-based compensation awards to employees. The
required disclosures of pro forma effects on net income and earnings per share
did not apply during the six month period ended July 31, 1996 or during prior
fiscal years.
l. Unaudited Interim Financial Statements--In the opinion of management, the
unaudited financial statements for the six months ended July 31, 1995 are
presented on a basis consistent with the audited financial statements and
reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results thereof. The results of
operations for interim periods are not necessarily indicative of the results
to be expected for the entire year.
3. PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED JANUARY 31, JANUARY 31, JULY 31,
USEFUL LIVES 1995 1996 1996
------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Furniture, fixtures and
equipment.................. 3-5 years $7,000 $139,000 $295,000
Leasehold improvements...... Term of lease -- 37,000 121,000
------ -------- --------
Total--at cost.............. 7,000 176,000 416,000
Less accumulated
depreciation and
amortization............... 1,000 10,000 35,000
------ -------- --------
Total property and
equipment--net............. $6,000 $166,000 $381,000
====== ======== ========
</TABLE>
4. CREDIT AND FINANCING AGREEMENTS
At July 31, 1996, the Company had a line of credit agreement with a bank
providing for short-term loans of up to $1.5 million subject to bank approval.
Borrowings under the agreement are secured by all assets of the Company except
for merchandise inventories and bear interest at the prime rate plus two
percent (10.25 percent at July 31, 1996). The agreement expires on July 31,
1997. The agreement is personally guaranteed by three stockholders of the
Company. There were no funds borrowed under the agreement during the six month
period ended July 31, 1996 or during the fiscal years ended January 31, 1996
and 1995.
5. INTEREST INCOME--NET
Interest income--net consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 9,
1993 SIX MONTHS
(INCEPTION) TO FISCAL YEAR 1994 FISCAL YEAR 1995 ENDED JULY 31,
JANUARY 31, ENDED ENDED -------------------
1994 JANUARY 31, 1995 JANUARY 31, 1996 1995 1996
-------------- ---------------- ---------------- ----------- -------
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C>
Interest income......... $1,000 $2,000 $25,000 $13,000 $26,000
Interest expense........ -- -- -- -- (6,000)
------ ------ ------- ------- -------
Interest income--net.... $1,000 $2,000 $25,000 $13,000 $20,000
====== ====== ======= ======= =======
</TABLE>
F-10
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
6. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
SIX MONTHS
SEPTEMBER 9, 1993 FISCAL YEAR 1994 FISCAL YEAR 1995 ENDED JULY 31,
(INCEPTION) TO ENDED ENDED ---------------------
JANUARY 31, 1994 JANUARY 31, 1995 JANUARY 31, 1996 1995 1996
----------------- ---------------- ---------------- ----------- --------- ---
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C> <C>
Federal:
Current............... $ -- $ -- $ -- $ -- $ --
Deferred.............. -- -- -- -- --
-------- --------- -------- -------- ---------
Total federal....... -- -- -- -- --
-------- --------- -------- -------- ---------
State and local:
Current............... -- -- 3,000 -- 11,000
Deferred.............. -- -- -- -- --
-------- --------- -------- -------- ---------
Total state and
local.............. -- -- 3,000 -- 11,000
-------- --------- -------- -------- ---------
Total provision....... $ -- $ -- $3,000 -- $11,000
======== ========= ======== ======== =========
Effective September 9, 1993 (date of inception), the Company's predecessor,
dELiA*s Ltd., elected S corporation status under applicable provisions of the
Internal Revenue Code. In 1995, dELiA*s Ltd. was succeeded by dLLC and was
treated as a partnership for income tax purposes. As such, dELiA*s Ltd. and
dLLC paid no federal or state income taxes as all taxable income was taxed
directly at the shareholder and membership level.
The effective income tax rates differed from the federal statutory income
tax rates as follows:
<CAPTION>
SIX MONTHS
SEPTEMBER 9, 1993 FISCAL YEAR 1994 FISCAL YEAR 1995 ENDED JULY 31,
(INCEPTION) TO ENDED ENDED ---------------------
JANUARY 31, 1994 JANUARY 31, 1995 JANUARY 31, 1996 1995 1996
----------------- ---------------- ---------------- ----------- --------- ---
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C> <C>
Federal taxes at
statutory rates........ $(11,000) $(113,000) $ 10,000 ($58,000) $ 371,000
State and local taxes
net of federal
benefit................ (2,000) (20,000) 5,000 (10,000) 76,000
Effect of S corporation
and LLC company
status................. 13,000 133,000 (12,000) 68,000 (436,000)
-------- --------- -------- -------- ---------
$ -- $ -- $ 3,000 $ -- $ 11,000
======== ========= ======== ======== =========
</TABLE>
F-11
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
PROFORMA PROVISION FOR INCOME TAXES (UNAUDITED)
The unaudited pro forma provision for income taxes represents estimated
income taxes that would have been reported had the Company filed its tax
returns as a taxable C corporation which reflects the reorganization described
in Note 13 for all periods presented.
The pro forma provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
SIX MONTHS
SEPTEMBER 9, 1993 FISCAL YEAR 1994 FISCAL YEAR 1995 ENDED JULY 31,
(INCEPTION) TO ENDED ENDED --------------------
JANUARY 31, 1994 JANUARY 31, 1995 JANUARY 31, 1996 1995 1996
----------------- ---------------- ---------------- ----------- -------- ---
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C>
Federal:
Current............... $ -- $ -- $ -- $ -- $248,000
Deferred.............. (12,000) (109,000) 10,000 (58,000) 26,000
-------- --------- ------- -------- --------
Total federal....... (12,000) (109,000) 10,000 (58,000) 274,000
-------- --------- ------- -------- --------
State and local:
Current............... -- -- -- -- 49,000
Deferred.............. (2,000) (21,000) 2,000 (10,000) 5,000
-------- --------- ------- -------- --------
Total state and
local.............. (2,000) (130,000) 12,000 (10,000) 54,000
-------- --------- ------- -------- --------
Total provision......... $(14,000) $(130,000) $12,000 $(68,000) $328,000
======== ========= ======= ======== ========
</TABLE>
The tax effects of significant items comprising the Company's pro forma
federal and state net deferred tax asset as of January 31, 1996 and July 31,
1996 are as follows:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1996 1996
----------- --------
<S> <C> <C>
Deferred tax assets:
Inventory reserves................................. $ 13,000 $ 97,000
Sales return allowance............................. 10,000 53,000
Deferred compensation expense...................... -- 11,000
Depreciation....................................... 5,000 7,000
Net operating loss................................. 146,000 --
Other.............................................. -- 9,000
-------- --------
Total deferred tax assets............................ 174,000 177,000
-------- --------
Deferred tax liabilities:
Catalog costs...................................... (38,000) (82,000)
-------- --------
Net deferred tax asset............................... $136,000 $ 95,000
======== ========
</TABLE>
7. STOCKHOLDERS' EQUITY
Effective upon the Reorganization, the Company will have authorized
1,000,000 shares of preferred stock, $.01 par value per share, no shares
issued or outstanding; 50,000,000 shares of common stock, $.01 par value per
share, 8,968,754, 9,198,750 and 10,000,000 shares issued and outstanding at
January 31, 1995, January 31, 1996 and July 31, 1996, respectively.
F-12
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
Prior to January 31, 1996, the Company issued Class A Membership Interests
for capital contributions of $1,300,000, which upon the Reorganization
described in Note 13 will convert into 9,198,750 shares of Common Stock.
During the six month period ended July 31, 1996, the Company issued Class C
Membership Interests for capital contributions of $50,000, which upon the
Reorganization will convert to 102,682 shares of Common Stock.
During the six month period ended July 31, 1996, Class B restricted
membership interests were granted to certain employees at no cost to these
employees. The cost of restricted membership interests, based upon the
interests' fair market value at the award date in the amount of $217,000, was
credited to stockholders' equity and is being subsequently amortized against
earnings over the vesting period of 30 months. Deferred compensation expense
recognized during the six month period ended July 31, 1996 was $26,000. Upon
the Reorganization, the Class B restricted membership interests will convert
to 698,568 shares of restricted common stock. See Note 10--1996 Restricted
Stock Plan. Also see Note 14 regarding Stockholders' Agreement.
8. RELATED PARTY TRANSACTIONS
Receivables from related parties as of July 31, 1996 included (i) non-
interest-bearing loans receivable from stockholders of $50,000 related to
certain stockholders' personal income taxes attributable to income of the
Company as a limited liability company and (ii) non-interest-bearing loan
receivable from a stockholder/executive of the Company in the amount of
$50,000 related to the executive's capital contribution.
9. STOCK OPTION AGREEMENT AND EMPLOYMENT AGREEMENTS
Prior to the Offering, an executive entered into a stock option agreement
pursuant to which the Company has granted such executive an option to purchase
up to an aggregate of 250,000 shares of Common Stock at the price per share to
the public in this Offering (the "Exercise Price"). The option becomes
exercisable as to 50,000 shares on each of July 21, 1997, 1998, 1999, 2000 and
2001. If the executive's employment terminates before July 21, 2001 as a
result of his death or disability, or if the Company terminates his employment
other than for cause or if the Company effects a Constructive Discharge (as
defined in the executive's employment agreement) of the executive, the option
will become exercisable as to all 250,000 shares; if the executive's
employment terminates other than as set forth above, the portion of the option
that is not exercisable at the date of termination will not thereafter become
exercisable. The Company may purchase all the shares previously purchased by
the executive pursuant to the option and terminate all further rights under
the option in exchange for an amount equal to (i) the product of (A) the
Average Price of a Share (as defined in the stock option agreement) and (B)
the sum of (1) the number of shares being purchased plus (2) the number of
shares subject to the option being terminated, reduced by (ii) the product of
the Exercise Price and the number of shares subject to the option being
terminated. Upon a merger, consolidation or sale of substantially all the
assets of the Company, the option will become immediately exercisable as to
50% of the shares as to which the option has not yet become exercisable, with
the balance of the option not then exercisable becoming exercisable in equal
amounts on each July 21 thereafter through July 21, 2001.
Prior to the completion of the Offering, two executives of the Company will
enter into three-year agreements with the Company providing for the
continuation of their employment at minimum salaries of $100,000 a year for
each executive, subject to annual upward adjustment in proportion to the
increase in the consumer price index plus such increases in salary and bonuses
as approved by the Board of Directors.
F-13
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
In July 1996, an executive of the Company entered into an agreement with the
Company providing for the continuation of his employment at a minimum salary
each year of $50,000 ($100,000 upon completion of the Offering) plus such
increases in salary and bonuses as approved by the Board of Directors. The
agreement terminates in July 2001.
10. 1996 RESTRICTED STOCK PLAN
Concurrent with the Reorganization, the Company will approve and adopt the
1996 Restricted Stock Plan (the "Restricted Stock Plan") pursuant to which
698,568 shares of Common Stock will be exchanged for restricted membership
interests in dLLC held by certain employees of the Company ("Restricted
Interest Holders"). Upon the issuance of such shares, no more shares will be
available for issuance pursuant to the Restricted Stock Plan.
Under the provisions of the restricted stock agreements, between each
Restricted Interest Holder and the Company, the restrictions on the shares
generally lapse 30 months from the grant date of the original restricted
membership interest in dLLC. If a Restricted Interest Holder's employment is
terminated prior to the 30th month for any reason, the Restricted Interest
Holder will forfeit all rights to the restricted stock. Within the limits of
the Restricted Stock Plan, the compensation committee may provide for the
lapse of such restrictions in installments in whole or in part or may
accelerate or waive such restrictions at any time.
In addition, the restricted stock agreements give an executive
officer/stockholder of the Company the right to vote all the shares of common
stock issued to the Restricted Interest Holders pursuant to such agreements on
all matters during the period in which such shares are subject to restrictions
on transfer.
11. 1996 STOCK INCENTIVE PLAN
Concurrent with the Reorganization, the Company will approve and adopt the
1996 Stock Incentive Plan (the "Incentive Plan"), which provides for the
following types of awards to eligible employees: (i) stock options, including
incentive stock options and non-qualified stock options; (ii) stock
appreciation rights, in tandem with stock options or freestanding; and (iii)
restricted stock. Awards may be granted singly, in combination or in tandem,
as determined by the Company's compensation committee.
In addition, under the Incentive Plan, each non-employee director will be
granted, at the time of the Offering, an option to purchase 40,000 shares of
Common Stock at an exercise price per share equal to the initial public
offering price. All options granted to non-employee directors will become
exercisable at the rate of 20% on each of the first five anniversaries of the
date of grant, assuming the non-employee director is a director on those
dates, and all such options generally will be exercisable for a period of ten
years from the date of grant. Upon a Change of Control (as defined in the
Incentive Plan), all options (which have not yet expired) will automatically
become exercisable.
The maximum number of shares of common stock that may be issued pursuant to
the Incentive Plan will be 1,250,000, of which no shares will have been issued
or used for reference purposes prior to the Offering. The maximum number of
shares of common stock subject to each of stock options or stock appreciation
rights that may be granted to any individual under the Incentive Plan will be
100,000 for each fiscal year of the Company during the term of the Incentive
Plan. If a stock appreciation right is granted in tandem with a stock option,
it shall apply against the individual limits for both stock options and stock
appreciation rights, but only once against the maximum number of shares
available under the Incentive Plan.
F-14
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
12. COMMITMENTS
As of July 31, 1996 the Company was obligated under various long-term
operating leases for office space and equipment requiring minimum annual
rentals. These operating leases expire on varying dates to 2001. At July 31,
1996 aggregate minimum rentals in future periods are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING
JANUARY 31,
-----------
<S> <C>
1997 (remainder).................................. $103,000
1998.............................................. 194,000
1999.............................................. 62,000
2000.............................................. 14,000
2001.............................................. 1,000
Thereafter......................................... --
</TABLE>
In addition, the Company is obligated to pay a proportionate share of
increases in real estate taxes and other occupancy costs.
Rent expense for the fiscal years ended January 31, 1995 and January 31,
1996 and for the six month periods ended July 31, 1995 (unaudited) and 1996
was $44,000, $88,000, $17,000 and $123,000, respectively.
13. REORGANIZATION
As described in this Prospectus, dLLC and dInc will engage in a
reorganization transaction (the "Reorganization") pursuant to which dLLC will
contribute its assets to dInc. dInc will assume, and agree to pay, perform and
discharge, all liabilities of dLLC (except for income tax liabilities). In
connection with the Reorganization, dInc will issue 10,000,000 shares of
Common Stock to dLLC, of which 698,568 shares will be restricted under the
Company's Restricted Stock Plan as described in Note 10--1996 Restricted Stock
Plan.
The Reorganization will also result in the distribution to existing members
of dLLC of the LLC Distribution described below and the shares of Common Stock
of dInc received pursuant to the operating agreement. Prior to the completion
of the Offering, dLLC will make a distribution (the "LLC Distribution") to
certain of its members of an amount related to the Company's results of
operations through the date of the distribution. The LLC Distribution will be
paid in cash, to the extent of cash on hand at the date of distribution, less
$100,000, and the balance will be paid in the form of non-interest-bearing
promissory notes issued by dLLC to such members (the "Investor Notes").
Additionally, dInc will assume the obligations of dLLC under the Investor
Notes as part of the Reorganization. The Company will pay the balance on those
notes upon the completion of the Offering.
14. STOCKHOLDERS' AGREEMENT
Concurrent with the Reorganization, certain stockholders (the "Family
Stockholders") and a stockholder/executive of the Company (the "Executive")
will enter into a stockholders agreement with the Company (the "Stockholders
Agreement") which, subject to certain exceptions, prohibits the Family
Stockholders from transferring the shares of Common Stock they will own upon
completion of the Reorganization for a period of two years from the date of
the Reorganization. Thereafter, the Family Stockholders will be able to
transfer such shares in accordance with the requirements of Rule 144 under the
F-15
<PAGE>
DELIA*S INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 9, 1993 (INCEPTION) TO JANUARY 31, 1994, FISCAL YEARS ENDED JANUARY
31, 1995 AND 1996, AND SIX MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED JULY 31, 1995 IS UNAUDITED)
Securities Act. The Stockholders Agreement also permits each of the Family
Stockholders to cause the Company to register shares of Common Stock
concurrently with offerings of Common Stock by the Executive. The Company will
generally be required to bear the expenses of all such registrations, except
underwriting discounts and commissions. In addition, the Stockholders
Agreement will give the Executive the right to vote all of the shares of
Common Stock owned by Family Stockholders on all matters that come before the
stockholders of the Company. The Family Stockholders collectively, will own
33.9 percent of the outstanding Common Stock upon completion of the Offering.
The Stockholders Agreement will expire on the tenth anniversary of the
completion of the Reorganization.
F-16
<PAGE>
[TEXT AND PHOTOS TO COME.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY
SELLING STOCKHOLDER OR THE
UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY
TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR
TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 5
Use of Proceeds....................................................... 11
Dividend Policy....................................................... 11
The Reorganization.................................................... 11
Capitalization........................................................ 12
Dilution.............................................................. 13
Selected Financial Data............................................... 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 15
Business.............................................................. 21
Management............................................................ 28
Certain Transactions.................................................. 34
Principal and Selling Stockholders.................................... 35
Description of Capital Stock.......................................... 37
Shares Eligible for Future Sale....................................... 40
Underwriting.......................................................... 41
Legal Matters......................................................... 42
Experts............................................................... 42
Additional Information................................................ 43
Index to Financial Statements......................................... F-1
</TABLE>
-----------
UNTIL , 1997 (25 DAYS
AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,350,000 SHARES
LOGO
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
OPPENHEIMER & CO., INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered under this registration statement. Except for the SEC, NASD and
Nasdaq fees, all expenses have been estimated and are subject to future
contingencies.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 9,787
NASD fee......................................................... 3,473
Nasdaq Entry Fee................................................. 47,500
Legal fees and expenses*.........................................
Printing and engraving expenses*.................................
Accounting fees and expenses*....................................
Blue sky fees and expenses*......................................
Transfer agent and registrar fees and expenses................... 10,000
Miscellaneous*...................................................
--------
Total........................................................ $600,000
========
</TABLE>
- --------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In addition, Article NINTH of the Company's certificate of incorporation
provides that no director shall be personally liable for any breach of
fiduciary duty. Article NINTH does not eliminate a director's liability (i)
for a breach of his or her duty of loyalty to the Company or its stockholders,
(ii) for acts of intentional misconduct, (iii) under Section 174 of the
General Corporation Law of the State of Delaware for unlawful declarations of
dividends or unlawful stock purchases or redemptions, or (iv) for any
transactions from which the director derived an improper personal benefit.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit
or proceeding brought by third parties, if such directors or officers acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reason to believe their conduct was unlawful. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses actually and reasonably incurred
by directors and officers in connection with the defense or settlement of an
action or suit, and only with respect to a matter as to which they shall have
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interest of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable
to the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
officers or directors are reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for
II-1
<PAGE>
any transaction from which the director derived an improper personal benefit.
No such provision shall eliminate or limit the liability of a director for any
act or omission occurring prior to the date when such provision becomes
effective.
The Underwriting Agreement provides for indemnification of directors and
officers of the Company by the Underwriters against certain liabilities.
Pursuant to Section 145 of the General Corporation Law of the State of
Delaware, the Company maintains directors' and officers' liability insurance
coverage.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
dELiA*s LLC will subscribe for 10,000,000 shares of Common Stock prior to
the effectiveness of this Registration Statement. The issuance of such shares
will be exempt from registration pursuant to Section 4(2) of the Securities
Act.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of incorporation of the Company
3.2 Bylaws of the Company
Opinion of Proskauer Rose Goetz & Mendelsohn LLP re: validity of
5* securities
10.1 Form of Employment Agreement between the Company and Stephen I. Kahn
Form of Employment Agreement between the Company and Christopher C.
10.2* Edgar
10.3* Form of Employment Agreement between the Company and Evan Guillemin
10.4 Form of Stockholders Agreement among the Company, Stephen I. Kahn and
the persons listed on exhibit A thereto
10.5 Form of 1996 Stock Incentive Plan
10.6 Form of Restricted Stock Plan
10.7* Form of Stock Option Agreement between the Company and Evan Guillemin
Agreement dated April 11, 1996 between the Company and The Jay Group,
10.8 Inc.
10.9 Lease Agreement dated May 3, 1995 between the Company and The Rector,
Church-Wardens and Vestrymen of Trinity Church in the City of New-York
(the "Lease Agreement"); Modification and Extension of Lease Agreement
dated September 26, 1996
Letter from Richard A. Eisner & Company, LLP respecting change in
16 certifying accountant
23.1* Consent of Deloitte & Touche LLP
23.2* Consent of Richard A. Eisner & Company, LLP
23.3* Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion
to be filed as Exhibit 5)
24.3 Power of Attorney (set forth on page II-4)
27.1* Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement (a form of which is filed
herewith as Exhibit 1.1) certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE UNDERSIGNED
REGISTRANT CERTIFIES THAT IT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK, STATE OF NEW YORK, ON THE 30TH DAY OF OCTOBER, 1996.
dELiA*s Inc.
/s/ Stephen I. Kahn
By: _________________________________
STEPHEN I. KAHN CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Stephen I. Kahn,
Christopher C. Edgar and Evan Guillemin, or any of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution, to sign on
his behalf individually and in any and all capacities (until revoked in
writing), any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and any registration statement to relating
to the same offering as this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) and the Securities Act of 1933, to file
the same with all exhibits thereto and all other documents in connection
therewith with the Securities and Exchange Commission, granting to such
attorneys-in-fact and agents, and each of them, full power and authority to do
all such other acts and things requisite or necessary to be done, and to
execute all such other documents as they, or either of them, may deem
necessary or desirable in connection with the foregoing, as fully as the
undersigned might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Stephen I. Kahn Chairman of the October 30,
- ------------------------------------- Board, Chief 1996
STEPHEN I. KAHN Executive Officer
and Director
(principal
executive officer)
/s/ Evan Guillemin Chief Financial October 30,
- ------------------------------------- Officer, Secretary, 1996
EVAN GUILLEMIN Treasurer and
Director (principal
financial and
accounting officer)
II-4
<PAGE>
SIGNATURE TITLE DATE
/s/ Christopher C. Edgar Executive Vice October 30,
- ------------------------------------- President, Chief 1996
CHRISTOPHER C. EDGAR Operating Officer
and Director
/s/ S. Roger Horchow Director October 30,
- ------------------------------------- 1996
S. ROGER HORCHOW
/s/ Sidney S. Kahn Director October 30,
- ------------------------------------- 1996
SIDNEY S. KAHN
/s/ Geraldine Karetsky Director October 30,
- ------------------------------------- 1996
GERALDINE KARETSKY
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of incorporation of the Company
3.2 Bylaws of the Company
Opinion of Proskauer Rose Goetz & Mendelsohn LLP re: validity of
5* securities
10.1 Form of Employment Agreement between the Company and Stephen I. Kahn
Form of Employment Agreement between the Company and Christopher C.
10.2* Edgar
10.3* Form of Employment Agreement between the Company and Evan Guillemin
10.4 Form of Stockholders Agreement among the Company, Stephen I. Kahn and
the persons listed on exhibit A thereto
10.5 Form of 1996 Stock Incentive Plan
10.6 Form of Restricted Stock Plan
10.7* Form of Stock Option Agreement between the Company and Evan Guillemin
Agreement dated April 11, 1996 between the Company and The Jay Group,
10.8 Inc.
10.9 Lease Agreement dated May 3, 1995 between the Company and The Rector,
Church-Wardens and Vestrymen of Trinity Church in the City of New-York
(the "Lease Agreement"); Modification and Extension of Lease Agreement
dated September 26, 1996
Letter from Richard A. Eisner & Company, LLP respecting change in
16 certifying accountant
23.1* Consent of Deloitte & Touche LLP
23.2* Consent of Richard A. Eisner & Company, LLP
23.3* Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion
to be filed as Exhibit 5)
24.3 Power of Attorney (set forth on page II-4)
27.1* Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
<PAGE>
EXHIBIT 1.1
DELIA*S INC.
2,350,000 SHARES/1/
COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
------------------------------
_____ __, 19__
HAMBRECHT & QUIST LLC
Oppenheimer & Co., Inc.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
dELiA*s Inc. a Delaware corporation (herein called the Company), proposes
to issue and sell 2,000,000 shares of its authorized but unissued Common Stock,
$ .01 par value (herein called the Common Stock), and the stockholders of the
Company named in Schedule II hereto (herein collectively called the Selling
Securityholders) propose to sell an aggregate of 350,000 shares of Common Stock
of the Company (said 2,350,000 shares of Common Stock being herein called the
Underwritten Stock). The Company and the Selling Securityholders propose to
grant to the Underwriters (as hereinafter defined) an option to purchase up to
352,500 additional shares of Common Stock (herein called the Option Stock and
with the Underwritten Stock herein collectively called the Stock). The Common
Stock is more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent and
warrant that you have been authorized by each of the other Underwriters to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary
- ------------------
/1/ Plus an option to purchase from the Company and the Selling
Securityholders up to 352,500 additional shares to cover over-allotments.
<PAGE>
prospectus (meeting the requirements of Rule 430A of the rules and regulations
of the Commission) heretofore filed by the Company with the Commission have been
delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term Preliminary Prospectus
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.
(a) Each of the Company and the Selling Securityholders hereby represents
and warrants as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority
to own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus and as being conducted, and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary
(except where the failure to be so qualified would not have a material
adverse effect on the business, properties, financial condition or results
of operations of the Company taken as a whole). The Company has no
subsidiaries.
(ii) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, other than as set forth in
the Registration Statement and the Prospectus, and since such dates, except
in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement and the
Prospectus.
(iii) The Registration Statement and the Prospectus comply, and
on the Closing Date (as hereinafter defined) and any later date on which
Option Stock is to be purchased, the Prospectus will comply, in all
material respects, with the provisions of the Securities Act and the rules
and regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material
fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus did not and, on the
Closing Date and any later date on which Option Stock is to be purchased,
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties in this
subparagraph (iii) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein
<PAGE>
or otherwise furnished in writing to the Company by or on behalf of the
Underwriters for use in the Registration Statement or the Prospectus.
(iv) The Stock is duly and validly authorized, is (or, in the case
of shares of the Stock to be sold by the Company, will be, when issued and
sold to the Underwriters as provided herein) duly and validly issued, fully
paid and nonassessable and conforms to the description thereof in the
Prospectus. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the transfer and
sale of the Stock to be sold by the Selling Securityholders or the issuance
and sale of the Stock as contemplated herein.
(v) The Stock to be sold by the Selling Securityholders is listed
and duly admitted to trading on the Nasdaq National Market, and prior to
the Closing Date the Stock to be issued and sold by the Company will be
authorized for listing by the Nasdaq National Market upon official notice
of issuance.
(b) Each of the Selling Securityholders hereby represents and warrants as
follows:
(i) Such Selling Securityholder has good and marketable title to
all the shares of Stock to be sold by such Selling Securityholder
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to deliver
the same hereunder, subject, in the case of each Selling Securityholder, to
the rights of, as Custodian (herein called the Custodian), and that upon
the delivery of and payment for such shares of the Stock hereunder, the
several Underwriters will receive good and marketable title thereto, free
and clear of all liens, encumbrances, equities, security interests and
claims whatsoever.
(ii) Certificates in negotiable form for the shares of the Stock to
be sold by such Selling Securityholder have been placed in custody under a
Custody Agreement for delivery under this Agreement with the Custodian;
such Selling Securityholder specifically agrees that the shares of the
Stock represented by the certificates so held in custody for such Selling
Securityholder are subject to the interests of the several Underwriters and
the Company, that the arrangements made by such Selling Securityholder for
such custody, including the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity
of such Selling Securityholder (or, in the case of a Selling Securityholder
that is not an individual, the dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Stock hereunder, certificates for
such shares of the Stock shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death,
incapacity, dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
death, incapacity, dissolution, liquidation or other event.
(iii) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has not
independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder to believe that
on the Effective Date, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the statements therein
not misleading; and, on the Effective Date the Prospectus contained and, on
the Closing Date and any later date on which Option Stock is to be
purchased, contains any untrue statement of a material fact or omitted or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
2,000,000 shares of the Underwritten Stock to the several
<PAGE>
Underwriters, each Selling Securityholder agrees to sell to the several
Underwriters the number of shares of the Underwritten Stock set forth in
Schedule II opposite the name of such Selling Securityholder, and each of
the Underwriters agrees to purchase from the Company and the Selling
Securityholders the respective aggregate number of shares of Underwritten
Stock set forth opposite its name in Schedule I. The price at which such
shares of Underwritten Stock shall be sold by the Company and the Selling
Securityholders and purchased by the several Underwriters shall be $___ per
share. The obligation of each Underwriter to the Company and each of the
Selling Securityholders shall be to purchase from the Company and the
Selling Securityholders that number of shares of the Underwritten Stock
which represents the same proportion of the total number of shares of the
Underwritten Stock to be sold by each of the Company and the Selling
Securityholders pursuant to this Agreement as the number of shares of the
Underwritten Stock set forth opposite the name of such Underwriter in
Schedule I hereto represents of the total number of shares of the
Underwritten Stock to be purchased by all Underwriters pursuant to this
Agreement, as adjusted by you in such manner as you deem advisable to avoid
fractional shares. In making this Agreement, each Underwriter is
contracting severally and not jointly; except as provided in paragraphs (b)
and (c) of this Section 3, the agreement of each Underwriter is to purchase
only the respective number of shares of the Underwritten Stock specified in
Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders
shall immediately give notice thereof to you, and the non-defaulting
Underwriters shall have the right within 24 hours after the receipt by you
of such notice to purchase, or procure one or more other Underwriters to
purchase, in such proportions as may be agreed upon between you and such
purchasing Underwriter or Underwriters and upon the terms herein set forth,
all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such
shares and portion, the number of shares of the Stock which each non-
defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb
the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the shares and portion
which the defaulting Underwriter or Underwriters agreed to purchase if the
aggregate number of such shares of the Stock exceeds 10% of the total
number of shares of the Stock which all Underwriters agreed to purchase
hereunder. If the total number of shares of the Stock which the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company and
the Selling Securityholders shall have the right, within 24 hours next
succeeding the 24-hour period above referred to, to make arrangements with
other underwriters or purchasers satisfactory to you for purchase of such
shares and portion on the terms herein set forth. In any such case, either
you or the Company and the Selling Securityholders shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for
not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary changes
in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor
the Company and the Selling Securityholders shall make arrangements within
the 24-hour periods stated above for the purchase of all the shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase
hereunder, this Agreement shall be terminated without further act or deed
and without any liability on the part of the Company or the Selling
Securityholders to any non-defaulting Underwriter and without any liability
on the part of any non-defaulting Underwriter to the Company or the Selling
Securityholders. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the
Company and the Selling Securityholders grant an option to the several
Underwriters to purchase, severally and not jointly, up to 352,500 shares
in the aggregate of the Option Stock from the Company and the Selling
Securityholders, in the respective aggregate number of Option Shares set
forth opposite the Company and each such Securityholders name on Schedule
III, at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-
allotments in the sale of the
<PAGE>
Underwritten Stock by the Underwriters and may be exercised in whole or in
part at any time (but not more than once) on or before the thirtieth day
after the date of this Agreement upon written or telegraphic notice by you
to the Company setting forth the aggregate number of shares of the Option
Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment
therefor, shall be made as provided in Section 5 hereof. The number of
shares of the Option Stock to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of
the Underwritten Stock, as adjusted by you in such manner as you deem
advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after
the closing of the initial public offering and increase or decrease the
concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover page
and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the
only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 A.M., San Francisco time, on the date
two business days preceding the Closing Date), and payment therefor, shall
be made at the office of Proskauer Rose Goetz & Mendelsohn LLP, 1585
Broadway, New York, New York, at 7:00 a.m., San Francisco time, on the
fourth business day after the date of this Agreement, or at such time on
such other day, not later than seven full business days after such fourth
business day, as shall be agreed upon in writing by the Company, the
Selling Securityholders and you. The date and hour of such delivery and
payment (which may be postponed as provided in Section 3(b) hereof) are
herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Proskauer Rose Goetz &
Mendelsohn LLP,1585 Broadway, New York, New York, at 7:00 a.m., San
Francisco time, on the third business day after the exercise of such
option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order, and payment for the Stock purchased from the Selling
Securityholders shall be made to the Custodian, for the account of the
Selling Securityholders, in each case by one or more certified or official
bank check or checks in same day funds. Such payment shall be made upon
delivery of certificates for the Stock to you for the respective accounts
of the several Underwriters against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in
such name or names and shall be in such denominations as you may request at
least one business day before the Closing Date, in the case of Underwritten
Stock, and at least one business day prior to the purchase thereof, in the
case of the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 on the
business day prior to the Closing Date or, in the case of the Option Stock,
by 3:00 p.m., New York time, on the business day preceding the date of
purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose
<PAGE>
check shall not have been received by you on the Closing Date or any later
date on which Option Stock is purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS.
Each of the Company and the Selling Securityholders respectively covenants and
agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act
or the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of (i)
the request by the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information,
(ii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the institution or
notice of intended institution of any action or proceeding for that
purpose, (iv) the receipt by the Company of any notification with respect
to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company and the Selling
Securityholders will make every reasonable effort to prevent the issuance
of such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of
each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each of
the foregoing (but without exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you
may designate, as many copies of the Prospectus as you may reasonably
request, and (iii) thereafter from time to time during the period in which
a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of
any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement
or amend the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser of the Stock, the Company will forthwith prepare and file with
the Commission a supplement to the Prospectus or an amended prospectus so
that the Prospectus as so supplemented or amended will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the
Stock by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of offering thereof by reason of changes in
general market conditions or otherwise, you will advise the Company in
writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The
Company authorizes the Underwriters and all dealers to whom any of the
Stock may be sold by the several Underwriters to use the Prospectus, as
from time to time amended or supplemented, in connection with the sale
<PAGE>
of the Stock in accordance with the applicable provisions of the Securities
Act and the applicable rules and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter
or dealer, in keeping such qualifications in good standing under said
securities or blue sky laws; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports
filed with the Commission (including the Report on Form SR required by Rule
463 of the Commission under the Securities Act).
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule
158 thereunder.
(i) The Company and the Selling Securityholders jointly and severally agree
to pay all costs and expenses incident to the performance of their
obligations under this Agreement, including all costs and expenses incident
to (i) the preparation, printing and filing with the Commission and the
National Association of Securities Dealers, Inc. ("NASD") of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters of copies of any Preliminary Prospectus
and of the several documents required by paragraph (c) of this Section 6 to
be so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of
all supplements and amendments to the Prospectus referred to in paragraph
(d) of this Section 6, (v) the furnishing to you and the Underwriters of
the reports and information referred to in paragraph (g) of this Section 6
and (vi) the printing and issuance of stock certificates, including the
transfer agent's fees. The Selling Securityholders will pay any transfer
taxes incident to the transfer to the Underwriters of the shares the Stock
being sold by the Selling Securityholders.
(j) The Company and the Selling Securityholders jointly and severally agree
to reimburse you, for the account of the several Underwriters, for blue sky
fees and related disbursements (including counsel fees and disbursements
and cost of printing memoranda for the Underwriters) paid by or for the
account of the Underwriters or their counsel in qualifying the Stock under
state securities or blue sky laws and in the review of the offering by the
NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are intended
to relieve the Underwriters from the payment of the expenses and costs
which the Company and the Selling Securityholders hereby agree to pay and
shall not affect any agreement which the Company and the Selling
Securityholders may make, or may have made, for the sharing of any such
expenses and costs.
(l) The Company and each of the Selling Securityholders hereby agrees that,
without the prior written consent of Hambrecht & Quist LLC on behalf of the
Underwriters, the Company or such Selling Securityholder, as the case may
be, will not, for a period of 180 days following the commencement of the
public offering of the Stock by the Underwriters, directly or indirectly,
(i) sell, offer, contract to sell, make any short sale, pledge, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any
<PAGE>
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Stock to be sold to the Underwriters
pursuant to this Agreement, (B) shares of Common Stock issued by the
Company upon the exercise of options granted under the stock option plans
of the Company (the "Option Plans"), all as described in footnote (i) to
the table under the caption "Capitalization" in the Preliminary Prospectus,
and (C) options to purchase Common Stock granted under the Option Plans.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(n) The Company is not, and upon receipt and pending application of
the net proceeds from the sale of the Stock to be sold by the Company in
the manner described in the Prospectus will not be an "investment
company" a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the Company
and the Selling Securityholders jointly and severally agree to indemnify and
hold harmless each Underwriter and each person (including each partner or
officer thereof) who controls any Underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Securities Exchange Act of
1934, as amended (herein called the Exchange Act), or the common law or
otherwise, and the Company and the Selling Securityholders jointly and severally
agree to reimburse each such Underwriter and controlling person for any legal or
other expenses (including, except as otherwise hereinafter provided, reasonable
fees and disbursements of counsel) incurred by the respective indemnified
parties in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) shall not apply
to any such losses, claims, damages, liabilities or expenses if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
<PAGE>
the Company with paragraph (c) of Section 6 hereof, and (3) each Selling
Securityholder (other than the Selling Securityholders]) shall only be liable
under this paragraph with respect to (A) information pertaining to such Selling
Securityholder furnished by or on behalf of such Selling Securityholder
expressly for use in any Preliminary Prospectus or the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto or (B) facts
that would constitute a breach of any representation or warranty of such Selling
Securityholder set forth in Section 2(b) hereof. The indemnity agreements of the
Company and the Selling Securityholders contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Securityholders
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided, however,
that if the indemnified
<PAGE>
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Securityholders on the one hand and the Underwriters on the other shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Stock received by the Company and the Selling
Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
<PAGE>
(e) Neither the Company nor the Selling Securityholders will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of each Selling Securityholder under such Selling
Securityholder's representations and warranties contained in paragraph (a) of
Section 2 hereof and under the indemnity and reimbursement agreements contained
in the provisions of this Section 7 and Section 11 hereof shall be limited to an
amount equal to the initial public offering price of the stock sold by such
Selling Securityholder to the Underwriters. The Company and the Selling
Securityholders may agree, as among themselves and without limiting the rights
of the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States would, in the
Underwriters' reasonable judgment, make the offering or delivery of the Stock
impracticable, (iii) suspension of trading in securities generally or a material
adverse decline in value of securities generally on the New York Stock Exchange,
the American Stock Exchange, or The Nasdaq Stock Market, or limitations on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; provided, however, that in the event of
any such termination the Company and the Selling Securityholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained herein), shall have been approved at
or prior to the Closing Date by Sidley & Austin , counsel for the
Underwriters.
<PAGE>
(c) You shall have received from Proskauer Rose Goetz & Mendelsohn
LLP, counsel for the Company and the Selling Securityholders, an opinion,
addressed to the Underwriters and dated the Closing Date, covering the
matters set forth in Annex A hereto, and if Option Stock is purchased at
any date after the Closing Date, additional opinions from each such
counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such
opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change
in or affecting the business, properties, financial condition or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, and, since such dates, except in the ordinary
course of business, the Company has not entered into any material
transaction not referred to in the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein,
(iv) the Company does not have any material contingent obligations which
are not disclosed in the Registration Statement and the Prospectus, (v)
there are not any pending or known threatened legal proceedings to which
the Company is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed
as required, (vii) the representations and warranties of the Company herein
are true and correct in all material respects as of the Closing Date or any
later date on which Option Stock is to be purchased, as the case may be,
and (viii) there has not been any material change in the market for
securities in general or in political, financial or economic conditions
from those reasonably foreseeable as to render it impracticable in your
reasonable judgment to make a public offering of the Stock, or a material
adverse change in market levels for securities in general (or those of
companies in particular) or financial or economic conditions which render
it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in
the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.
(f) You shall have received from Deloitte & Touche LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
with Option Stock is purchased (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as
of the Closing Date or such later date, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions
set forth in the Original Letter which are necessary to reflect any changes
in the facts described in the Original Letter since the date of the
Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change,
or any development involving a prospective change, in or affecting the
business or properties of the Company which, in your sole judgment, makes
it impractical or inadvisable to proceed with the public offering of the
Stock or the purchase of the Option Stock as contemplated by the
Prospectus.
<PAGE>
(g) You shall have received from Deloitte & Touche LLP a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of
their examination of the Company's financial statements as at July 31,
1996, did not disclose any weakness in internal controls that they
considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of more than 5% of the
outstanding Common Stock stockholders agreements, in form reasonbly
satisfactory to Hambrecht & Quist LLC, stating that without the prior
written consent of Hambrecht & Quist LLC on behalf of the Underwriters,
such person or entity will not, for a period of 180 days following the
commencement of the public offering of the Stock by the Underwriters,
directly or indirectly, (i) sell, offer, contract to sell, make any short
sale, pledge, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Sidley & Austin, counsel for the Underwriters, shall
be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
<PAGE>
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 435 Hudson Street, New York, New
York 10014, Attention: Stephen I. Kahn; and if to the Selling Securityholders,
shall be mailed, telegraphed or delivered to the Selling Securityholders in care
of Stephen I. Kahn at 435 Hudson Street, New York, NY 10014. All notices given
by telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (l)(m) and (n) of Section 6 hereof shall be
of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Please sign and return to the Company and to the Selling Securityholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.
Very truly yours,
dELiA*s Inc.
By __________________________
[Name]
[Title]
<PAGE>
SELLING SECURITYHOLDERS:
[List Names]
By __________________________
[Attorney-in-Fact]
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
Oppenheimer & Co., Inc.
By Hambrecht & Quist LLC
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
Hambrecht & Quist LLC ...............................
Oppenheimer & Co., Inc....................................
__________
Total............................................... 2,350,000
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
NUMBER OF
NAME AND ADDRESS SHARES
OF SELLING SECURITYHOLDERS SOLD
-------------------------- ----
________
Total................................................ = 350,000
<PAGE>
SCHEDULE III
OPTION SHARES
NAME OF
OPTION SHARES
-------------
The Company ............................................ 152,500
Stephen I. Kahn ........................................ 150,000
Christopher C. Edgar ................................... 25,000
Sidney S. Kahn ......................................... 25,000
-------------
Total ............................................. 352,500
=============
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL FOR THE COMPANY
AND THE SELLING SECURITYHOLDERS
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good standing
in each state of the United States of America in which its ownership or leasing
of property requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on the business, properties,
financial condition or results of operations of the Company), and has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement;
(ii) the authorized capital stock of the Company consists of 1,000,000
shares of Preferred Stock, of which there are outstanding 0 shares, and]
50,000,000 shares of Common Stock, $.01 par value, of which there are
outstanding shares ___________ (including the Underwritten Stock plus the number
of shares of Option Stock issued on the date hereof); proper corporate
proceedings have been taken validly to authorize such authorized capital stock;
all of the outstanding shares of such capital stock (including the Underwritten
Stock and the shares of Option Stock issued, if any) have been duly and validly
issued and are fully paid and nonassessable; any Option Stock purchased after
the Closing Date, when issued and delivered to and paid for by the Underwriters
as provided in the Underwriting Agreement, will have been duly and validly
issued and be fully paid and nonassessable; and no preemptive rights of, or
rights of refusal in favor of, stockholders exist with respect to the Stock, or
the issue and sale thereof, pursuant to the Certificate of Incorporation or
Bylaws of the Company and, to the knowledge of such counsel, there are no
contractual preemptive rights that have not been waived, rights of first refusal
or rights of co-sale which exist with respect to the Stock being sold by the
Selling Securityholders or the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
(v) such counsel have no reason to believe that the Registration Statement
(except as to the financial statements and schedules and other financial and
statistical data contained or incorporated by reference therein, as to which
such counsel need not express any opinion or belief) at the Effective Date
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus (except as to the financial statements
and schedules and other financial and statistical data contained or incorporated
by reference therein, as to which such counsel need not express any opinion or
belief) as of its date or at the Closing Date (or any later date on which Option
Stock is purchased), contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(vi) the information required to be set forth in the Registration
Statement in answer to Items [9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items, and, the description of the Company's stock option
plan and the options granted and which may be granted thereunder and the options
granted otherwise than under such plan set forth in the Prospectus accurately
and fairly presents the information required to be shown with respect to said
plan and options to the extent required by the Securities Act and the rules and
regulations of the Commission thereunder;
<PAGE>
(vii) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(ix) the Underwriting Agreement has been duly executed and delivered by or
on behalf of the Selling Securityholders and the Custody Agreement between the
Selling Securityholders and __________________________ , as Custodian, and the
Power of Attorney referred to in such Custody Agreement have been duly executed
and delivered by the several Selling Securityholders;
(x) the issue and sale by the Company of the shares of Stock sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, the Certificate of Incorporation or Bylaws of the Company
or any agreement or instrument known to such counsel to which the Company [or
any of its subsidiaries] is a party or any applicable law or regulation, or so
far as is known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(xi) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xii) good and marketable title to the shares of Stock sold by the Selling
Securityholders under the Underwriting Agreement, free and clear of all liens,
encumbrances, equities, security interests and claims, has been transferred to
the Underwriters who have severally purchased such shares of Stock under the
Underwriting Agreement, assuming for the purpose of this opinion that the
Underwriters purchased the same in good faith without notice of any adverse
claims; and
(xiii) based insofar as factual matters with respect to the stock to be
sold by the Selling Securityholders are concerned solely upon certificates of
the Selling Securityholders, the accuracy of which such counsel have no reason
to question, no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters.
____________________________________
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or of the State of Delaware, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representative and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
dELiA*s Inc.
The undersigned incorporator, in order to form a corporation under the
General Corporation Law of the State of Delaware, certifies as follows:
FIRST: The name of the corporation is dELiA*s Inc. (the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805.
The name of its registered agent at that address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock the Corporation shall have
authority to issue is 51,000,000 shares, consisting of 50,000,000 shares of
common stock having a par value of $0.01 per share and 1,000,000 shares of
preferred stock having a par value of $.01 per share. The board of directors
may authorize, without further stockholder approval, the issuance from time to
time of the preferred stock in one or more series with such designations and
such powers, preferences and rights, and such qualifications, limitations or
restrictions (which may differ with respect to each series) as the board of
directors may fix by resolution.
FIFTH: The name and mailing address of the incorporator are as follows:
Michael R. Neidell
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, NY 10036
SIXTH: (a) The board of directors shall be divided into three classes, as
nearly equal in number as the then total number of directors constituting the
whole board permits, with the term of office of one class expiring each year.
At the next election of directors, directors of the first class shall be elected
to hold office for a term expiring at the next succeeding annual meeting,
directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual
<PAGE>
meeting and directors of the third class shall be elected to hold office for a
term expiring at the third succeeding annual meeting. Subject to the foregoing,
at each annual meeting of stockholders, the successors to the class of directors
whose term shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting and each director so elected shall hold
office until his successor is elected and qualified, or until his earlier
resignation or removal. If the number of directors is changed, any increase or
decrease in the number of directors shall be apportioned among the three classes
to make all classes as nearly equal in number as possible, and the board of
directors shall decide which class shall contain an unequal number of directors.
(b) Only persons who are nominated in accordance with the procedures set
forth in this paragraph shall be eligible to serve as directors. Nominations of
persons for election to the board of directors of the Corporation may be made at
an annual meeting of stockholders (a) by or at the direction of the board of
directors or (b) by or on behalf of a stockholder of the Corporation, or a duly
authorized proxy for such stockholder, who is a stockholder of record at the
time of giving notice provided for in this paragraph and who shall be entitled
to vote for the election of directors at the meeting. Any nominations not made
by or at the direction of the board of directors must be made pursuant to a
notice in writing to the secretary of the Corporation delivered or mailed to,
and received at, the principal executive offices of the Corporation not fewer
than 60 days or more than 90 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in the event the
-------- -------
annual meeting with respect to which such notice is to be tendered is not held
within 30 days before or after such anniversary date; and further provided,
------- --------
however, that, notwithstanding the foregoing, with respect to the first annual
- -------
meeting of stockholders, such notice by the stockholder must be received at the
principal executive offices of the Corporation prior to the close of business on
the tenth day following the date on which notice of the meeting was first given
or made to stockholders generally. Such stockholder's notice shall set forth
(a) as to each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (including such person's written consent to
being named as a nominee and to serving as a director, if elected); and (b) as
to the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such stockholder, (ii) the class and number of
shares of stock of the Corporation beneficially owned by such stockholder and
represented by proxy and (iii) a description of all arrangements or
understandings between such stockholder and any
2
<PAGE>
other person or persons (including their names) in connection with such
nomination and any material interest of such stockholder in such nomination. At
the request of the board of directors, any person nominated by the board of
directors for election as a director shall furnish to the secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination that pertains to the nominee. If the board of directors shall
determine, based on the facts, that a nomination was not made in accordance with
the above procedures, the chairman of the meeting shall so declare to the
meeting and the defective nomination shall be disregarded.
(c) Vacancies in the board of directors may be filled by the affirmative
vote of the holders of at least 66-2/3% of the shares entitled to vote in the
election of directors, and any director so chosen shall hold office for the
remainder of the full term of the director whose place he or she has been
elected to fill and until his or her successor shall be elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist in
case of the death, resignation or removal of any director, or if the
stockholders fail at any annual meeting of stockholders at which any director or
directors are required to be elected to elect the full authorized number of
directors to be voted for at that meeting, or if there are newly created
directorships resulting from any increase in the authorized number of directors.
(d) Any director may be removed with or without cause at any time by the
affirmative vote of the holders of at least 66-2/3% of the shares entitled to
vote at a special meeting of stockholders called for that purpose and the
vacancies thus created may be filled at that same meeting by the affirmative
vote of the holders of at least 66-2/3% of the shares entitled to vote at such
meeting.
(e) The affirmative vote of the holders of at least 66-2/3% of the shares
entitled to vote in the election of directors shall be required to amend or
repeal, or adopt any provisions inconsistent with, this Article SIXTH.
SEVENTH: (a) Except as otherwise required by law, meetings of
stockholders may be called only by the board of directors pursuant to a
resolution approved by a majority of the board (excluding those directors
affiliated with or elected by an interested stockholder (as defined in section
203 of the General Corporation Law of the State of Delaware)), the chairman of
the board, the vice chairman of the board or the president of the Corporation.
(b) At any meeting of stockholders, only such business shall be conducted
as shall have been brought before the meeting (a) pursuant to the Corporation's
notice of meeting, (b) by
3
<PAGE>
or at the direction of the board of directors or (c) by or on behalf of a
stockholder of the Corporation, or a duly authorized proxy for such stockholder,
who is a stockholder of record at the time of giving notice provided for in this
paragraph and who shall be entitled to vote at such meeting. Stockholder
proposals must be made pursuant to a notice in writing to the secretary of the
Corporation delivered or mailed to, and received at, the principal executive
offices of the Corporation, in the case of business to be brought before a
special meeting of stockholders, not more than 10 days after the date of the
initial notice referred to in clause (a) of this paragraph, and, in the case of
business to be brought before an annual meeting of stockholders, not fewer than
sixty 60 days or more than 90 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in the event the
-------- -------
annual meeting with respect to which such notice is to be tendered is not held
within 30 days before or after such anniversary date; and further provided,
------- --------
however, that, notwithstanding the foregoing, with respect to the first annual
- -------
meeting of stockholders, such notice by the stockholder must be received at the
principal executive offices of the Corporation prior to the close of business on
the tenth day following the date on which notice of the meeting was first given
or made to stockholders generally. Such stockholder's notice shall set forth
(a) a brief description of the business desired to brought before the meeting
and the reasons for conducting such business at the meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (c) the class and number of shares of stock
of the Corporation which are owned of record, owned beneficially and represented
by proxy by such stockholder as of the record date for the meeting (if such date
has then been made publicly available) and as of the date of such notice and (d)
any material interest of such stockholder of record and the beneficial owner, if
any, on whose behalf the proposal is made in such business. If the board of
directors shall determine, based on the facts, that a proposal was not made in
accordance with the above procedures, the chairman of the meeting shall so
declare to the meeting and the defective proposal shall be disregarded.
(c) The affirmative vote of the holders of at least 66-2/3% of the shares
entitled to vote in the election of directors shall be required to amend or
repeal, or adopt any provisions inconsistent with, this Article SEVENTH.
EIGHTH: (a) If stockholder approval is required by applicable law, the
affirmative vote of the holders of at least 66-2/3% of the shares entitled to
vote on the matter shall be required to approve the adoption of any agreement
for the merger of the Corporation with or into any other corporation, the
consolidation of the Corporation with any other corporation or the sale, lease,
4
<PAGE>
transfer or exchange of all or substantially all the assets of the Corporation.
(b) The affirmative vote of the holders of at least 66-2/3% of the shares
entitled to vote in the election of directors shall be required to amend or
repeal, or adopt any provisions inconsistent with, this Article EIGHTH.
NINTH: A director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for the breach of any
fiduciary duty as a director, provided that this Article NINTH shall not
eliminate or limit the liability of a director (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (c) under section 174 of the General Corporation Law
of the State of Delaware or (d) for any transaction from which the director
derives an improper personal benefit. Any repeal or modification of this
Article NINTH by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
TENTH: The holders of shares entitled at the time to vote for the election
of directors shall have the power to adopt, amend or repeal the bylaws of the
Corporation by a vote of not fewer than 66-2/3% of such shares, and, except as
otherwise provided by law, the board of directors shall have the power to adopt,
amend or repeal the bylaws by a vote of not fewer than 66-2/3% of the entire
board. However, any bylaw adopted by the stockholders may not be amended or
repealed by a vote of the board.
/s/ Michael R. Neidell
___________________________________
Michael R. Neidell
Sole Incorporator
5
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
DELIA*S INC.
1. MEETINGS OF STOCKHOLDERS.
------------------------
1.1 Annual Meeting. The annual meeting of stock-holders shall be
--------------
held on the first Wednesday of May in each year, or as soon thereafter as
practicable, and shall be held at a place and time determined by the board of
directors.
1.2 Special Meetings. Special meetings of stockholders may be called
----------------
by resolution of the board of directors or the president and shall be called by
the president or secretary upon the written request (stating the purpose or
purposes of the meeting) of a majority of the directors then in office or of the
holders of a majority of the outstanding shares entitled to vote. Only business
related to the purposes set forth in the notice of the meeting may be transacted
at a special meeting.
1.3 Place and Time of Meetings. Meetings of the stockholders may be
--------------------------
held in or outside Delaware at the place and time specified by the board of
directors or the officers or stockholders requesting the meeting.
1.4 Notice of Meetings; Waiver of Notice. Written notice of each
--- ------------------------------------
meeting of stockholders shall be given to each stockholder entitled to vote at
the meeting, except that (a) it
<PAGE>
shall not be necessary to give notice to any stockholder who submits a signed
waiver of notice before or after the meeting, and (b) no notice of an adjourned
meeting need be given, except when required under section 1.5 below or by law.
Each notice of a meeting shall be given, personally or by mail, not fewer than
10 or more than 60 days before the meeting and shall state the time and place of
the meeting, and, unless it is the annual meeting, shall state at whose
direction or request the meeting is called and the purposes for which it is
called. If mailed, notice shall be considered given when mailed to a
stockholder at his address on the Corporation's records. The attendance of any
stockholder at a meeting, without protesting at the beginning of the meeting
that the meeting is not lawfully called or convened, shall constitute a waiver
of notice by him.
1.5 Quorum. At any meeting of stockholders, the presence in person
------
or by proxy of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of any business. In the absence of a
quorum, a majority in voting interest of those present or, if no stockholders
are present, any officer entitled to preside at or to act as secretary of the
meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is present, any action may be taken that might have
been taken at the meeting as originally called. No notice of an adjourned
meeting need be given, if the time and place are announced at the meeting at
which the adjournment is taken, except that, if
-2-
<PAGE>
adjournment is for more than 30 days or if, after the adjournment, a new record
date is fixed for the meeting, notice of the adjourned meeting shall be given
pursuant to section 1.4.
1.6 Voting; Proxies. Each stockholder of record shall be entitled to
---------------
one vote for each share registered in his name. Corporate action to be taken by
stockholder vote, other than the election of directors, shall be authorized by a
majority of the votes cast at a meeting of stockholders, except as otherwise
provided by law or by section 1.8. Voting need not be by ballot, unless
requested by a majority of the stockholders entitled to vote at the meeting or
ordered by the chairman of the meeting. Each stockholder entitled to vote at
any meeting of stockholders or to express consent to or dissent from corporate
action in writing without a meeting may authorize another person to act for him
by proxy. No proxy shall be valid after three years from its date, unless it
provides otherwise.
1.7 List of Stockholders. Not fewer than 10 days prior to the date
--------------------
of any meeting of stockholders, the secretary of the Corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not fewer than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place within the city where
the
-3-
<PAGE>
meeting is to be held, if that place shall have been specified in the notice of
the meeting, or (b) if not so specified, at the place where the meeting is to be
held. The list shall also be available for inspection by stockholders at the
time and place of the meeting.
1.8 Action by Consent Without a Meeting. Any action required or
-----------------------------------
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not fewer than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting. Prompt notice of the taking of any such
action shall be given to those stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
------------------
2.1 Number, Qualification, Classification, Election and Term of
-----------------------------------------------------------
Directors. The business and affairs of the Corporation shall be managed by its
- ---------
board of directors. The number of directors constituting the board of directors
shall be determined from time to time by resolution of the board. Directors
need not be stockholders of the Corporation. One class of directors shall be
elected at each annual meeting of stockholders by a plurality of the votes cast.
The nomination,
-4-
<PAGE>
classification and term of directors shall be governed by the Corporation's
certificate of incorporation.
2.2 Quorum and Manner of Acting. A majority of the total number of
---------------------------
directors shall constitute a quorum for the transaction of business at any
meeting, except as provided in section 2.10. Action of the board of directors
shall be authorized by the vote of the majority of the directors present at the
time of the vote, if there is a quorum, unless otherwise provided by law or
these bylaws. In the absence of a quorum, a majority of the directors present
may adjourn any meeting from time to time until a quorum is present.
2.3 Place of Meetings. Meetings of the board of directors may be
-----------------
held in or outside Delaware.
2.4 Annual and Regular Meetings. Annual meetings of the board of
---------------------------
directors, for the election of officers and consideration of other matters,
shall be held either (a) without notice immediately after the annual meeting of
stockholders and at the same place, or (b) as soon as practicable after the
annual meeting of stockholders, on notice as provided in section 2.6. Regular
meetings of the board of directors may be held without notice at such times and
places as the board determines. If the day fixed for a regular meeting is a
legal holiday, the meeting shall be held on the next business day.
-5-
<PAGE>
2.5 Special Meetings. Special meetings of the board of directors may
----------------
be called by the chairman of the board or by a majority of the directors.
2.6 Notice of Meetings; Waiver of Notice. Notice of the time and
------------------------------------
place of each special meeting of the board of directors, and of each annual
meeting not held immediately after the annual meeting of stockholders and at the
same place, shall be given to each director by mailing it to him at his
residence or usual place of business at least three days before the meeting, or
by delivering or telephoning or telegraphing it to him at least two days before
the meeting. Notice of a special meeting also shall state the purpose or
purposes for which the meeting is called. Notice need not be given to any
director who submits a signed waiver of notice before or after the meeting or
who attends the meeting without protesting at the beginning of the meeting the
transaction of any business because the meeting was not lawfully called or
convened. Notice of any adjourned meeting need not be given, other than by
announcement at the meeting at which the adjournment is taken.
2.7 Board or Committee Action Without a Meeting. Any action required
-------------------------------------------
or permitted to be taken by the board of directors or by any committee of the
board may be taken without a meeting, if all the members of the board or the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents by the members
-6-
<PAGE>
of the board of directors or the committee shall be filed with the minutes of
the proceedings of the board or the committee.
2.8 Participation in Board or Committee Meetings by Conference
----------------------------------------------------------
Telephone. Any or all members of the board of directors or any committee of the
- ---------
board may participate in a meeting of the board of directors or the committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at the meeting.
2.9 Resignation and Removal of Directors. Any director may resign at
------------------------------------
any time by delivering his resignation in writing to the president or secretary
of the Corporation, to take effect at the time specified in the resignation, and
if no time be specified, at the time of its receipt by the president or
secretary; the acceptance of a resignation, unless required by its terms, shall
not be necessary to make it effective. Any or all of the directors may be
removed at any time, either with or without cause, by vote of the stockholders.
2.10 Vacancies. Any vacancy in the board of directors, including one
---------
created by an increase in the number of directors, may be filled for the
unexpired term by a majority vote of the remaining directors, though less than a
quorum.
2.11 Compensation. Directors shall receive such compensation as the
------------
board determines, together with reimbursement
-7-
<PAGE>
of their reasonable expenses in connection with the performance of their duties.
A director also may be paid for serving the Corporation in other capacities.
3. COMMITTEES.
----------
3.1 Executive Committee. The board of directors, by resolution
-------------------
adopted by a majority of the board, may designate an executive committee of one
or more directors, which shall have all the powers and authority of the board,
except as otherwise provided in the resolution, section 141(c) of the General
Corporation Law of the State of Delaware or any other applicable law. The
members of the executive committee shall serve at the pleasure of the board.
All action of the executive committee shall be reported to the board of
directors at its next meeting.
3.2 Other Committees. The board of directors, by resolution adopted
----------------
by a majority of the board, may designate other committees of one or more
directors, which shall serve at the pleasure of the board and have such powers
and duties as the board determines.
3.3 Rules Applicable to Committees. The board of directors may
------------------------------
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
case of the absence or disqualification of any member of a committee, the member
or members present at a meeting of the committee and not disqualified, whether
or not a quorum, may unanimously appoint
-8-
<PAGE>
another director to act at the meeting in place of the absent or disqualified
member. All action of a committee shall be reported to the board at its next
meeting. Each committee shall adopt rules of procedure and shall meet as
provided by those rules or by resolutions of the board of directors.
4. OFFICERS.
--------
4.1 Number; Security. The executive officers of the Corporation
----------------
shall be the president, one or more vice presidents (including an executive vice
president, if the board so determines), a secretary and a treasurer and such
other officers, including a chairman of the board, as the board of directors may
from time to time deem necessary. Any two or more offices may be held by the
same person. The board may require any officer, agent or employee to give
security for the faithful performance of his duties.
4.2 Election; Term of Office. The executive officers of the
------------------------
Corporation shall be elected annually by the board of directors, and each such
officer shall hold office until the next annual meeting of the board and until
the election of his successor, subject to the provisions of section 4.4.
4.3 Subordinate Officers. The board of directors may appoint
--------------------
subordinate officers (including assistant secretaries and assistant treasurers),
agents or employees, each of whom shall hold office for such period and have
such powers and duties as the board determines. The board of directors may
delegate to any
-9-
<PAGE>
executive officer or committee the power to appoint and define the powers and
duties of any subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer may resign at
-----------------------------------
any time by delivering his resignation in writing to the president or secretary
of the Corporation, to take effect at the time specified in the resignation, and
if no time be specified, at the time of its receipt by the president or
secretary; the acceptance of a resignation, unless required by its terms, shall
not be necessary to make it effective. Any officer elected or appointed by the
board of directors or appointed by an executive officer or by a committee may be
removed by the board either with or without cause, and in the case of an officer
appointed by an executive officer or by a committee, by the officer or committee
that appointed him or by the president.
4.5 Vacancies. A vacancy in any office may be filled for the
---------
unexpired term in the manner prescribed in sections 4.2 and 4.3 for election or
appointment to the office.
4.6 The Chairman of the Board. The chairman of the board, if one be
-------------------------
elected, shall preside at all meetings of the board of directors when present,
and preside as chairman at all meetings of stockholders. The chairman of the
board shall, in the absence or incapacity of the president, perform all duties
and functions and exercise all the powers of the president. The
-10-
<PAGE>
chairman of the board shall also have such other powers and perform such other
duties required by law or by these bylaws or as the board of directors may from
time to time determine.
4.7 The President. The president shall have general direction over
-------------
the day-to-day business of the Corporation, subject to the control and direction
of the board of directors. In the absence of the chairman of the board, the
president shall preside at all meetings of the board of directors and of
stockholders. The president shall, in the absence or incapacity of the chairman
of the board, perform all duties and functions and exercise all the powers of
the chairman of the board. The president shall also have such other powers and
perform such other duties required by law or by these bylaws or as the board of
directors may from time to time determine.
4.8 Vice President. Each vice president shall have such powers and
--------------
duties as the board of directors, the chairman of the board or the president
assigns to him.
4.9 The Treasurer. The treasurer shall be the chief financial
-------------
officer of the Corporation and shall be in charge of the Corporation's books and
accounts. Subject to the control of the board of directors, he shall have such
other powers and duties as the board of directors, the chairman of the board or
the president assigns to him.
4.10 The Secretary. The secretary shall be the secretary of, and
-------------
keep the minutes of, all meetings of the board
-11-
<PAGE>
of directors and stockholders, shall be responsible for giving notice of all
meetings of stockholders and the board of directors, and shall keep the seal
and, when authorized by the board, apply it to any instrument requiring it.
Subject to the control of the board of directors, he shall have such powers and
duties as the board of directors, the chairman of the board or the president
assigns to him. In the absence of the secretary from any meeting, the minutes
shall be kept by the person appointed for that purpose by the presiding officer.
4.11 Designated Officers. Either the chairman of the board or the
-------------------
president, or both, as the board of directors may designate, shall be the chief
executive officer of the Corporation. The officer so designated shall have
general and active supervision and direction over the business and affairs of
the Corporation and over its several officers, agents and employees, subject,
however, to the control and direction of the board of directors. The chief
executive officer shall also have such other powers and duties incident to the
designated position of chief executive officer as the board of directors may
from time to time by resolution determine. The board of directors may from time
to time designate officers to serve as chief financial officer, chief accounting
officer and other such designated positions and to fulfill the responsibilities
of such designated positions. Such designated officers shall also have such
other powers and duties incident to his designated position as the board of
directors may from time to time by resolution determine.
-12-
<PAGE>
4.12 Salaries. The board of directors may fix the officers'
--------
salaries, if any, or it may authorize the president to fix the salary of any
other officer.
5. SHARES.
------
5.1 Certificates. The Corporation's shares shall be represented by
------------
certificates in the form approved by the board of directors. Each certificate
shall be signed by the president or a vice president, and by the secretary or an
assistant secretary or the treasurer or an assistant treasurer, and shall be
sealed with the Corporation's seal or a facsimile of the seal. Any or all of
the signatures on the certificate may be a facsimile.
5.2 Transfers. Shares shall be transferable only on the
---------
Corporation's books, upon surrender of the certificate for the shares, properly
endorsed. The board of directors may require satisfactory surety before issuing
a new certificate to replace a certificate claimed to have been lost or
destroyed.
5.3 Determination of Stockholders of Record. The board of directors
---------------------------------------
may fix, in advance, a date as the record date for the determination of
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or to express consent to or dissent from any proposal without a
meeting, or to receive payment of any dividend or the allotment of any rights,
or for the purpose of any other action. The record date may not be more than 60
or fewer than 10 days before the date of the meeting or more than 60 days before
any other action.
-13-
<PAGE>
6. MISCELLANEOUS.
-------------
6.1 Seal. The board of directors shall adopt a corporate seal, which
----
shall be in the form of a circle and shall bear the Corporation's name and the
year and state in which it was incorporated.
6.2 Fiscal Year. The board of directors may determine the
-----------
Corporation's fiscal year. Until changed by the board of directors, the last
day of the Corporation's fiscal year shall be January 31.
6.3 Voting of Shares in Other Corporations. Shares in other
--------------------------------------
corporations held by the Corporation may be represented and voted by an officer
of this Corporation or by a proxy or proxies appointed by one of them. The
board of directors may, however, appoint some other person to vote the shares.
6.4 Amendments. The holders of shares entitled at the time to vote
----------
for the election of directors shall have the power to adopt, amend or repeal the
bylaws of the Corporation by a vote of not fewer than 66-2/3% of such shares,
and, except as otherwise provided by law, the board of directors shall have the
power to adopt, amend or repeal the bylaws by a vote of not fewer than 66-2/3%
of the board. However, any bylaw adopted by the stockholders may not be amended
or repealed by a vote of the board of directors.
-14-
<PAGE>
6.5 Savings Clause. The provisions of Articles SIXTH, SEVENTH and
--------------
EIGHTH of the Corporation's certificate of incorporation are incorporated by
reference into these bylaws. If any such provisions are inconsistent with any
other provisions of these bylaws, such other provisions of these bylaws shall be
deemed null and void and have no force and effect and the provisions
incorporated by reference in this section shall be given full force and effect.
-15-
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
BETWEEN dELiA*s INC.
AND
STEPHEN I. KAHN
DATED AS OF ________ __, 1996
dELiA*s INC. (the "Company"), a Delaware corporation, and Stephen I.
Kahn (the "Executive") agree as follows:
1. Employment and Duties
---------------------
(a) The Company shall employ the Executive, and the Executive shall
serve the Company, as the chairman of the board of directors and president of
the Company. The Executive shall use his best efforts to promote the interests
of the Company, and shall perform his duties faithfully and diligently,
consistent with sound business practices.
(b) The Executive shall devote substantially his full business time to
the performance of his duties for the Company (it being understood, however,
that nothing in this agreement or otherwise shall be deemed to restrict the
Executive from being a passive investor in businesses that are not competitive
with the Company).
(c) If the Company changes its principal place of business during the
term of this agreement to a location outside the New York metropolitan area, the
Executive shall not be required to perform his duties for the Company outside
the New York metropolitan area.
2. Term of Employment
------------------
Subject to section 2, the Executive shall continue to be
<PAGE>
employed by the Company under this agreement until the close of business on the
third anniversary of this agreement.
3. Compensation
------------
(a) As compensation for all services to be rendered by the Executive
during his employment under this agreement, the Executive shall be entitled to a
base salary at the rate of $100,000 a year (payable in equal installments at
least twice a month), subject to increases as provided in sections 3(b) and
3(c).
(b) The base salary referred to in section 3(a) shall be increased on
the first and second anniversaries of this agreement by the percentage increase
in the consumer price index (all items) of the United States Bureau of Labor
Statistics for New York, New York, during the immediately preceding 12-month
period; if the consumer price index ceases to be published, then a successor
index, or, if there is none, the most nearly comparable index, shall be used.
(c) The Company may, in the sole and absolute discretion of the board
of directors, from time to time increase the Executive's base salary and award
the Executive such bonuses as it considers appropriate.
4. Termination
-----------
The Executive's employment shall terminate upon his death, and may be
terminated at the option of the Company as a result of his disability, if, in
the good faith determination of the Company's board of directors, such
disability
2
<PAGE>
has prevented the Executive from substantially performing his duties and
obligations under this agreement during any period of nine consecutive calendar
months and the Company gives notice to the Executive not earlier than 30 days
and not later than 90 days after the expiration of the nine months (in which
case the employment under this agreement shall terminate when that notice is
given). Upon termination of employment for death or disability pursuant to this
section 4, the Company shall continue to pay the Executive (or his estate or any
other person designated by the Executive in writing to the Company) the full
amount of the Executive's base salary (as determined under sections 3(a) and
3(b)) at the time of his termination until the third anniversary of this
agreement.
5. Expenses; Fringe Benefits
-------------------------
During the employment of the Executive under this agreement:
(a) The Company shall reimburse the Executive, on presentation of
vouchers or other evidence of such expenses in accordance with the policies of
the Company, for all reasonable business expenses incurred by him in the
performance of his duties for the Company.
(b) The Company shall provide the Executive with medical insurance,
disability insurance and life insurance under policies no less favorable to the
Executive than the ones currently in effect. In addition, the Company may
obtain key-man term life insurance on the life of the Executive, and the Company
shall be the beneficiary under such policy.
(c) The Executive shall be entitled to six weeks vacation
3
<PAGE>
each year.
(d) The Company shall provide the Executive with an automobile of at
least the same quality as the one he currently uses, and shall pay all expenses
reasonably incurred in connection with his use of that automobile.
(e) The Company shall provide the Executive with an annual allowance
of $10,000 to be applied, in the Executive's discretion, in any combination to
one or more of the following: tax return preparation, financial consulting,
estate planning and/or life/disability insurance premiums.
6. Non-Competition; Confidentiality
--------------------------------
(a) The Executive may not at any time during his employment under this
agreement for any reason, engage or become interested in (as owner, lender,
stockholder, partner, director, officer, employee, consultant or otherwise) any
business that is in direct competition with the business conducted by the
Company anywhere in any state in the United States in which the Company has
engaged in such business.
(b) During the Executive's employment under this agreement, the
Executive shall not on his own behalf, or on behalf of any other person or
enterprise, hire, solicit or encourage to leave the employment of the Company
any individual who was an employee of the Company or its affiliates during the
Executive's employment by the Company.
(c) The Executive shall not, at any time during or after his
employment under this agreement, disclose to any third party, except in the
4
<PAGE>
performance of his duties under this agreement or as may be required by law, any
confidential matter regarding the Company's customers, suppliers, trade secrets
or business.
(d) The Executive acknowledges that the remedy at law for breach of
the provisions of this section 6 would be inadequate and that, in addition to
any other remedy the Company may have for breach of this section 6, the Company
shall be entitled to an injunction restraining any such breach or threatened
breach, without any bond or other security being required.
7. Miscellaneous
-------------
(a) The failure of a party to this agreement to insist on any occasion
upon strict adherence to any term of this agreement shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this agreement. Any waiver must be
in writing.
(b) All notices and other communications under this agreement shall be
in writing and shall be deemed given when delivered personally or mailed by
registered mail, return receipt requested, to a party at his or its address as
follows (or at such other address as a party may designate in any notice under
this agreement):
If to the Executive:
Stephen I. Kahn
180 Waverly Place
New York, NY 10014
5
<PAGE>
If to the Company:
dELiA*s LLC
435 Hudson Street
New York, NY 10014
Attention: President
With a copy to:
Jeffrey A. Horwitz, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036-8299
(c) This agreement shall be assigned to and shall inure to the benefit
of any successor to substantially all the assets and business of the Company as
a going concern, whether by merger, consolidation, liquidation or sale of
substantially all the assets of the Company or otherwise, and the Company shall
cause any such successor to assume the Company's obligations under this
agreement (but no such assignment shall relieve the Company of its obligations
under this agreement).
(d) This agreement constitutes the entire understanding of the parties
with respect to the subject matter of this agreement, cannot be changed or
terminated except by a written agreement executed by the parties and shall be
governed by the law of the State of New York applicable to agreements made and
to be performed therein.
* * *
6
<PAGE>
dELiA*s LLC
By:_________________________
Stephen I. Kahn
Executive Manager
STEPHEN I. KAHN
----------------------------
7
<PAGE>
EXHIBIT 10.4
STOCKHOLDERS AGREEMENT
Dated , 1996
-----------------------
The parties to this agreement are dELiA*s Inc., a Delaware corporation (the
"Company"), Stephen I. Kahn ("SIK") and the other parties listed on exhibit A
(such other parties, the "Family Holders"). The Family Holders and SIK are
referred to collectively as the "Existing Stockholders." Each Family Holder
owns the number of shares of common stock of the Company set forth beside the
Family Holder's name on exhibit A.
The parties agree as follows:
1. Restrictions on Transfer Generally.
----------------------------------
1.1 Transfers to be Made Only as Permitted or Required by This Agreement.
--------------------------------------------------------------------
No Family Holder may, directly or indirectly, sell, assign, transfer, pledge or
otherwise encumber or dispose of (each, a "transfer") any shares of the
Company's common stock, except as specifically permitted by this agreement. The
Company shall not record on its books and records any purported transfer of
shares not permitted by this agreement, and any such purported transfer shall
have no force or effect. Prior to the expiration
<PAGE>
of the 180-day period commencing on the date of the final prospectus of the
Company's underwritten initial public offering (the "Lock-Up Period"), no Family
Holder may transfer any shares except as permitted under Section 1.2 or with the
prior written consent of the Company.
1.2 Permitted Transfers. Each Family Holder, other than a Family Holder
-------------------
who owns shares of common stock as an executor, guardian, committee, trustee or
other fiduciary, may transfer any shares of common stock that Family Holder owns
to that Family Holder's spouse, heirs or descendants or any executor, guardian,
committee, trustee or other fiduciary acting as such on behalf or for the
benefit of that Family Holder or any such spouse, heir or descendant with
respect to such transfer. Any Family Holder who owns shares of common stock as
an executor, guardian, committee, trustee or other fiduciary may transfer shares
to: (a) the person or persons on whose behalf or for whose benefit these shares
are held; (b) any other executor, guardian, committee, trustee or other
fiduciary acting as such on behalf or for the benefit of the person or persons
on whose behalf or for whose benefit that shares are held; or (c) any spouse or
descendant of the person or persons on whose behalf or for whose benefit that
shares are held. No transfer otherwise permitted by
2
<PAGE>
this section 1.2 or by section 1.3 may be effected, unless, at or prior to the
transfer, the transferee executes and delivers to the Company and to SIK, for
the Company's benefit and for the benefit of each other Existing Stockholder, a
written agreement by the transferee (in form and substance reasonably
satisfactory to the Company and SIK) to be bound by this agreement, including
without limitation section 4, as if the transferee were the transferring Family
Holder. In addition, any Family Holder may transfer any shares of common stock
to any other Existing Stockholder or any other person permitted under this
section 1.2 (any such other person being referred to as a "Permitted
Transferees").
1.3 Piggyback Sales. After the 180-day period commencing on the date of
---------------
the final prospectus of the Company's underwritten initial public offering (the
"Lock-Up Period"), Each Family Holder may sell the number of shares of common
stock that Family Holder includes in a registration pursuant to section 2.
1.4 Rule 144 Transfers. After the second anniversary of this agreement,
------------------
each Family Holder may transfer shares of common stock, in the same amounts and
in the same manner as that Family Holder would be permitted to transfer shares,
if the Family Holder was an affiliate (as defined in Rule 144 of the
3
<PAGE>
Securities Act of 1933 (the "Securities Act") of the Company. Prior to the
second anniversary of this agreement, each of Sidney S. Kahn and Geraldine
Karetsky (each, a "Director") may, at any time, transfer shares of common stock,
in the same amounts and in the same manner as would be permitted to transfer
shares, if such Director was an affiliate (as defined in Rule 144 of the
Securities Act of 1933 (the "Securities Act") of the Company.
1.5 Approved Transfers. After the Lock-Up Period, any Family Holder may
------------------
transfer any shares of common stock to any other person, firm or entity with the
prior written consent of SIK (which SIK may withhold for any reason or for no
reason in his sole discretion).
2. Registration Rights
-------------------
2.1 Piggyback Registration. If at any time SIK proposes to include shares
----------------------
of common stock he owns in a registration statement being filed under the
Securities Act on any form (other than on Form S-8 or any successor form), the
Company or SIK shall give written notice to each Family Holder at least 10 days
before the initial filing of that registration statement, which notice (a
"Notice of Registration") shall set forth the intended method of disposition of
the securities
4
<PAGE>
proposed to be registered by SIK. Each Notice of Registration shall offer to
include in the registration statement up to a number of shares of common stock
owned by each Family Holder equal to the product of (a) the number of shares
owned by the Family Holder and/or the Family Holder's Permitted Transferees as
of the date of the agreement and (b) a fraction, the numerator of which is the
number of shares SIK proposes to include in the registration statement and the
denominator of which is the total number of shares SIK owns as of the date of
the agreement. If any Family Holder or Permitted Transferee wishes to have up
to that number of shares of common stock so included, that Family Holder or
Permitted Transferee shall so notify SIK and the Company, within 10 days after
the date of delivery of the Notice of Registration, of the number of shares for
which registration is requested. The Company shall thereupon include in the
registration the number of shares of common stock for which registration is so
requested, subject to the next sentence. If the managing underwriter of a
proposed public offering that is the subject of any such registration statement
advises the Company or SIK in writing that, in its opinion, the distribution of
the shares requested to be included in the registration by all Family Holders,
their Permitted Transferees and all other selling
5
<PAGE>
stockholders (including SIK) would adversely affect a distribution by the
Company covered by such registration statement, the number of shares Transferees
requested to be registered by Family Holders and Permitted Transferees shall be
reduced in the same proportion as the number of shares of all other selling
stockholders (including SIK) is reduced.
2.2 Expenses. All expenses incurred in complying with this section 2,
--------
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, expenses of any
special audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions, shall be
paid by the Company, except that the Company shall not (without its consent) be
liable for (a) any fees, discounts or commissions to any underwriter or broker
and (b) the fees or expenses of more than counsel to SIK, the Family Holders and
Permitted Transferees (which counsel may, in SIK's discretion, be selected by
SIK and may also be the Company's counsel).
2.3 Each Family Holder undertakes to execute and deliver all agreements,
certificates and other documents in connection with the registration of the
Family Holder's shares of
6
<PAGE>
common stock pursuant to this section 2 requested by SIK or the Company in his
or its discretion.
3. "Market Stand-off" Agreement. SIK may request that any Family Holder
----------------------------
refrain from transferring any shares of common stock for a period of up to 90
days following the filing of a registration statement of the Company under the
Securities Act (a "90-Day Moratorium Request"); however, SIK may not make more
than one such request of each Family Holder in any 365-day period; and, in
addition, SIK may, on one occasion, request that each Family Holder refrain from
transferring any shares of common stock for a period of up to 180 days following
the filing of a registration statement under the Securities Act, which right may
not be exercised during any 365-day period in which SIK has made a 90-Day
Moratorium Request. If SIK makes such a request, each Family Holder shall
refrain from transferring any shares of common stock during the period specified
in the request.
4. Voting. Each Family Holder shall be present in person or by proxy at
------
all meetings of the stockholders of the Company to enable all shares owned by
the Family Holder (and the Family Holder's Permitted Transferees) to be counted
for quorum purposes. Concurrently with the execution of this agreement,
7
<PAGE>
each Family Holder is executing the form of irrevocable proxy annexed as exhibit
B and delivering it to SIK.
5. Term. Sections 1, 2, 3 and 4 of this agreement shall terminate and be
----
of no force or effect after the tenth anniversary of this agreement.
6. Representation and Warranty. Each Family Holder represents and
---------------------------
warrants to the Company and SIK that, except for this agreement and lock-up
agreements entered into with the underwriters of the Company's initial public
offering, that Family Holder is not a party to any voting agreement, voting
trust, proxy or any other agreement, instrument or understanding with respect to
the voting of any capital stock of the Company, or any agreement with respect to
the transfer, purchase or redemption of any capital stock of the Company.
7. Miscellaneous
-------------
7.1 Legend. As long as any of Sections 1, 2, 3 or 4 hereof remains in
------
effect, each certificate representing shares of Common Stock owned by any Family
Holder shall bear a legend substantially as follows:
"The rights or shares represented by this certificate are subject to a
stockholders agreement dated ___________, 1996, which,
8
<PAGE>
among other things, restricts the transfer thereof; a copy of that
agreement is on file at the principal office of the Company."
7.2 Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the law of the State of New York applicable to agreements
made and to be performed wholly in New York (except to the extent this agreement
is ineffective under the corporation law of the state of incorporation of the
Company; to that extent, the law of the state of incorporation of the Company
shall apply).
7.3 Consent to Jurisdiction. Each party irrevocably submits to the
-----------------------
exclusive jurisdiction of the state courts of the State of New York and the
federal district courts for the Southern District of the State of New York for
the purposes of any suit, action or other proceeding arising out of this
agreement or any transaction contemplated by this agreement (and agrees not to
commence any action, suit or proceeding relating to this agreement or any such
transaction, except in those courts). Each party further agrees that service of
any process, summons, notice or document in accordance with section 7.4 of this
agreement shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction as set forth in the
9
<PAGE>
immediately preceding sentence. Each party irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this agreement or the transactions contemplated by this agreement
in the state courts of the State of New York and the federal district courts for
the Southern District of the State of New York and further irrevocably and
unconditionally waives and agrees not to plead or claim in any such action, suit
or proceeding brought in any such court that such action, suit or proceeding has
been brought in an inconvenient forum.
7.4 Notices. All notices and other communications under this
-------
agreement shall be in writing and may be given by any of the following methods:
(a) personal delivery; (b) facsimile transmission; (c) registered or certified
mail, postage prepaid, return receipt requested; or (d) overnight commercial
delivery service. Notices shall be sent to the appropriate party at its, his or
her address or facsimile number given below (or at such other address or
facsimile number as specified by notice given under this section 7.4):
10
<PAGE>
if to the Company, to it at:
435 Hudson Street
New York, New York 10014
Attention: President
Fax: (212) 807-9069
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036-8299
Attention: Jeffrey A. Horwitz, Esq.
Fax: (212) 969-2900
if to SIK at:
435 Hudson Street
New York, New York 10014
Fax: (212) 807-9069
if to any Family Holder or that Family Holder's Permitted Transferees,
to that Family Holder at the address set forth below that
Stockholder's name on exhibit A.
All such notices and communications shall be deemed received upon (a) actual
receipt by the addressee, (b) actual delivery to the appropriate address or (c)
in the case of a facsimile transmission, upon transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming the
number of pages constituting the notice have been transmitted without error. In
the case of notices sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided above; however, that
11
<PAGE>
mailing shall not alter the time at which the facsimile notice is deemed
received.
7.5 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
7.6 Equitable Relief. The parties acknowledge that the remedy at law
----------------
for breach of this agreement may be inadequate and that, in addition to any
other remedy a party may have for a breach of this agreement, that party may be
entitled to an injunction restraining any such breach or threatened breach, or a
decree of specific performance, without posting any bond or security. The
remedy in this Section 7.6 is in addition to, and not in lieu of, any other
rights or remedies a party may have.
7.7 Separability. If any provision of this agreement is invalid or
------------
unenforceable, the balance of this agreement shall remain in effect, and, if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
7.8 Entire Agreement. This agreement contains a complete statement
----------------
of all the arrangements among the parties with
12
<PAGE>
respect to its subject matter, supersedes all existing agreements among them
with respect to that subject matter, may not be changed or terminated orally and
any amendment or modification must be in writing and signed by the party to be
charged.
* * *
13
<PAGE>
[First Signature Page to dELiA*s Stockholders Agreement]
dELiA*s INC.
By:__________________________________
Name:
Title:
__________________________________
STEPHEN I. KAHN
FAMILY HOLDERS:
_____________________________________
SIDNEY S. KAHN, individually and as trustee for The
Ruth Kahn Trust f/b/o Sidney S. Kahn
_____________________________________
ROBERT KARETSKY
_____________________________________
GERALDINE KARETSKY, individually and as trustee for the
Ruth Kahn Trust f/b/o Sidney S. Kahn
_____________________________________
ROBIN KAHN
_____________________________________
JEFFREY KAHN
14
<PAGE>
_____________________________________
ANNE KAHN
_____________________________________
ANDREW KARETSKY
15
<PAGE>
[Second Signature Page to dELiA*s Stockholders Agreement]
_____________________________________
JENNIFER KARETSKY
_____________________________________
MAXINE KAHN
_____________________________________
ARLENE EPSTEIN
_____________________________________
JOANNA BOBER
_____________________________________
ARTHUR BOBER
_____________________________________
ELIZABETH MAY
16
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Name and Address of Family Holder Number of Shares Owned
- --------------------------------- ----------------------
<S> <C>
Sidney S. Kahn 1,019,644
14 East 60th Street
New York, New York 10022
Robert Karetsky 663,157
c/o Mayer
975 Park Avenue, #11C
New York, NY 10028
Geraldine Karetsky 1,276,481
c/o Mayer
975 Park Avenue, #11C
New York, NY 10028
Sidney S. Kahn and Geraldine 147,474
Karetsky, as trustees, for The Ruth
Kahn Trust f/b/o Sidney S. Kahn
c/o Sidney S. Kahn
14 East 60th Street
New York, New York 10022
Robin Kahn 168,664
114 Mercer Street, #9
New York, NY 10012
Jeffrey Kahn 168,664
2069 North Ivar Avenue
Los Angeles, CA 90068
Anne Kahn 168,664]
307 Henry Street, #2
Brooklyn, NY 11201
Andrew Karetsky 168,664
c/o Waverly Reds Baseball Club
28 Miles Street, Mulgrave
Victoria, Australia 3170
Jennifer Karetsky 168,664
4203 Tuscany Court
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Baltimore, MD 21213
Maxine Kahn 68,999
1120 Park Avenue
New York, New York 10128
Arlene Epstein 9,200
74 Mill Glen Road
Upper Saddle River, NJ 07458
Joanna Bober 9,200
138 West 11th Street
New York, New York 10011
Arthur Bober 9,200
P.O. Box 305
New Vernon, NJ 07976
Elizabeth May 23,000
c/o Kahn
1120 Park Avenue
New York, NY 10128
</TABLE>
18
<PAGE>
EXHIBIT B
FORM OF PROXY
The undersigned hereby irrevocably appoints Stephen I. Kahn ("SIK"),
the attorney and proxy of the undersigned, with full power of substitution, to
represent and vote in such manner as SIK deems proper, with respect to all of
the shares of common stock, of dELiA*s Inc., a Delaware corporation (the
"Company"), the undersigned owns as of the date hereof as set forth on Exhibit A
to the Stockholders Agreement dated ___________, 1996 (the "Agreement"), and is
entitled to vote. This proxy revokes any other proxy granted by the undersigned
at any time with respect to such shares. This proxy is issued for good and
valuable consideration, is coupled with an interest and shall be irrevocable to
the full extent permitted by law. In the event that this proxy is invalid, the
undersigned agrees to vote its shares of common stock as directed by SIK. This
proxy shall terminate on the tenth anniversary of the Agreement.
If the undersigned sells or otherwise disposes of shares of the
Company, then the undersigned agrees to send written notice of such sale or
disposal to SIK immediately upon such sale or disposal.
Date: Signature:________________________
Print or
type name:________________________
19
<PAGE>
EXHIBIT 10.5
dELiA*s INC.
1996 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. PURPOSE......................... 1
ARTICLE II. DEFINITIONS..................... 1
ARTICLE III. ADMINISTRATION.................. 4
ARTICLE IV. SHARE AND OTHER LIMITATIONS..... 7
ARTICLE V. ELIGIBILITY.................... 10
ARTICLE VI. EMPLOYEE STOCK OPTION GRANTS... 10
ARTICLE VII. RESTRICTED STOCK AWARDS........ 14
ARTICLE VIII. STOCK APPRECIATION RIGHTS...... 16
ARTICLE IX. NON-EMPLOYEE DIRECTOR STOCK
OPTION GRANTS
ARTICLE X. NON-TRANSFERABILITY............ 22
ARTICLE XI. CHANGE IN CONTROL PROVISIONS... 22
ARTICLE XII. TERMINATION OR AMENDMENT OF THE
PLAN
ARTICLE XIII. UNFUNDED PLAN.................. 26
ARTICLE XIV. GENERAL PROVISIONS............. 26
ARTICLE XV. TERM OF PLAN................... 29
ARTICLE XVI. NAME OF PLAN................... 29
</TABLE>
i
<PAGE>
dELiA*S INC.
1996 STOCK INCENTIVE PLAN
ARTICLE I.
PURPOSE
The purpose of this dELiA*s Inc. 1996 Stock Incentive Plan, (the
"Plan"), is to enhance the profitability and value of dELiA*s Inc. (the
"Company") for the benefit of its stockholders by enabling the Company (i) to
offer employees of the Company and its Subsidiaries stock based incentives and
other equity interests in the Company, thereby creating a means to raise the
level of stock ownership by employees in order to attract, retain and reward
such employees and strengthen the mutuality of interests between employees and
the Company's stockholders and (ii) to make equity based awards to non-employee
directors thereby attracting, retaining and rewarding such non-employee
directors and strengthening the mutuality of interests between non-employee
directors and the Company's stockholders.
ARTICLE II.
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1. "Award" shall mean any award under this Plan of any Stock
Option, Stock Appreciation Right or Restricted Stock. All Awards shall be
confirmed by, and subject to the terms of, a written agreement executed by
the Company and the Participant.
2.2. "Board" shall mean the Board of Directors of the Company.
2.3. "Cause" shall mean, with respect to a Participant's Termination
of Employment, unless otherwise determined by the Committee at grant, or,
if no rights of the Participant are reduced, thereafter, termination due to
a Participant's dishonesty, fraud, insubordination, willful misconduct,
refusal to perform services (for any reason other than illness or
incapacity) or materially unsatisfactory performance of his or her duties
for the Company as determined by the Committee in its sole discretion.
With respect to a Participant's Termination of Directorship, Cause shall
mean an act or failure to act that constitutes "cause" for removal of a
director under applicable Delaware law.
2.4. "Change in Control" shall have the meaning set forth in Article
XI.
<PAGE>
2.5. "Code" shall mean the Internal Revenue Code of 1986, as amended.
Any reference to any section of the Code shall also be a reference to any
successor provision.
2.6. "Committee" shall mean a committee of the Board appointed from
time to time by the Board. Solely to the extent required under Rule 16b-3
and Section 162(m) of the Code, such committee shall consist of two or more
non-employee directors, each of whom shall be a non-employee director as
defined in Rule 16b-3 and an outside director as defined under Section
162(m) of the Code. To the extent that no Committee exists which has the
authority to administer the Plan, the functions of the Committee shall be
exercised by the Board. If for any reason the appointed Committee does not
meet the requirements of Rule 16b-3 or Section 162(m) of the Code, such
noncompliance with the requirements of Rule 16b-3 or Section 162(m) of the
Code shall not affect the validity of the awards, grants, interpretations
or other actions of the Committee.
2.7. "Common Stock" means the Common Stock, $.01 par value per share,
of the Company.
2.8. "Disability" shall mean total and permanent disability, as
defined in Section 22(e)(3) of the Code.
2.9. "Effective Date" shall mean October __, 1996.
2.10. "Eligible Employees" shall mean the employees of the Company
and its Subsidiaries who are eligible pursuant to Section 5.1 to be granted
Awards under this Plan.
2.11. "Exchange Act" shall mean the Securities Exchange Act of 1934.
2.12. "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the last sales price reported for
the Common Stock on the applicable date (i) as reported by the principal
national securities exchange in the United States on which it is then
traded, or (ii) if not traded on any such national securities exchange, as
quoted on an automated quotation system sponsored by the National
Association of Securities Dealers. If the Common Stock is not readily
tradable on a national securities exchange or any system sponsored by the
National Association of Securities Dealers, its Fair Market Value shall be
set in good faith by the Committee on the advice of a registered investment
adviser (as defined under the Investment Advisers Act of 1940). For
purposes of the grant of any Award, the applicable date shall be the date
for which the last sales price is available at the time of grant. For
purposes of the exercise of any Stock Appreciation Right,
2
<PAGE>
the applicable date shall be the date a notice of exercise is received by
the Committee or if not a day on which the applicable market is open, the
next day that it is open.
2.13. "Good Reason" shall mean, with respect to a Participant's
Termination of Employment unless otherwise determined by the Committee at
grant, or, if no rights of the Participant are reduced, thereafter, a
voluntary termination due to "good reason," as the Committee, in its sole
discretion, decides to treat as a Good Reason termination.
2.14. "Incentive Stock Option" shall mean any Stock Option awarded
under this Plan intended to be and designated as an "Incentive Stock
Option" within the meaning of Section 422 of the Code.
2.15. "Non-Qualified Stock Option" shall mean any Stock Option
awarded under this Plan that is not an Incentive Stock Option.
2.16. "Participant" shall mean the following persons to whom an Award
has been made pursuant to this Plan: Eligible Employees of the Company and
its Subsidiaries and non-employee directors of the Company; provided,
however, that non-employee directors shall be Participants for purposes of
the Plan solely with respect to awards of Stock Options pursuant to Article
IX.
2.17. "Restricted Stock" shall mean an award of shares of Common
Stock under the Plan that is subject to restrictions under Article VII.
2.18. "Restriction Period" shall have the meaning set forth in
Subsection 7.3(a) with respect to Restricted Stock for Eligible Employees.
2.19. "Retirement" with respect to a Participant's Termination of
Employment shall mean a Termination of Employment without Cause from the
Company by a Participant who has attained (i) at least age sixty-five (65);
or (ii) such earlier date after age fifty-five (55) as approved by the
Committee with regard to such Participant. With respect to a Participant's
Termination of Directorship, Retirement shall mean the failure to stand for
reelection or the failure to be reelected after a Participant has attained
age sixty-five (65).
2.20. "Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.21. "Section 162(m) of the Code" shall mean the exception for
performance-based compensation under Section 162(m) of the Code and any
Treasury regulations thereunder.
2.22. "Stock Appreciation Right" shall mean the right pursuant to an
Award granted under Article IX. A Tandem Stock Appreciation Right shall
mean the right
3
<PAGE>
to surrender to the Company all (or a portion) of a Stock Option in
exchange for an amount in cash or stock equal to the excess of (i) the Fair
Market Value, on the date such Stock Option (or such portion thereof) is
surrendered, of the Common Stock covered by such Stock Option (or such
portion thereof), over (ii) the aggregate exercise price of such Stock
Option (or such portion thereof). A Non-Tandem Stock Appreciation Right
shall mean the right to receive an amount in cash or stock equal to the
excess of (x) the Fair Market Value of a share of Common Stock on of the
date such right is exercised, over (y) the aggregate exercise price of such
right, otherwise than on surrender of a Stock Option.
2.23. "Stock Option" or "Option" shall mean any Option to purchase
shares of Common Stock granted to Eligible Employees pursuant to Article
VI.
2.24. "Subsidiary" shall mean any corporation that is defined as a
subsidiary corporation in Section 424(f) of the Code.
2.25. "Ten Percent Stockholder" shall mean a person owning Common
Stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company as defined in
Section 422 of the Code.
2.26. "Termination of Directorship" shall mean, with respect to a
non-employee director, that the non-employee director has ceased to be a
director of the Company.
2.27. "Termination of Employment" shall mean (i) a termination of
service (for reasons other than a military or personal leave of absence
granted by the Company) of a Participant from the Company and its
Subsidiaries; or (ii) when an entity which is employing a Participant
ceases to be a Subsidiary, unless the Participant thereupon becomes
employed by the Company or another Subsidiary.
2.28. "Transfer" or "Transferred" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise transfer.
2.29. "Withholding Election" shall have the meaning set forth in
Section 14.4.
ARTICLE III.
ADMINISTRATION
3.1. The Committee. The Plan shall be administered and interpreted by the
-------------
Committee.
4
<PAGE>
3.2. Awards. The Committee shall have full authority to grant, pursuant
------
to the terms of this Plan, (i) Stock Options, (ii) Stock Appreciation Rights,
both Tandem and Non-Tandem and (iii) Restricted Stock to Eligible Employees.
Stock Options shall be granted to non-employee directors of the Company pursuant
to Article IX. In particular, the Committee shall have the authority:
(a) to select the Eligible Employees to whom Stock Options, Stock
Appreciation Rights and Restricted Stock may from time to time be granted
hereunder;
(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights and Restricted Stock or any combination thereof, are to
be granted hereunder to one or more Eligible Employees;
(c) to determine, in accordance with the terms of this Plan, the
number of shares of Common Stock to be covered by each Award to an Eligible
Employee granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award granted hereunder to an Eligible Employee
(including, but not limited to, the share price, any restriction or
limitation, any vesting schedule or acceleration thereof, or any forfeiture
restrictions or waiver thereof, regarding any Stock Option or other Award,
and the shares of Common Stock relating thereto, based on such factors, if
any, as the Committee shall determine, in its sole discretion);
(e) to determine whether and under what circumstances a Stock Option
may be settled in cash, Common Stock and/or Restricted Stock under
Subsection 6.3(d);
(f) to determine whether, to what extent and under what circumstances
to provide loans (which shall be on a recourse basis and shall bear a
reasonable rate of interest) to Eligible Employees in order to exercise
Options under the Plan;
(g) to determine whether a Stock Appreciation Right is Tandem or Non-
Tandem; and
(h) to determine whether to require an Eligible Employee, as a
condition of the granting of any Award, to not sell or otherwise dispose of
shares acquired pursuant to the exercise of an Option or as an Award for a
period of time as determined by the Committee, in its sole discretion,
following the date of the acquisition of such Option or Award.
3.3. Guidelines. Subject to Article XII hereof, the Committee shall have
----------
the authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing this Plan and perform all acts, including the delegation
of its administrative
5
<PAGE>
responsibilities, as it shall, from time to time, deem advisable; to construe
and interpret the terms and provisions of this Plan and any Award issued under
this Plan (and any agreements relating thereto); and to otherwise supervise the
administration of this Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in this Plan or in any agreement
relating thereto in the manner and to the extent it shall deem necessary to
carry this Plan into effect, but only to the extent any such action would be
permitted under the applicable provisions of Rule 16b-3 (if any) and the
applicable provisions of Section 162(m) of the Code (if any). The Committee may
adopt special guidelines and provisions for persons who are residing in, or
subject to, the taxes of, countries other than the United States to comply with
applicable tax and securities laws. If and to the extent applicable, this Plan
is intended to comply with Section 162(m) of the Code and the applicable
requirements of Rule 16b-3 and shall be limited, construed and interpreted in a
manner so as to comply therewith.
3.4. Decisions Final. Any decision, interpretation or other action made
---------------
or taken in good faith by or at the direction of the Company, the Board, or the
Committee (or any of its members) arising out of or in connection with the Plan
shall be within the absolute discretion of all and each of them, as the case may
be, and shall be final, binding and conclusive on the Company and all employees
and Participants and their respective heirs, executors, administrators,
successors and assigns.
3.5. Reliance on Counsel. The Company, the Board or the Committee may
-------------------
consult with legal counsel, who may be counsel for the Company or other counsel,
with respect to its obligations or duties hereunder, or with respect to any
action or proceeding or any question of law, and shall not be liable with
respect to any action taken or omitted by it in good faith pursuant to the
advice of such counsel.
3.6. Procedures. If the Committee is appointed, the Board shall designate
----------
one of the members of the Committee as chairman and the Committee shall hold
meetings, subject to the By-Laws of the Company, at such times and places as it
shall deem advisable. A majority of the Committee members shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members. Any decision or determination reduced to writing and signed by all
Committee members in accordance with the By-Laws of the Company shall be fully
effective as if it had been made by a vote at a meeting duly called and held.
The Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
3.7. Designation of Consultants -- Liability.
---------------------------------------
(a) The Committee may designate employees of the Company and
professional advisors to assist the Committee in the administration of the
Plan and may grant authority to employees to execute agreements or other
documents on behalf of the Committee.
(b) The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may
rely upon any
6
<PAGE>
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the
Committee or Board in the engagement of any such counsel, consultant or
agent shall be paid by the Company. The Committee, its members and any
person designated pursuant to paragraph (a) above shall not be liable for
any action or determination made in good faith with respect to the Plan.
To the maximum extent permitted by applicable law, no officer of the
Company or member or former member of the Committee or of the Board shall
be liable for any action or determination made in good faith with respect
to the Plan or any Award granted under it. To the maximum extent permitted
by applicable law and the Certificate of Incorporation and By-Laws of the
Company and to the extent not covered by insurance, each officer and member
or former member of the Committee or of the Board shall be indemnified and
held harmless by the Company against any cost or expense (including
reasonable fees of counsel reasonably acceptable to the Company) or
liability (including any sum paid in settlement of a claim with the
approval of the Company), and advanced amounts necessary to pay the
foregoing at the earliest time and to the fullest extent permitted, arising
out of any act or omission to act in connection with the Plan, except to
the extent arising out of such officer's, member's or former member's own
fraud or bad faith. Such indemnification shall be in addition to any
rights of indemnification the officers, directors or members or former
officers, directors or members may have under applicable law or under the
Certificate of Incorporation or By-Laws of the Company or Subsidiary.
Notwithstanding anything else herein, this indemnification will not apply
to the actions or determinations made by an individual with regard to
Awards granted to him or her under this Plan.
ARTICLE IV.
SHARE AND OTHER LIMITATIONS
4.1. Shares.
------
(a) General Limitation. The aggregate number of shares of Common
Stock which may be issued or used for reference purposes under this Plan or
with respect to which other Awards may be granted shall not exceed
1,250,000 shares (subject to any increase or decrease pursuant to Section
4.2) which may be either authorized and unissued Common Stock or Common
Stock held in or acquired for the treasury of the Company. If any Option
or Stock Appreciation Right granted under this Plan expires, terminates or
is cancelled for any reason without having been exercised in full or, with
respect to Options, the Company repurchases any Option pursuant to Section
6.3(f), the number of shares of Common Stock underlying the repurchased
Option, and/or the number of shares of Common Stock underlying any
unexercised Stock Appreciation Right or Option shall again be available for
the purposes of Awards under the Plan. If a Tandem Stock Appreciation
Right or a limited Stock Appreciation Right is granted in tandem with an
Option, such grant shall only apply
7
<PAGE>
once against the maximum number of shares of Common Stock which may be
issued under this Plan.
(b) Individual Participant Limitations. (i) The maximum number of
shares of Common Stock subject to any Option which may be granted under
this Plan to each Participant shall not exceed 100,000 shares (subject to
any increase or decrease pursuant to Section 4.2) during each fiscal year
of the Company.
(ii) There are no annual individual Participant limitations on
Restricted Stock.
(iii) The maximum number of shares of Common Stock subject to
any Stock Appreciation Right which may be granted under this Plan to each
Participant shall not exceed 100,000 shares (subject to any increase or
decrease pursuant to Section 4.2) during each fiscal year of the Company.
If a Tandem Stock Appreciation Right or limited Stock Appreciation Right is
granted in tandem with an Option it shall apply against the Eligible
Employee's individual share limitations for both Stock Appreciation Rights
and Options.
4.2. Changes.
-------
(a) The existence of the Plan and the Awards granted hereunder shall
not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company or Subsidiary, any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting Common Stock, the dissolution or liquidation of the Company or
Subsidiary, any sale or transfer of all or part of its assets or business
or any other corporate act or proceeding.
(b) In the event of any such change in the capital structure or
business of the Company by reason of any stock dividend or distribution,
stock split or reverse stock split, recapitalization, reorganization,
merger, consolidation, split-up, combination or exchange of shares,
distribution with respect to its outstanding Common Stock or capital stock
other than Common Stock, sale or transfer of all or part of its assets or
business, reclassification of its capital stock, or any similar change
affecting the Company's capital structure or business and the Committee
determines an adjustment is appropriate under the Plan, then the aggregate
number and kind of shares which thereafter may be issued under this Plan,
the number and kind of shares or other property (including cash) to be
issued upon exercise of an outstanding Option or other Awards granted under
this Plan and the purchase price thereof shall be appropriately adjusted
consistent with such change in such manner as the Committee may deem
equitable to prevent substantial dilution or enlargement of the rights
granted to, or available for, Participants under this Plan or as otherwise
necessary to reflect the
8
<PAGE>
change, and any such adjustment determined by the Committee shall be
binding and conclusive on the Company and all Participants and employees
and their respective heirs, executors, administrators, successors and
assigns.
(c) Fractional shares of Common Stock resulting from any adjustment
in Options or Awards pursuant to Section 4.2(a) or (b) shall be aggregated
until, and eliminated at, the time of exercise by rounding-down for
fractions less than one-half ( 1/2) and rounding-up for fractions equal to
or greater than one-half ( 1/2). No cash settlements shall be made with
respect to fractional shares eliminated by rounding. Notice of any
adjustment shall be given by the Committee to each Participant whose Option
or Award has been adjusted and such adjustment (whether or not such notice
is given) shall be effective and binding for all purposes of the Plan.
(d) In the event of a merger or consolidation in which the Company is
not the surviving entity or in the event of any transaction that results in
the acquisition of substantially all of the Company's outstanding Common
Stock by a single person or entity or by a group of persons and/or entities
acting in concert, or in the event of the sale or transfer of all of the
Company's assets (all of the foregoing being referred to as "Acquisition
Events"), then the Committee may, in its sole discretion, terminate all
outstanding Options and Stock Appreciation Rights of Eligible Employees,
effective as of the date of the Acquisition Event, by delivering notice of
termination to each such Participant at least twenty (20) days prior to the
date of consummation of the Acquisition Event; provided, that during the
period from the date on which such notice of termination is delivered to
the consummation of the Acquisition Event, each such Participant shall have
the right to exercise in full all of his or her Options and Stock
Appreciation Rights that are then outstanding (without regard to any
limitations on exercisability otherwise contained in the Option or Award
Agreements) but contingent on occurrence of the Acquisition Event, and,
provided that, if the Acquisition Event does not take place within a
specified period after giving such notice for any reason whatsoever, the
notice and exercise shall be null and void.
Notwithstanding the foregoing and solely to the extent required by
Section 16 of the Exchange Act, at the discretion of the Committee, the
provisions contained in this subsection shall be adjusted as they apply to
Options and Stock Appreciation Rights granted to Eligible Employees within
six (6) months before the occurrence of an Acquisition Event if the holder
of such Award is subject to the reporting requirements of Section 16(a) of
the Exchange Act in such manner as determined by the Committee, including
without limitation, terminating Options and Stock Appreciation Rights at
specific dates after the Acquisition Event, in order to give the holder the
benefit of the Option.
If an Acquisition Event occurs, to the extent the Committee does not
terminate the outstanding Options and Stock Appreciation Rights pursuant to
this Section 4.2(d), then the provisions of Section 4.2(b) shall apply.
9
<PAGE>
4.3. Purchase Price. Notwithstanding any provision of this Plan to the
--------------
contrary, if authorized but previously unissued shares of Common Stock are
issued under this Plan, such shares shall not be issued for a consideration
which is less than as permitted under applicable law.
ARTICLE V.
ELIGIBILITY
5.1. All employees of the Company and its Subsidiaries are eligible to be
granted Options, Stock Appreciation Rights and Restricted Stock under this Plan.
Eligibility under this Plan shall be determined by the Committee in its sole
discretion.
5.2. Non-employee directors of the Company are only eligible to receive an
Award of Stock Options in accordance with Article IX of the Plan.
ARTICLE VI.
EMPLOYEE STOCK OPTION GRANTS
6.1. Options. Each Stock Option granted hereunder shall be one of two
-------
types: (i) an Incentive Stock Option intended to satisfy the requirements of
Section 422 of the Code or (ii) a Non-Qualified Stock Option.
6.2. Grants. The Committee shall have the authority to grant to any
------
Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options (in each case with or without Stock
Appreciation Rights). To the extent that any Stock Option does not qualify as
an Incentive Stock Option (whether because of its provisions or the time or
manner of its exercise or otherwise), such Stock Option or the portion thereof
which does not qualify, shall constitute a separate Non-Qualified Stock Option.
6.3. Terms of Options. Options granted under this Plan shall be subject
----------------
to the following terms and conditions, and shall be in such form and contain
such additional terms and conditions, not inconsistent with the terms of this
Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock
purchasable under an Incentive Stock Option shall be determined by the
Committee at the time of grant but shall not be less than 100% of the Fair
Market Value of the share of Common Stock at the time of grant; provided,
however, if an Incentive Stock Option is granted to a Ten Percent
Stockholder, the purchase price shall be no less than 110% of the Fair
Market Value of the Common Stock. The purchase price of shares
10
<PAGE>
of Common Stock subject to a Non-Qualified Stock Option shall be determined
by the Committee but shall not be less than the 100% of the Fair Market
Value of the Common Stock at the time of grant. Notwithstanding the
foregoing, if an Option is modified, extended or renewed and, thereby,
deemed to be the issuance of a new Option under the Code, the exercise
price of an Option may continue to be the original exercise price even if
less than the Fair Market Value of the Common Stock at the time of such
modification, extension or renewal.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten (10)
years after the date the Option is granted, provided, however, the term of
an Incentive Stock Option granted to a Ten Percent Stockholder may not
exceed five (5) years.
(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Committee at grant. If the Committee provides, in its discretion, that
any Stock Option is exercisable subject to certain limitations (including,
without limitation, that it is exercisable only in installments or within
certain time periods), the Committee may waive such limitations on the
exercisability at any time at or after grant in whole or in part
(including, without limitation, that the Committee may waive the
installment exercise provisions or accelerate the time at which Options may
be exercised), based on such factors, if any, as the Committee shall
determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise and
waiting period provisions apply under subsection (c) above, Stock Options
may be exercised in whole or in part at any time during the Option term, by
giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in
full of the purchase price in such form, or such other arrangement for the
satisfaction of the purchase price, as the Committee may accept. If and to
the extent determined by the Committee in its sole discretion at or after
grant, payment in full or in part may also be made in the form of Common
Stock withheld from the shares to be received on the exercise of a Stock
Option hereunder, Common Stock owned by the Participant (and for which the
Participant has good title free and clear of any liens and encumbrances) or
Restricted Stock based, in each case, on the Fair Market Value of the
Common Stock on the payment date as determined by the Committee (without
regard to any forfeiture restrictions applicable to such Restricted Stock).
No shares of Common Stock shall be issued until payment, as provided
herein, therefor has been made or provided for. If payment in full or in
part has been made in the form of Restricted Stock, an equivalent number of
shares of Common Stock issued on exercise of the Option shall be subject to
the same restrictions and conditions, during the remainder of the
Restriction Period, applicable to the Restricted Stock surrendered
therefor.
(e) Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of the
Common Stock with respect
11
<PAGE>
to which Incentive Stock Options are exercisable for the first time by an
Eligible Employee during any calendar year under the Plan and/or any other
stock option plan of the Company or any Subsidiary or parent corporation
(within the meaning of Section 424(e) of the Code) exceeds $100,000, such
Options shall be treated as Options which are not Incentive Stock Options.
Should the foregoing provision not be necessary in order for the Stock
Options to qualify as Incentive Stock Options, or should any additional
provisions be required, the Committee may amend the Plan accordingly,
without the necessity of obtaining the approval of the stockholders of the
Company.
(f) Buy Out and Settlement Provisions. The Committee may at any time
on behalf of the Company offer to buy out an Option previously granted,
based on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made.
(g) Form, Modification, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan, an Option
shall be evidenced by such form of agreement or grant as is approved by the
Committee, and the Committee may modify, extend or renew outstanding
Options granted under the Plan (provided that the rights of a Participant
are not reduced without his consent), or accept the surrender of
outstanding Options (up to the extent not theretofore exercised) and
authorize the granting of new Options in substitution therefor (to the
extent not theretofore exercised).
(h) Other Terms and Conditions. Options may contain such other
provisions, which shall not be inconsistent with any of the foregoing terms
of the Plan, as the Committee shall deem appropriate including, without
limitation, permitting "reloads" such that the same number of Options are
granted as the number of Options exercised, shares used to pay for the
exercise price of Options or shares used to pay withholding taxes
("Reloads"). With respect to Reloads, the exercise price of the new Stock
Option shall be the Fair Market Value on the date of the "reload" and the
term of the Stock Option shall be the same as the remaining term of the
Options that are exercised, if applicable, or such other exercise price and
term as determined by the Committee.
6.4. Termination of Employment. The following rules apply with regard to
-------------------------
Options upon the Termination of Employment of a Participant:
(a) Termination by Reason of Death. If a Participant's Termination
of Employment is by reason of death, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant or, if
no rights of the Participant's estate are reduced, thereafter, may be
exercised, to the extent exercisable at the Participant's death, by the
legal representative of the estate, at any time within a
12
<PAGE>
period of one (1) year from the date of such death, but in no event beyond
the expiration of the stated term of such Stock Option.
(b) Termination by Reason of Disability. If a Participant's
Termination of Employment is by reason of Disability, any Stock Option held
by such Participant, unless otherwise determined by the Committee at grant
or, if no rights of the Participant are reduced, thereafter, may be
exercised, to the extent exercisable at the Participant's termination, by
the Participant (or the legal representative of the Participant's estate if
the Participant dies after termination) at any time within a period of one
(1) year from the date of such termination, but in no event beyond the
expiration of the stated term of such Stock Option.
(c) Termination by Reason of Retirement. If a Participant's
Termination of Employment is by reason of Retirement, any Stock Option held
by such Participant, unless otherwise determined by the Committee at grant,
or, if no rights of the Participant are reduced, thereafter, shall be fully
vested and may thereafter be exercised by the Participant at any time
within a period of one (1) year from the date of such termination, but in
no event beyond the expiration of the stated term of such Stock Option;
provided, however, that, if the Participant dies within such exercise
period, any unexercised Stock Option held by such Participant shall
thereafter be exercisable, to the extent to which it was exercisable at the
time of death, for a period of one (1) year (or such other period as the
Committee may specify at grant or, if no rights of the Participant's estate
are reduced, thereafter) from the date of such death, but in no event
beyond the expiration of the stated term of such Stock Option.
(d) Involuntary Termination Without Cause or Termination for Good
Reason. If a Participant's Termination of Employment is by involuntary
termination without Cause or for Good Reason, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant or, if
no rights of the Participant are reduced, thereafter, may be exercised, to
the extent exercisable at termination, by the Participant at any time
within a period of ninety (90) days from the date of such termination, but
in no event beyond the expiration of the stated term of such Stock Option.
(e) Termination Without Good Reason. If a Participant's Termination
of Employment is voluntary but without Good Reason and occurs prior to, or
more than ninety (90) days after, the occurrence of an event which would be
grounds for Termination of Employment by the Company for Cause (without
regard to any notice or cure period requirements), any Stock Option held by
such Participant, unless otherwise determined by the Committee at grant or,
if no rights of the Participant are reduced, thereafter, may be exercised,
to the extent exercisable at termination, by the Participant at any time
within a period of thirty (30) days from the date of such termination, but
in no event beyond the expiration of the stated term of such Stock Option.
13
<PAGE>
(f) Other Termination. Unless otherwise determined by the Committee
at grant or, if no rights of the Participant are reduced, thereafter, if a
Participant's Termination of Employment is for any reason other than death,
Disability, Retirement, Good Reason, involuntary termination without Cause
or voluntary termination as provided in subsection (e) above, any Stock
Option held by such Participant shall thereupon terminate and expire as of
the date of termination, provided that (unless the Committee determines a
different period upon grant or, if, no rights of the Participant are
reduced, thereafter) in the event the termination is for Cause or is a
voluntary termination without Good Reason within ninety (90) days after
occurrence of an event which would be grounds for Termination of Employment
by the Company for Cause (without regard to any notice or cure period
requirement), any Stock Option held by the Participant at the time of
occurrence of the event which would be grounds for Termination of
Employment by the Company for Cause shall be deemed to have terminated and
expired upon occurrence of the event which would be grounds for Termination
of Employment by the Company for Cause.
ARTICLE VII.
RESTRICTED STOCK AWARDS
7.1. Awards of Restricted Stock. Shares of Restricted Stock may be issued
--------------------------
to Eligible Employees either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the eligible persons to whom, and the
time or times at which, grants of Restricted Stock will be made, the number of
shares to be awarded, the price (if any) to be paid by the recipient (subject to
Section 7.2), the time or times within which such Awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the Awards.
7.2. Awards and Certificates. The prospective Participant selected to
-----------------------
receive a Restricted Stock Award shall not have any rights with respect to such
Award, unless and until such Participant has delivered a fully executed copy of
the Restricted Stock Award agreement evidencing the Award to the Company and has
otherwise complied with the applicable terms and conditions of such Award.
Further, such Award shall be subject to the following conditions:
(a) Purchase Price. The purchase price of Restricted Stock shall be
fixed by the Committee. Subject to Section 4.3, the purchase price for
shares of Restricted Stock may be zero to the extent permitted by
applicable law, and, to the extent not so permitted, such purchase price
may not be less than par value.
(b) Acceptance. Awards of Restricted Stock must be accepted within a
period of sixty (60) days (or such shorter period as the Committee may
specify at grant) after the Award date, by executing a Restricted Stock
Award agreement and by paying whatever price (if any) the Committee has
designated thereunder.
14
<PAGE>
(c) Legend. Each Participant receiving a Restricted Stock Award shall
be issued a stock certificate in respect of such shares of Restricted
Stock, unless the Committee elects to use another system, such as book
entries by the transfer agent, as evidencing ownership of a Restricted
Stock Award. Such certificate shall be registered in the name of such
Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award, substantially in the
following form:
"The anticipation, alienation, attachment, sale, transfer, assignment,
pledge, encumbrance or charge of the shares of stock represented hereby are
subject to the terms and conditions (including forfeiture) of the dELiA*s
Inc. (the "Company") 1996 Stock Incentive Plan and an Agreement entered
into between the registered owner and the Company, dated ________. Copies
of such Plan and Agreement are on file at the principal office of the
Company."
(d) Custody. The Committee may require that any stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock Award, the Participant shall have delivered a duly signed
stock power, endorsed in blank, relating to the Common Stock covered by
such Award.
7.3. Restrictions and Conditions on Restricted Stock Awards. The shares
------------------------------------------------------
of Restricted Stock awarded pursuant to this Plan shall be subject to Article X
and the following restrictions and conditions:
(a) Restriction Period; Vesting and Acceleration of Vesting. The
Participant shall not be permitted to Transfer shares of Restricted Stock
awarded under this Plan during a period set by the Committee (the
"Restriction Period") commencing with the date of such Award, as set forth
in the Restricted Stock Award agreement and such agreement shall set forth
a vesting schedule and any events which would accelerate vesting of the
shares of Restricted Stock. Within these limits, based on service, or
other criteria determined by the Committee, the Committee may provide for
the lapse of such restrictions in installments in whole or in part, or may
accelerate the vesting of all or any part of any Restricted Stock Award.
(b) Rights as Stockholder. Except as provided in this subsection (b)
and subsection (a) above and as otherwise determined by the Committee, the
Participant shall have, with respect to the shares of Restricted Stock, all
of the rights of a holder of shares of Common Stock of the Company
including, without limitation, the right to receive any dividends, the
right to vote such shares and, subject to and conditioned upon the full
vesting of shares of Restricted Stock, the right to tender such shares.
Notwithstanding the foregoing, the payment of dividends shall be deferred
until, and conditioned upon, the expiration of the applicable Restriction
Period, unless the Committee, in its sole discretion, specifies otherwise
at the time of the Award.
15
<PAGE>
(c) Lapse of Restrictions. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such shares shall be delivered to
the Participant. All legends shall be removed from said certificates at
the time of delivery to the Participant except as otherwise required by
applicable law.
7.4. Termination of Employment for Restricted Stock. Subject to the
----------------------------------------------
applicable provisions of the Restricted Stock Award agreement and this Plan,
upon a Participant's Termination of Employment for any reason during the
relevant Restriction Period, all Restricted Stock still subject to restriction
will vest or be forfeited in accordance with the terms and conditions
established by the Committee at grant or thereafter.
ARTICLE VIII.
STOCK APPRECIATION RIGHTS
8.1. Tandem Stock Appreciation Rights. Stock Appreciation Rights may be
--------------------------------
granted in conjunction with all or part of any Stock Option (a "Reference Stock
Option") granted under this Plan ("Tandem Stock Appreciation Rights"). In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Reference Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of the grant
of such Reference Stock Option.
8.2. Terms and Conditions of Tandem Stock Appreciation Rights. Tandem
--------------------------------------------------------
Stock Appreciation Rights shall be subject to such terms and conditions, not
inconsistent with the provisions of this Plan, as shall be determined from time
to time by the Committee, including Article X and the following:
(a) Term. A Tandem Stock Appreciation Right or applicable portion
thereof granted with respect to a Reference Stock Option shall terminate
and no longer be exercisable upon the termination or exercise of the
Reference Stock Option, except that, unless otherwise determined by the
Committee, in its sole discretion, at the time of grant, a Tandem Stock
Appreciation Right granted with respect to less than the full number of
shares covered by the Reference Stock Option shall not be reduced until and
then only to the extent the exercise or termination of the Reference Stock
Option causes the number of shares covered by the Tandem Stock Appreciation
Right to exceed the number of shares remaining available and unexercised
under the Reference Stock Option.
(b) Exercisability. Tandem Stock Appreciation Rights shall be
exercisable only at such time or times and to the extent that the Reference
Stock Options to which they relate shall be exercisable in accordance with
the provisions of Article VI and this Article VIII.
16
<PAGE>
(c) Method of Exercise. A Tandem Stock Appreciation Right may be
exercised by an optionee by surrendering the applicable portion of the
Reference Stock Option. Upon such exercise and surrender, the Participant
shall be entitled to receive an amount determined in the manner prescribed
in this Section 8.2. Stock Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the related
Tandem Stock Appreciation Rights have been exercised.
(d) Payment. Upon the exercise of a Tandem Stock Appreciation Right
a Participant shall be entitled to receive up to, but no more than, an
amount in cash and/or Common Stock (as chosen by the Committee in its sole
discretion) equal in value to the excess of the Fair Market Value of one
share of Common Stock over the option price per share specified in the
Reference Stock Option multiplied by the number of shares in respect of
which the Tandem Stock Appreciation Right shall have been exercised, with
the Committee having the right to determine the form of payment.
(e) Deemed Exercise of Reference Stock Option. Upon the exercise of
a Tandem Stock Appreciation Right, the Reference Stock Option or part
thereof to which such Stock Appreciation Right is related shall be deemed
to have been exercised for the purpose of the limitation set forth in
Article IV of the Plan on the number of shares of Common Stock to be issued
under the Plan.
8.3. Non-Tandem Stock Appreciation Rights. Non-Tandem Stock Appreciation
------------------------------------
Rights may also be granted without reference to any Stock Options granted under
this Plan.
8.4. Terms and Conditions of Non-Tandem Stock Appreciation Rights. Non-
------------------------------------------------------------
Tandem Stock Appreciation Rights shall be subject to such terms and conditions,
not inconsistent with the provisions of this Plan, as shall be determined from
time to time by the Committee, including Article X and the following:
(a) Term. The term of each Non-Tandem Stock Appreciation Right shall
be fixed by the Committee, but shall not be greater than ten (10) years
after the date the right is granted.
(b) Exercisability. Non-Tandem Stock Appreciation Rights shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee at grant. If the Committee
provides, in its discretion, that any such right is exercisable subject to
certain limitations (including, without limitation, that it is exercisable
only in installments or within certain time periods), the Committee may
waive such limitation on the exercisability at any time at or after grant
in whole or in part (including, without limitation, that the Committee may
waive the installment exercise provisions or accelerate the time at which
rights may be exercised), based on such factors, if any, as the Committee
shall determine, in its sole discretion.
17
<PAGE>
(c) Method of Exercise. Subject to whatever installment exercise and
waiting period provisions apply under subsection (b) above, Non-Tandem
Stock Appreciation Rights may be exercised in whole or in part at any time
during the option term, by giving written notice of exercise to the Company
specifying the number of Non-Tandem Stock Appreciation Rights to be
exercised.
(d) Payment. Upon the exercise of a Non-Tandem Stock Appreciation
Right a Participant shall be entitled to receive, for each right exercised,
up to, but no more than, an amount in cash and/or Common Stock (as chosen
by the Committee in its sole discretion) equal in value to the excess of
the Fair Market Value of one share of Common Stock on the date the right is
exercised over the Fair Market Value of one (1) share of Common Stock on
the date the right was awarded to the Participant.
8.5. Limited Stock Appreciation Rights. The Committee may, in its sole
---------------------------------
discretion, grant Tandem and Non-Tandem Stock Appreciation Rights either as a
general Stock Appreciation Right or as a limited Stock Appreciation Right.
Limited Stock Appreciation Rights may be exercised only upon the occurrence of a
Change in Control or such other event as the Committee may, in its sole
discretion, designate at the time of grant or thereafter. Upon the exercise of
limited Stock Appreciation Rights, except as otherwise provided in an Award
agreement, the Participant shall receive in cash or Common Stock, as determined
by the Committee, an amount equal to the amount (1) set forth in Section 8.2(d)
with respect to Tandem Stock Appreciation Rights or (2) set forth in Section
8.4(d) with respect to Non-Tandem Stock Appreciation Rights.
8.6. Termination of Employment. The following rules apply with regard to
-------------------------
Stock Appreciation Rights upon the Termination of Employment of a Participant.
(a) Termination by Death. If a Participant's Termination of
Employment is by reason of death, any Stock Appreciation Right held by such
Participant, unless otherwise determined by the Committee at grant or if no
rights of the Participant's estate are reduced, thereafter, may be
exercised, to the extent exercisable at the Participant's death, by the
legal representative of the estate, at any time within a period of one (1)
year from the date of such death or until the expiration of the stated term
of such Stock Appreciation Right, whichever period is the shorter.
(b) Termination by Reason of Disability. If a Participant's
Termination of Employment is by reason of Disability, any Stock
Appreciation Right held by such participant, unless otherwise determined by
the Committee at grant or, if no rights of the Participant are reduced,
thereafter, may be exercised, to the extent exercisable at the
Participant's termination, by the Participant (or the legal representative
of the Participant's estate if the Participant dies after termination) at
any time within a period of one (1) year from the date of such termination
or until the expiration of the stated term of such Stock Appreciation
Right, whichever period is the shorter.
18
<PAGE>
(c) Termination by Reason of Retirement. If a Participant's
Termination of Employment is by reason of Retirement, any Stock
Appreciation Right held by such Participant, unless otherwise determined by
the Committee at grant or, if no rights of the Participant are reduced,
thereafter, shall be fully vested and may thereafter be exercised by the
Participant at any time within a period of one (1) year from the date of
such termination or until the expiration of the stated term of such right,
whichever period is the shorter; provided, however, that, if the
Participant dies within such one (1) year period, any unexercised Non-
Tandem Stock Appreciation Right held by such Participant shall thereafter
be exercisable, to the extent to which it was exercisable at the time of
death, for a period of one (1) year (or such other period as the Committee
may specify at grant or if no rights of the Participant are reduced,
thereafter) from the date of such death or until the expiration of the
stated term of such right, whichever period is the shorter.
(d) Involuntary Termination Without Cause or Termination for Good
Reason. If a Participant's Termination of Employment is by involuntary
termination without Cause or for Good Reason, any Stock Appreciation Right
held by such participant, unless otherwise determined by the Committee at
grant or if no rights of the participant are reduced, thereafter, may be
exercised, to the extent exercisable at termination, by the Participant at
any time within a period of ninety (90) days from the date of such
termination or until the expiration of the stated term of such right,
whichever period is shorter.
(e) Termination Without Good Reason. If a Participant's Termination
of Employment is voluntary but without Good Reason and occurs prior to, or
more than ninety (90) days after, the occurrence of an event which would be
grounds for Termination of Employment by the Company for Cause (without
regard to any notice or cure period requirements), any Stock Appreciation
Right held by such Participant, unless greater or lesser exercise rights
are provided by the Committee at the time of grant or, if no rights of the
participant are reduced, thereafter, may be exercised, to the extent
exercisable at termination, by the Participant at any time within a period
of thirty (30) days from the date of such termination, but in no event
beyond the expiration of the stated term of such Stock Appreciation Right.
(f) Other Termination. Unless otherwise determined by the Committee
at grant, or, if no rights of the Participant are reduced thereafter, if a
Participant's Termination of Employment is for any reason other than death,
Disability, Retirement, Good Reason, involuntary termination without Cause
or voluntary termination as provided in subsection (e) above, any Stock
Appreciation Right held by such Participant shall thereupon terminate or
expire as of the date of termination, provided, that (unless the Committee
determines a different period upon grant, or, if no rights of the
Participant are reduced, thereafter) in the event the termination is for
Cause or is a voluntary termination as provided in subsection (e) above,
within ninety (90) days after occurrence of an event which would be grounds
for Termination of Employment by the Company for Cause (without regard to
any notice or cure period
19
<PAGE>
requirement), any Stock Appreciation Right held by the Participant at the
time of the occurrence of the event which would be grounds for Termination
of Employment by the Company for Cause shall be deemed to have terminated
and expired upon occurrence of the event which would be grounds for
Termination of Employment by the Company for Cause.
ARTICLE IX.
NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
9.1. Options. The terms of this Article IX shall apply only to Options
-------
granted to non-employee directors.
9.2. Grants. Without further action by the Board or the stockholders of
------
the Company, each non-employee director elected prior to the Offering shall:
(a) subject to the terms of the Plan, be granted Options to purchase
40,000 shares of Common Stock upon (1) the date on which the offering price
in connection with the initial public offering of the Common Stock (the
"Offering") is agreed upon between the Company and the underwriters (the
"Price to the Public); or (2) if later, as of the date the non-employee
director begins service as a director on the Board;
(b) notwithstanding the foregoing, if the Offering is not consummated
by February 28, 1997, no Options shall thereafter be granted and any
Options previously granted under Section 9.1(a) above shall become null and
void.
9.3. Non-Qualified Stock Options. Stock Options granted under this
---------------------------
Article IX shall be Non-Qualified Stock Options.
9.4. Terms of Options. Options granted under this Article shall be
----------------
subject to the following terms and conditions and shall be in such form and
contain such additional terms and conditions, not inconsistent with terms of
this Plan, as the Committee shall deem desirable:
(a) Option Price. The purchase price per share deliverable upon the
exercise of an Option granted pursuant to Section 9.2(a)(1) shall be the
Price to the Public and the purchase price per share deliverable upon the
exercise of an Option granted pursuant to Section 9.2(a)(2) shall be 100%
of the Fair Market Value of such Common Stock at the time of the grant of
the Option (the "Purchase Price"), or the par value of the Common Stock,
whichever is greater.
(b) Exercisability. Except as otherwise provided herein, twenty
percent (20%) of any Option granted under this Article IX shall be
exercisable on or after
20
<PAGE>
each of the five anniversaries following the date of grant. All Options
shall fully vest upon a Change in Control.
(c) Method for Exercise. A non-employee director electing to exercise
one or more Options shall give written notice of exercise to the Company
specifying the number of shares to be purchased. Common Stock purchased
pursuant to the exercise of Options shall be paid for at the time of
exercise in cash or by delivery of unencumbered Common Stock owned by the
non-employee director or a combination thereof or by such other method as
approved by the Board.
(d) Option Term. Except as otherwise provided herein, if not
previously exercised each Option shall expire upon the tenth anniversary of
the date of the grant thereof.
9.5. Termination of Directorship. The following rules apply with regard
---------------------------
to Options upon the Termination of Directorship:
(a) Death, Disability or Otherwise Ceasing to be a Director Other than
for Cause. Except as otherwise provided herein, upon the Termination of
Directorship, on account of Disability, death, Retirement, resignation,
failure to stand for reelection or failure to be reelected or otherwise
other than as set forth in (b) below, all outstanding Options then
exercisable and not exercised by the Participant prior to such Termination
of Directorship shall remain exercisable, to the extent exercisable at the
Termination of Directorship, by the Participant or, in the case of death,
by the Participant's estate or by the person given authority to exercise
such Options by his or her will or by operation of law, for the remainder
of the stated term of such Options.
(b) Cause. Upon removal, failure to stand for reelection or failure
to be renominated for Cause, or if the Company obtains or discovers
information after Termination of Directorship that such Participant had
engaged in conduct that would have justified a removal for Cause during
such directorship, all outstanding Options of such Participant shall
immediately terminate and shall be null and void.
(c) Cancellation of Options. No Options that were not exercisable
during the period such person serves as a director shall thereafter become
exercisable upon a Termination of Directorship for any reason or no reason
whatsoever, and such Options shall terminate and become null and void upon
a Termination of Directorship.
9.6. Changes. (a) The Awards to a non-employee director shall be subject
-------
to Sections 4.2(a), (b) and (c) of the Plan and this Section 9.6, but shall
not be subject to Section 4.2(d).
(b) If the Company shall not be the surviving corporation in any
merger or consolidation, or if the Company is to be dissolved or
liquidated, then, unless the surviving corporation assumes the Options or
substitutes new Options which are
21
<PAGE>
determined by the Board in its sole discretion to be substantially similar
in nature and equivalent in terms and value for Options then outstanding,
upon the effective date of such merger, consolidation, liquidation or
dissolution, any unexercised Options shall expire without additional
compensation to the holder thereof; provided, that, the Committee shall
deliver notice to each non-employee director at least twenty (20) days
prior to the date of consummation of such merger, consolidation,
dissolution or liquidation which would result in the expiration of the
Options and during the period from the date on which such notice of
termination is delivered to the consummation of the merger, consolidation,
dissolution or liquidation, such Participant shall have the right to
exercise in full effective as of such consummation all Options that are
then outstanding (without regard to limitations on exercise otherwise
contained in the Options) but contingent on occurrence of the merger,
consolidation, dissolution or liquidation, and, provided that, if the
contemplated transaction does not take place within a ninety (90) day
period after giving such notice for any reason whatsoever, the notice,
accelerated vesting and exercise shall be null and void and, if and when
appropriate, new notice shall be given as aforesaid.
ARTICLE X.
NON-TRANSFERABILITY
No Stock Option or Stock Appreciation Right shall be Transferable by the
Participant otherwise than by will or by the laws of descent and distribution.
All Stock Options and all Stock Appreciation Rights shall be exercisable, during
the Participant's lifetime, only by the Participant. Tandem Stock Appreciation
Rights shall be Transferable, to the extent permitted above, only with the
underlying Stock Option. Shares of Restricted Stock under Article VII may not
be Transferred prior to the date on which shares are issued, or, if later, the
date on which any applicable restriction lapses. No Award shall, except as
otherwise specifically provided by law or herein, be Transferable in any manner,
and any attempt to Transfer any such Award shall be void, and no such Award
shall in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person who shall be entitled to such
Award, nor shall it be subject to attachment or legal process for or against
such person.
ARTICLE XI.
CHANGE IN CONTROL PROVISIONS
11.1. Benefits. In the event of a Change in Control of the Company (as
--------
defined below), except as otherwise provided by the Committee upon the grant of
an Award, the Participant shall be entitled to the following benefits:
(a) Subject to paragraph (c) below with regard to Options granted to
Eligible Employees, all outstanding Options and the related Tandem Stock
22
<PAGE>
Appreciation Rights and Non-Tandem Stock Appreciation Rights of such
Participant granted prior to the Change in Control shall be fully vested
and immediately exercisable in their entirety. The Committee, in its sole
discretion, may provide for the purchase of any such Stock Options by the
Company for an amount of cash equal to the excess of the Change in Control
price (as defined below) of the shares of Common Stock covered by such
Stock Options, over the aggregate exercise price of such Stock Options.
For purposes of this Section 11.1, Change in Control price shall mean the
higher of (i) the highest price per share of Common Stock paid in any
transaction related to a Change in Control of the Company, or (ii) the
highest Fair Market Value per share of Common Stock at any time during the
sixty (60) day period preceding a Change in Control.
(b) The restrictions to which any shares of Restricted Stock of such
Participant granted prior to the Change in Control are subject shall lapse
as if the applicable Restriction Period had ended upon such Change in
Control.
(c) Notwithstanding anything to the contrary herein, unless the
Committee provides otherwise at the time an Option is granted to an
Eligible Employee hereunder or thereafter, no acceleration of
exercisability shall occur with respect to such Option if the Committee
reasonably determines in good faith, prior to the occurrence of the Change
in Control, that the Options shall be honored or assumed, or new rights
substituted therefor (each such honored, assumed or substituted option
hereinafter called an "Alternative Option"), by a Participant's employer
(or the parent or a subsidiary of such employer) immediately following the
Change in Control, provided that any such Alternative Option must meet the
following criteria:
(i) the Alternative Option must be based on stock which is
traded on an established securities market, or which will be so traded
within thirty (30) days of the Change in Control;
(ii) the Alternative Option must provide such Participant with
rights and entitlements substantially equivalent to or better than the
rights, terms and conditions applicable under such Option, including, but
not limited to, an identical or better exercise schedule; and
(iii) the Alternative Option must have economic value
substantially equivalent to the value of such Option (determined at the
time of the Change in Control).
For purposes of Incentive Stock Options, any assumed or substituted
Option shall comply with the requirements of Treasury regulation (S) 1.425-
1 (and any amendments thereto).
(d) Notwithstanding anything else herein, the Committee may, in its
sole discretion, provide for accelerated vesting of an Award (other than a
grant to a non-
23
<PAGE>
employee director pursuant to Article IX hereof), upon a Termination of
Employment during the Pre-Change in Control Period. Unless otherwise
determined by the Committee, the Pre-Change in Control Period shall be the
one hundred eighty (180) day period prior to a Change in Control.
11.2. Change in Control. A "Change in Control" shall be deemed to have
-----------------
occurred:
(a) upon any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the
Company, any company owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership of
Common Stock of the Company, or as a group or individually Stephen I. Kahn,
his spouse and their issue and any trusts for the benefit of any of them),
becoming the owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities (including, without limitation, securities owned at
the time of any increase in ownership);
(b) a change in the composition of the Board of Directors of the
Company such that the individuals who, as of the date hereof, comprise the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, for purposes of this subsection
that any individual who becomes a member of an Incumbent Board subsequent
to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved in advance or contemporaneously with
such election by a vote of at least a majority of those individuals who are
members of the Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a member of the
Incumbent Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board of Directors of the Company or actual or threatened
tender offer for shares of the Company or similar transaction or other
contest for corporate control (other than a tender offer by the Company)
shall not be so considered as a member of the Incumbent Board; or
(c) upon the merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger
or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar
24
<PAGE>
transaction) in which no person (other than those covered by the exceptions
in (a) above) acquires more than fifty percent (50%) of the combined voting
power of the Company's then outstanding securities shall not constitute a
Change in Control of the Company; or
(d) upon the stockholder's of the Company approval of a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets other than the sale of all or substantially all of the assets of the
Company to a person or persons who beneficially own, directly or
indirectly, at least fifty percent (50%) or more of the combined voting
power of the outstanding voting securities of the Company at the time of
the sale.
ARTICLE XII.
TERMINATION OR AMENDMENT OF THE PLAN
12.1. Termination or Amendment. Notwithstanding any other provision of
------------------------
this Plan, the Board may at any time, and from time to time, amend, in whole or
in part, any or all of the provisions of the Plan, or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that, unless otherwise
required by law or specifically provided herein, the rights of a Participant
with respect to Awards granted prior to such amendment, suspension or
termination, may not be impaired without the consent of such Participant and,
provided further, without the approval of the stockholders of the Company, if
and to the extent required by the applicable provisions of Rule 16b-3 or, if and
to the extent required, under the applicable provisions of Section 162(m) of the
Code, or with regard to Incentive Stock Options, Section 422 of the Code, no
amendment may be made which would (i) increase the aggregate number of shares of
Common Stock that may be issued under this Plan; (ii) increase the maximum
individual Participant limitations for a fiscal year under Section 4.1(b); (iii)
change the classification of employees and non-employee directors eligible to
receive Awards under this Plan; (iv) decrease the minimum option price of any
Stock Option; (v) extend the maximum option period under Section 6.3; (vi)
change any rights under the Plan with regard to non-employee directors; or (vii)
require stockholder approval in order for the Plan to continue to comply with
the applicable provisions, if any, of Rule 16b-3, Section 162(m) of the Code or,
with regard to Incentive Stock Options, Section 422 of the Code. In no event
may the Plan be amended without the approval of the stockholders of the Company
in accordance with the applicable laws or other requirements to increase the
aggregate number of shares of Common Stock that may be issued under the Plan,
decrease the minimum option price of any Stock Option, or to make any other
amendment that would require stockholder approval under the rules of any
exchange or system on which the Company's securities are listed or traded at the
request of the Company.
Except with respect to the award of Stock Options to non-employee directors
under Article IX, the Committee may amend the terms of any Award theretofore
granted,
25
<PAGE>
prospectively or retroactively, but, subject to Article IV above or as otherwise
specifically provided herein, no such amendment or other action by the Committee
shall impair the rights of any holder without the holder's consent.
ARTICLE XIII.
UNFUNDED PLAN
13.1. Unfunded Status of Plan. This Plan is intended to constitute an
-----------------------
"unfunded" plan for incentive compensation. With respect to any payments as to
which a Participant has a fixed and vested interest but which are not yet made
to a Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.
ARTICLE XIV.
GENERAL PROVISIONS
14.1. Legend. The Committee may require each person receiving shares
------
pursuant to an Award under the Plan to represent to and agree with the Company
in writing that the Participant is acquiring the shares without a view to
distribution thereof. In addition to any legend required by this Plan, the
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
14.2. Other Plans. Nothing contained in this Plan shall prevent the Board
-----------
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
14.3. No Right to Employment/Directorship. Neither this Plan nor the
-----------------------------------
grant of any Award hereunder shall give any Participant or other employee any
right with respect to continuance of employment by the Company or any
Subsidiary, nor shall they be a limitation in any way on the right of the
Company or any Subsidiary by which an employee is
26
<PAGE>
employed to terminate his employment at any time. Neither this Plan nor the
grant of any Award hereunder shall impose any obligations on the Company to
retain any Participant as a director nor shall it impose on the part of any
Participant any obligation to remain as a director of the Company.
14.4. Withholding of Taxes. The Company shall have the right to deduct
--------------------
from any payment to be made to a Participant, or to otherwise require, prior to
the issuance or delivery of any shares of Common Stock or the payment of any
cash hereunder, payment by the Participant of, any Federal, state or local taxes
required by law to be withheld. Upon the vesting of Restricted Stock, or upon
making an election under Code Section 83(b), a Participant shall pay all
required withholding to the Company.
The Committee may permit, as it decides to approve in its sole discretion,
any such withholding obligation with regard to any Participant to be satisfied
by reducing the number of shares of Common Stock otherwise deliverable or by
delivering shares of Common Stock already owned. Any fraction of a share of
Common Stock required to satisfy such tax obligations shall be disregarded and
the amount due shall be paid instead in cash by the Participant.
14.5. Listing and Other Conditions.
----------------------------
(a) If the Common Stock becomes listed on a national securities
exchange or system sponsored by a national securities association, the
issue of any shares of Common Stock pursuant to an Award shall be
conditioned upon such shares being listed on such exchange or system. The
Company shall have no obligation to issue such shares unless and until such
shares are so listed, and the right to exercise any Option with respect to
such shares shall be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the opinion
that any sale or delivery of shares of Common Stock pursuant to an Award is
or may in the circumstances be unlawful or result in the imposition of
excise taxes on the Company under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such
sale or delivery, or to make any application or to effect or to maintain
any qualification or registration under the Securities Act of 1933, as
amended, or otherwise with respect to shares of Common Stock or Awards, and
the right to exercise any Option shall be suspended until, in the opinion
of said counsel, such sale or delivery shall be lawful or will not result
in the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under this Section
14.5, any Award affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available before
such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension
shall extend the term of any Option.
27
<PAGE>
14.6. Governing Law. This Plan shall be governed and construed in
-------------
accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
14.7. Construction. Wherever any words are used in this Plan in the
------------
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
14.8. Other Benefits. No Award payment under this Plan shall be deemed
--------------
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
14.9. Costs. The Company shall bear all expenses included in
-----
administering this Plan, including expenses of issuing Common Stock pursuant to
any Awards hereunder.
14.10. No Right to Same Benefits. The provisions of Awards need not be
-------------------------
the same with respect to each Participant, and such Awards to individual
Participants need not be the same in subsequent years.
14.11. Death/Disability. The Committee may in its discretion require the
----------------
transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Award. The
Committee may also require that the agreement of the transferee to be bound by
all of the terms and conditions of the Plan.
14.12. Section 16(b) of the Exchange Act. All elections and transactions
---------------------------------
under the Plan by persons subject to Section 16 of the Exchange Act involving
shares of Common Stock are intended to comply with any applicable condition
under Rule 16b-3. The Committee may establish and adopt written administrative
guidelines, designed to facilitate compliance with Section 16(b) of the Exchange
Act, as it may deem necessary or proper for the administration and operation of
the Plan and the transaction of business thereunder.
14.13. Severability of Provisions. If any provision of the Plan shall be
--------------------------
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
14.14. Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
28
<PAGE>
ARTICLE XV.
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the earlier of the date the Plan is adopted or the date of
stockholder approval, but Awards granted prior to such tenth anniversary may
extend beyond that date.
ARTICLE XVI.
NAME OF PLAN
This Plan shall be known as the dELiA*s Inc. 1996 Stock Incentive Plan.
29
<PAGE>
EXHIBIT 10.6
- --------------------------------------------------------------------------------
dELiA*s Inc.
RESTRICTED STOCK PLAN
(Formerly known as the dELiA*s LLC Restricted Interest Plan)
- --------------------------------------------------------------------------------
Amended and Restated Effective as of ____________, 1996
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. PURPOSE OF THE PLAN...................................... 1
II. DEFINITIONS.............................................. 1
III. EFFECTIVE DATE.......................................... 3
IV. ADMINISTRATION........................................... 4
A. Duties of the Committee............................ 4
B. Advisors........................................... 4
C. Indemnification.................................... 4
D. Determinations..................................... 4
V. RESTRICTED STOCK; ADJUSTMENT UPON CERTAIN EVENTS......... 4
A. Restricted Stock to be Delivered; Fractional Shares 4
B. General Limitation................................. 5
C. Adjustments; Recapitalization, Etc. ............... 5
VI. TERMS OF RESTRICTED STOCK................................ 5
A. Issuance........................................... 5
B. Restricted Stock and Certificates.................. 5
1. Legend........................................ 6
2. Custody....................................... 6
3. Buy Out and Settlement Provisions............. 6
C. Restrictions and Conditions........................ 6
1. Restriction Period............................ 6
2. Vesting....................................... 6
3. Acceleration of Vesting....................... 7
4. Rights as Stockholder......................... 7
5. Lapse of Restrictions......................... 8
D. Non-Competition and Other Provisions............... 8
VII. EFFECT OF TERMINATION OF EMPLOYMENT..................... 8
VIII. NONTRANSFERABILITY...................................... 8
IX. TERMINATION, AMENDMENT AND MODIFICATION................. 8
X. GENERAL PROVISIONS...................................... 9
A. Right to Terminate Employment...................... 9
B. Purchase for Investment............................ 9
C. Trusts, Etc. ...................................... 9
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
D. Notices................................ 10
E. Severability of Provisions............. 10
F. Payment to Minors, Etc................. 10
G. Headings and Captions.................. 10
H. Controlling Law........................ 10
I. Other Benefits......................... 10
J. Costs.................................. 11
K. Section 16(b) of the Exchange Act...... 11
XI. WITHHOLDING TAXES............................. 11
</TABLE>
ii
<PAGE>
DELIA*S INC.
RESTRICTED STOCK PLAN
I. PURPOSE OF THE PLAN
-------------------
Prior to the reorganization of dELiA*s LLC (the "Reorganization"),
dELiA*s LLC adopted the dELiA*s LLC Restricted Interest Plan (the "Restricted
Interest Plan"), effective February 1, 1996, under which certain of its
employees were granted restricted class B membership interests in dELiA*s LLC.
The purpose of the dELiA*s Inc. (the "Company") Restricted Stock Plan (the
"Plan"), which is an amendment and restatement of the Restricted Interest Plan,
is to continue in effect, and make certain adjustments to, the outstanding
restricted interest awards made under the Restricted Interest Plan to certain
employees of the Company in order to reflect the Reorganization. No new awards
are available under the Plan.
II. DEFINITIONS
-----------
In addition to the terms defined elsewhere herein, for purposes of the
Plan, the following terms will have the following meanings when used herein with
initial capital letters:
A. "Agreement" means the separate agreement between a Participant
and the Company (in a form to be determined by the Committee) which continues
the obligations under the "restricted interest agreement" entered into between
the Participant and dELiA*s LLC pursuant to the Restricted Interest Plan and
adjusts each Participant's Award thereunder into Restricted Stock.
B. "Award" means a restricted Class B membership interest award made
to a Participant under the Restricted Interest Plan which is adjusted hereunder
into an award of Restricted Stock to reflect the Reorganization. Such Award
shall be confirmed by, and subject to, the terms of the Agreement.
C. "Board" means the Board of Directors of the Company.
D. "Cause" means that the Committee shall have determined that (i)
the Participant shall have committed fraud or any felony in connection with the
Participant's duties as an employee of the Company, or willful misconduct or any
act of disloyalty, dishonesty, fraud or breach of trust or confidentiality as to
the Company or the commission of any other act which causes or may reasonably be
expected to cause economic or reputational injury to the Company; (ii) a
Termination of Employment would be deemed to be for Cause under any employment
agreement between the Company and the Participant; or (iii) any other reason as
the Committee shall in good faith determine. Cause shall be deemed to exist as
of the date any of the above
1
<PAGE>
events occur even if the Committee's determination is later and whether or not
such determination is made before or after Termination of Employment.
E. "Code" means the Internal Revenue Code of 1986, as amended, and
all regulations promulgated thereunder.
F. "Common Stock" means the common stock, $.01 par value, of the
Company.
G. "Company" means dELiA*s Inc., a corporation organized under the
laws of the State of Delaware.
H. "Committee" means a committee of the Board appointed from time to
time by the Board. Solely to the extent required under Rule 16b-3 under the
Exchange Act ("Rule 16b-3"), such committee shall consist solely of two or more
"non-employee directors" as defined in Rule 16b-3. To the extent that no
Committee exists which has the authority to administer the Plan, the functions
of the Committee shall be exercised by the Board. If for any reason the
appointed Committee does not meet the requirements of Rule 16b-3, such
noncompliance shall not affect the validity of the awards, grants,
interpretations or other actions of the Committee.
I. "Competitive Activity" means (i) being employed by, consulting to
or being a director of any business, or engaging directly or indirectly in any
business activity or enterprise, that is competitive with any activity conducted
by the Company, or of the division that the Participant is or was employed by;
(ii) soliciting for employment or consulting, employing or retaining, or
assisting another Person to employ or retain, directly or indirectly, any
employees of the Company or any Person who was an employee of the Company in the
prior twelve months; provided, however, that employing or retaining, or
assisting another Person to employ or retain, any Person whose employment with
the Company has been terminated without Cause or any Person that is non-exempt
under the Federal Fair Labor Standards Act, 29 USC (S) 213(a)(1), shall not be
considered Competitive Activity; (iii) soliciting, contacting, or otherwise
doing business with any Person that at any time in the prior twelve months has
sold or contributed goods or services to the Company or has been a customer,
client, agent, broker or dealer of or for the Company; or (iv) such other
activity as the Committee in its sole discretion shall determine.
J. "Disability" means a permanent and total disability, rendering a
Participant unable to perform the duties performed by the Participant for the
Company by reason of physical or mental disability, as determined by the
Committee in its sole discretion. A Disability shall only be deemed to occur at
the time of the determination by the Committee of the Disability.
K. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
L. "Key Employee" means any individual who is an officer or other
valuable employee of the Company, as determined by the Committee in its sole
discretion. A Key Employee may, but need not, be an officer of the Company.
2
<PAGE>
M. "Participant" means a Key Employee who was selected to participate
in, and who received and Award under, the Restricted Interest Plan. A
Participant shall include such Key Employee and his or her heirs, executors,
administrators, legal representatives, estate or designated beneficiary, as the
context may require.
N. "Person" means any individual or entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
Person as the context may require.
O. "Restricted Stock" means the restricted class B membership
interests granted to a Participant under the Restricted Interest Plan, which are
adjusted to reflect the Reorganization and are converted to shares of Common
Stock subject to the restrictions under Article VI of the Plan.
P. "Restriction Period" shall have the meaning set forth in Section
VI(C) hereof.
Q. "Retirement" means a Termination of Employment at or after age 65
(or, with the consent of the Committee, before age 65 but after age 45).
R. "Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.
S. "Termination of Employment" with respect to a Participant means
that a Key Employee is no longer actively employed by the Company on a full-time
basis, irrespective of whether or not such Key Employee is receiving salary
continuance pay, is continuing to participate in other employee benefit programs
or is otherwise receiving severance type payments. A Termination of Employment
shall not include a leave of absence approved for purposes of the Plan by the
Committee. For purposes of the Plan, a full-time employee is an individual who
is scheduled to work at least thirty (30) hours per week.
T. "Transfer" or "Transferred" means anticipate, alienate, attach,
sell, assign, pledge, encumber, charge or otherwise transfer.
III. EFFECTIVE DATE
--------------
The Plan shall become effective on __________, 1996 (the "Effective
Date"), subject to its approval and adoption by the stockholders of the Company
solely to the extent required by any applicable rule of a national securities
exchange or system sponsored by the National Association of Securities Dealers
or applicable law.
3
<PAGE>
IV. ADMINISTRATION
--------------
A. Duties of the Committee. The Committee shall have full authority
-----------------------
to administer and interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the Plan; to
establish, amend and rescind rules for carrying out the Plan; to select
Participants in the Plan; and to make all other determinations and to take all
such steps in connection with the Plan and any Restricted Stock as the
Committee, in its sole discretion, deems necessary or desirable. The Committee
shall not be bound to any standards of uniformity or similarity of action,
interpretation or conduct in the discharge of its duties hereunder, regardless
of the apparent similarity of the matters coming before it. Any determination,
action or conclusion of the Committee shall be final, conclusive and binding on
all parties.
B. Advisors. The Committee may employ such legal counsel,
--------
consultants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any advice or opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred by the Committee in the engagement of such counsel, consultant
or agent shall be paid by the Company.
C. Indemnification. To the maximum extent permitted by applicable
---------------
law, no officer of the Company shall be liable for any action or determination
made in good faith with respect to the Plan or any Award. To the maximum extent
permitted by applicable law or the Certificate of Incorporation or By-Laws of
the Company, each officer shall be indemnified and held harmless by the Company
against any cost or expense (including reasonable fees of counsel reasonably
acceptable to the Company) or liability (including any sum paid in settlement of
a claim with the approval of the Company), and advanced amounts necessary to pay
the foregoing at the earliest time and to the fullest extent permitted, arising
out of any act or omission to act in connection with the Plan, except to the
extent arising out of such officer's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers may have under applicable law or under the Certificate of Incorporation
or By-Laws of the Company. Notwithstanding anything else herein, this
indemnification will not apply to the actions or determinations made by any
Participant with regard to any Award.
D. Determinations. Each determination, interpretation or other
--------------
action made or taken pursuant to the provisions of the Plan by the Committee
shall be final, conclusive and binding for all purposes and upon all persons,
including, without limitation, the Company, officers and other employees of the
Company, and the respective heirs, executors, administrators, personal
representatives and other successors in interest of each of the foregoing.
V. RESTRICTED STOCK; ADJUSTMENT UPON CERTAIN EVENTS
------------------------------------------------
A. Restricted Stock to be Delivered; Fractional Shares. Any
---------------------------------------------------
Restricted Stock to be issued under the Plan shall be made available in a manner
that adjusts for, and recognizes the effects of, the Reorganization on the
restricted class B membership interest awards.
4
<PAGE>
Fractional shares resulting from adjustment pursuant to Section V(C) shall be
issued pursuant to the terms of the Plan.
B. General Limitation. Subject to adjustment as provided in this
------------------
Article V, the maximum number of shares of Common Stock with respect to which
Restricted Stock may be issued under the Plan shall not exceed 698,568.
C. Adjustments; Recapitalization, Etc. The existence of the Plan
-----------------------------------
and any Restricted Stock issued hereunder shall not affect in any way the right
or power of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, the liquidation of the
Company, any sale or transfer of all or part of its assets or business or any
other Company act or proceeding. The Committee may make or provide for such
adjustments in the maximum number of shares of Common Stock specified in Section
V(B), in the number of shares of Common Stock covered by outstanding Restricted
Stock issued hereunder, or such other adjustments in the number of shares of
Common Stock, kind of Restricted Stock received, or type or kind of Awards as
the Committee in its sole discretion may determine is equitably required to
prevent dilution or enlargement of the rights of Participants or to otherwise
recognize the effect that otherwise would result from any distribution,
recapitalization or other change in the capital structure of the Company,
merger, consolidation, spin-off, reorganization, partial or complete
liquidation, or any other Company transaction or event having an effect similar
to any of the foregoing.
VI. TERMS OF RESTRICTED STOCK
-------------------------
A. Issuance. The eligible Key Employees to whom Restricted Stock
--------
will be issued under the Plan shall be those Key Employees who received prior
Awards under the Restricted Interest Plan. Based solely on the grant of
restricted class B membership interests made under the Restricted Interest Plan,
the Committee shall determine the number of shares of Restricted Stock to be
issued, the time or times within which such Restricted Stock may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the Restricted Stock.
B. Restricted Stock and Certificates. The Participants receiving
---------------------------------
Restricted Stock shall not have any rights with respect to such Restricted
Stock, unless and until such Participant has delivered a fully executed copy of
the Restricted Stock Agreement to the Company and has otherwise complied with
the applicable terms and conditions of such Restricted Stock Agreement and the
Plan. Notwithstanding the foregoing, if a Participant refuses to deliver a
fully executed Restricted Stock Agreement, the Participant's "restricted
interest agreement" under the Restricted Interest Plan shall continue in effect
but shall be deemed to apply to Restricted Stock instead of restricted class B
membership interests. Further, Restricted Stock shall be subject to the
following conditions:
5
<PAGE>
1. Legend. Each Participant receiving Restricted Stock shall be
------
issued a certificate in respect of such Restricted Stock, which shall be in such
form approved by the Committee, unless the Committee elects to use another
system, such as book entries by the transfer agent, as evidencing ownership of
Restricted Stock. Such certificate shall be registered in the name of such
Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock, substantially
in the following form:
"The anticipation, alienation, attachment, sale, transfer, assignment,
pledge, encumbrance or charge of the shares of dELiA*s Inc. (the
"Company") common stock represented hereby are subject to the terms
and conditions (including forfeiture) of the dELiA*s Inc. Restricted
Stock Plan and an Agreement entered into between the Participant and
the Company dated __________, 199_. Copies of such Plan and Agreement
are on file at the principal office of the Company."
2. Custody. The Committee shall require that the certificates
-------
evidencing such Restricted Stock be held in custody by the Company or its duly
designated agent until the restrictions thereon shall have lapsed, and that, as
a condition thereof, the Participant shall deliver any documents relating to the
Common Stock covered by such Restricted Stock that the Committee requires in
order to arrange custody of such Common Stock including a duly signed stock
power, endorsed in blank, relating to the Common Stock covered by such Award.
3. Buy Out and Settlement Provisions. The Committee may at any
---------------------------------
time on behalf of the Company offer to buy out any Restricted Stock previously
issued, based on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made.
C. Restrictions and Conditions. Any Restricted Stock issued
---------------------------
pursuant to the Plan shall be subject to Article VIII and the following
restrictions and conditions:
1. Restriction Period. The Participant shall not be permitted
------------------
to Transfer Restricted Stock issued under the Plan during the period commencing
on the date the Award was made to the Participant under the Restricted Interest
Plan (the "Restriction Period"), as set forth in the Agreement and such
Agreement may set forth a vesting schedule and any events that would accelerate
the vesting of the Restricted Stock. Within these limits, based on service,
performance and/or such other factors or criteria as the Committee may determine
in its sole discretion, the Committee may provide for the lapse of such
restrictions in installments in whole or in part, or may accelerate the vesting
of all or any part of any Restricted Stock and/or waive the deferral limitations
for all or any part of such Restricted Stock.
2. Vesting. Except with respect to a Change of Control as set
-------
forth in Section VI(C)(3) below and except as may be set forth in the Agreement,
the Restricted Stock of a Participant shall vest fully on the thirty month
anniversary of the date of the Award to such Participant under the Restricted
Interest Plan.
6
<PAGE>
3. Acceleration of Vesting. Unless the Committee determines
-----------------------
otherwise at the time of issuance as set forth in the Agreement, Restricted
Stock under the Plan shall become fully vested immediately upon a Change of
Control. For this purpose, a "Change of Control" shall be deemed to have
occurred upon:
(a) an acquisition after the Effective Date by any individual, entity,
or group of ownership of all the Company's assets, including, but not limited
to, by merger, consolidation or by purchase; excluding, however, the following:
(x) any such acquisition by the Company or (y) any such acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company;
or
(b) the approval of the Board of (i) a complete liquidation of the
Company or (ii) the sale or other disposition of the assets of the Company,
including a merger or consolidation (hereinafter referred to as a
"Disposition"); excluding, however, such a Disposition to a corporation or other
business entity (hereinafter referred to as "Entity") with respect to which,
following such Disposition, (x) 70% or more of the combined voting power of the
then outstanding voting securities of or interests in such Entity entitled to
vote generally in the election of directors will be then beneficially owned,
directly or indirectly, by the individuals and entities who were beneficial
owners of the outstanding voting securities of the Company immediately prior to
such Disposition, (y) no Person (other than the Company and any employee benefit
plan (or related trust) of the Company or such Entity and any Person
beneficially owning, immediately prior to such Disposition, directly or
indirectly, 70% or more of the combined voting power of the Company will
beneficially own, directly or indirectly, 70% or more of the combined voting
power of the then outstanding voting securities or interests of such Entity
entitled to vote generally in the election of directors or managers, and (z)
individuals who were directors of the Company will constitute at least a
majority of the members of the board of directors or other governing or managing
body of such Entity.
4. Rights as Stockholder. Except as specifically set forth
---------------------
herein, a Participant covered by an Award shall have no rights as a stockholder
of the Company with respect to any shares of Restricted Stock including, without
limitation, the right to vote such shares, unless and until the Restricted
Period lapses and the Participant is fully vested in such shares. With respect
to any Restricted Stock, in no event shall the Participant receive any other
shares, securities, moneys or property representing a distribution in respect of
any Restricted Stock or resulting from a reclassification or other like changes
of the Restricted Stock, or otherwise received in exchange therefor, and any
rights issued to the Participant in respect of the Restricted Stock
(collectively, "RS Property") until and unless the Restriction Period expires.
During the Restriction Period, such RS Property shall be deemed credited to a
book-entry account held on behalf of the Participant but shall be subject to the
same restrictions, including those under this subsection (4) and subsection (2)
above, as the Restricted Stock with regard to which they are issued and shall
herein be encompassed within the term "Restricted Stock." From and after the
date of transfer of the Restricted Stock to the Participant, RS Property shall
not bear any interest.
7
<PAGE>
5. Lapse of Restrictions. If and when the Restriction Period
---------------------
expires without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such shares of Common Stock shall be
delivered to the Participant. All legends shall be removed from said
certificates at the time of delivery to the Participant, except for legends
permitted or required to be placed thereon under applicable law.
D. Non-Competition and Other Provisions. In consideration of the
------------------------------------
issuance of any Restricted Stock as well as the grant of restricted membership
interests made under the Restricted Interest Plan, by accepting the Restricted
Stock the Key Employee agrees during employment and, in the event any Restricted
Stock vests, for a period ending one year following the date of the Key
Employee's Termination of Employment, not to engage in any Competitive Activity,
except to the extent consented to by the Committee in writing. Each Key
Employee who received an Award acknowledges that the Company will suffer
irreparable harm in the event such Key Employee engages in any Competitive
Activity during this period, and agrees that in addition to its remedies at law,
the Company shall be entitled to injunctive relief as a consequence of a
violation or threatened violation of this covenant. The Committee will have the
discretion to impose in a Key Employee's Agreement such other conditions,
limitations and restrictions as it determines are appropriate in its sole
discretion, including any waivers of rights which a Key Employee may have.
VII. EFFECT OF TERMINATION OF EMPLOYMENT
-----------------------------------
Except with respect to a Change of Control and except as set forth in
the Agreement and the Plan, upon a Participant's Termination of Employment for
any reason (including, without limitation, Disability or Retirement) during the
relevant Restriction Period, all Restricted Stock still subject to restriction
shall be forfeited in accordance with the terms and conditions established by
the Committee at issuance or thereafter.
VIII. NONTRANSFERABILITY
------------------
No Restricted Stock may be Transferred prior to the date on which any
applicable restriction thereon lapses. No Restricted Stock shall, except as
otherwise specifically provided by law or herein, be Transferable in any manner,
and any attempt to Transfer such Restricted Stock shall be void, and no such
Restricted Stock shall in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person who shall be entitled
to such Restricted Stock, nor shall it be subject to attachment or legal process
for or against such person.
IX. TERMINATION, AMENDMENT AND MODIFICATION
---------------------------------------
The Plan shall terminate at the close of business on the tenth
anniversary of the original effective date of the Restricted Interest Plan,
i.e., February 1, 2006 (the "Termination Date"), unless terminated sooner as
hereinafter provided, and no Restricted Stock shall be issued
8
<PAGE>
under the Plan on or after that date. The termination of the Plan shall not
terminate any outstanding Restricted Stock that by their terms continue beyond
the Termination Date. At any time prior to the Termination Date, the Committee
may amend or terminate the Plan or suspend the Plan in whole or in part.
The Committee may at any time, and from time to time, amend, in whole
or in part, any or all of the provisions of the Plan, or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that, unless otherwise
-------- -------
required by law or specifically provided herein, the rights of a Participant
with respect to any Restricted Stock issued prior to such amendment, suspension
or termination, may not be materially impaired without the consent of such
Participant and, provided further, solely to the extent required by applicable
law, without the approval of stockholders of the Company, no amendment may be
made which would (i) increase the number of shares of Common Stock that may be
issued under the Plan (except by operation of Article V); or (ii) extend the
maximum Restriction Period.
The Committee may amend the terms of any Restricted Stock issued,
prospectively or retroactively, but, subject to Article VI above or as otherwise
provided herein, no such amendment or other action by the Committee shall
materially impair the rights of any Participant without the Participant's
consent.
X. GENERAL PROVISIONS
------------------
A. Right to Terminate Employment. Neither the adoption of the Plan
-----------------------------
nor the issuance of any Award hereunder shall impose any obligation on the
Company to continue the employment of any Participant, nor shall it impose any
obligation on the part of any Participant to remain in the employ of the
Company.
B. Purchase for Investment. If the Committee determine that the law
-----------------------
so requires, the holder of any Restricted Stock issued hereunder shall, upon any
vesting or conversion thereof, execute and deliver to the Company a written
statement, in form satisfactory to the Company, representing and warranting that
such Participant is purchasing or accepting the Restricted Stock then acquired
for such Participant's own account and not with a view to the resale or
distribution in violation of the Securities Act, that no subsequent offer for
sale, sale, transfer or assignment of any such interests shall be made unless it
is first registered under the Securities Act or an exemption from registration
is available (and then it may be sold only in compliance with all applicable
state securities laws), and that a legend may be placed on any certificates
representing the Restricted Stock to that effect and that a stop transfer order
may be placed against it.
C. Trusts, Etc. Nothing contained in the Plan and no action taken
------------
pursuant to the Plan (including, without limitation, the issuance of any
Restricted Stock thereunder) shall create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Company and any Participant
or the executor, administrator or other personal representative or designated
beneficiary of such Participant, or any other persons. Any reserves that may be
9
<PAGE>
established by the Company in connection with the Plan shall continue to be part
of the general funds of the Company, and no individual or entity other than the
Company shall have any interest in such funds until paid to a Participant. If
and to the extent that any Participant or such Participant's executor,
administrator or other personal representative, as the case may be, acquires a
right to receive any payment from the Company pursuant to the Plan, such right
shall be no greater than the right of an unsecured general creditor of the
Company.
D. Notices. Any notice to the Company required by or in respect of
-------
the Plan will be addressed to the Company at 435 HUDSON STREET, NEW YORK, NEW
YORK 10014 Attention: STEPHEN KAHN, or such other place of business as shall
become the Company's principal executive offices from time to time. Each
Participant shall be responsible for furnishing the Committee with the current
and proper address for the mailing to such Participant of notices and the
delivery to such Participant of agreements, any Restricted Stock and payments.
Any such notice to the Participant will, if the Company has received notice that
the Participant is then deceased, be given to the Participant's personal
representative if such representative has previously informed the Company of his
status and address (and has provided such reasonable substantiating information
as the Company may request) by written notice under this Section. Any notice
required by or in respect of the Plan will be deemed to have been duly given
when delivered in person or when dispatched by telegram or one business day
after having been dispatched by a nationally recognized overnight courier
service or three business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid. The
Company assumes no responsibility or obligation to deliver any item mailed to
such address that is returned as undeliverable to the addressee and any further
mailings will be suspended until the Participant furnishes the proper address.
E. Severability of Provisions. If any provisions of the Plan shall
--------------------------
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
F. Payment to Minors, Etc. Any benefit payable to or for the
-----------------------
benefit of a minor, an incompetent person or other person incapable of receipt
thereof shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
G. Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
H. Controlling Law. The Plan shall be construed and enforced
---------------
according to the laws of the State of Delaware.
I. Other Benefits. No payment under the Plan shall be considered
--------------
compensation for purposes of computing benefits under any retirement plan of the
Company nor
10
<PAGE>
affect any benefits under any other benefit plan now or subsequently in effect
under which the availability of benefits is related to the level of
compensation.
J. Costs. The Company shall bear all expenses included in
-----
administering the Plan, including expenses of issuing any Restricted Stock.
K. Section 16(b) of the Exchange Act. The Committee may establish
---------------------------------
guidelines designed to facilitate compliance with Section 16(b) of the Exchange
Act, as it may deem necessary or proper for the administration and operation of
the Plan.
XI. WITHHOLDING TAXES
-----------------
The Company shall have the right to deduct from any payment to be made
to a Participant or to otherwise require, prior to the issuance or delivery of
any Restricted Stock, or the payment of any cash hereunder, payment by the
Participant to the Company of any federal, state or local taxes required by law
to be withheld. Upon the vesting of Restricted Stock or upon making an election
pursuant to Code Section 83(b), a Participant shall pay all required withholding
to the Company. The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of all federal, state and
local taxes required by law to be withheld, including, but not limited to (i)
deducting the amount to be withheld from any other amount then or thereafter
payable to the Participant, his or her beneficiary or estate, and (ii) requiring
a Participant, his or her beneficiary or estate to pay the Company the amount
required to be withheld as a condition of releasing any Common Stock.
The Committee may permit, as it decides to approve in its sole
discretion, any such withholding obligation with regard to any Participant to be
satisfied by reducing the number of shares of Common Stock otherwise deliverable
or by delivery of shares of Common Stock already owned.
11
<PAGE>
Catalog Fulfillment Agreement
FOR
dELiA*s
AT
The Jay Group, Inc.
May 1, 1996 - April 30, 1997
This Agreement is entered into between dELiA*s and The Jay Group, Inc.
(hereafter referred to as Jay).
dELiA*s ASSUMPTIONS:
-------------------
Approximate stock keeping units (SKU) 700 - 1100.
Material will be stored on shelving provided by Jay.
Minimal overstock is expected - approximately 75% of SKU's will have
overstock.
Annual volume is 450,000 packages.
Average line items per package is 3.0.
Average returns and exchanges items are 15 - 20% of shipped items.
Estimated storage requirements are 8,500 sq ft.
All shipments are UPS, CTC, or USPS.
100% item count required on all apparel.
100% carton count with a 5% inspection of contents on the balance
of incoming merchandise (cosmetics, shoes, other hard goods).
80% of incoming apparel are pre-poly bagged.
20% of incoming apparel Jay will polybag and sticker.
Vast majority of shipments are in bags and (2) size cartons
JAY AGREES TO:
1. Manage and administer the fulfillment of dELiA*s wearable and cosmetic
products.
2. Provide dedicated warehouse space for dELiA*s current, as well as
future needs. Current dedicated need has been established at 8,500
square feet to include quick pick, and bulk pallet storage.
3. Receive and locate all catalog stock keeping units (approximately 700
- 1100 SKU'S), as well as packaging materials according to dELiA*s
standard operating procedures. Repack 20% of incoming apparel into
poly bags, and report any variances (receipt to dELiA*s's vendor
purchase orders) to dELiA*s immediately upon receipt. Jay will
complete the shipper header with every shipment.
<PAGE>
4. Print and process orders per the following order flow model:
Day 1 Jay
Print pick/pack/invoices
Sort orders per standard operating procedure
Pick/pack/ship
Confirm of shipments are on-line with dELiA*s MACS system.
Day 2 Jay
Pick/pack/ship remaining orders from day 1
Confirm of shipments are on-line with dELiA*s MACS system.
5. Jay reserves the right to carry over shipment into the third day when
an unexpected volume of orders are received (i.e. backorders).
6. Process all returns and key into dELiA*s MACS system.
7. Provide standard order turnaround (shipment) as outlined in the order
flow model.
8. Provide quality control measures to assure dELiA*s consumer
satisfaction.
9. Provide the personnel and quick pick shelves conveyors and packaging
stations, for the performance of its obligations in this Agreement.
10. Notify dELiA*s of all inventory discrepancies. The Standard receiving
time for all materials is 24 hours. Jay reserves the right to extend
this to 72 hours if materials received by vendors need polybagging, or
the start of a new catalog. All hot or backorder items will be
flagged in receiving and be received within 24 hours.
11. Refund dELiA*s for replacement cost of inventory shortages that exceed
1% of the annual inventory cost. Replacement cost shall be defined as
the cost paid by dELiA*s. The "cost" as used in these definitions of
replacement cost will be the cost of the material or product in effect
at the time of the loss, damage or destruction of the material or
product occurred. In no case shall the liability be extended to the
loss of profit.
12. Jay acknowledges that all "on-line capabilities" and other software
and technological resources made
2
<PAGE>
available to it by dELiA*s are made available solely for the purpose
of Jay's performance of its obligations to dELiA*s hereunder, and Jay
agrees not to use any of such capabilities or resources for any other
purpose and not to claim any right, title or interest therein (other
than a limited right to use such capabilities and resources in
performance hereof).
dELiA*s AGREES TO:
1. Direct payment of all freight charges associated with the fulfillment
of this Agreement, and advance funds for USPS shipments. (outbound as
well as inbound).
2. Provide Jay with on-line capabilities of all incoming merchandise or
materials bound for a Jay facility.
3. Provide Jay with the catalog drop schedule and circulation for
production planning.
4. Provide Jay with on-line capabilities to properly control/audit
inventories stored at Jay.
5. Inspect (2) pieces of each SKU and forward (1) to Jay before bulk
shipment is made to Jay.
6. Handle all customer service activities (i.e. call tags, tracers, and
inquiries).
<TABLE>
<CAPTION>
BACK END PACKAGE VOLUME
- ------------------------------------
<S> <C> <C> <C>
390,001 - Over 1.40 Each Package
325,001 - 390,000 1.47 Each Package
260,001 - 325,000 1.54 Each Package
195,001 - 260,000 1.60 Each Package
130,001 - 195,000 1.70 Each Package
100,001 - 130,000 1.90 Each Package
</TABLE>
Price includes receiving, pick pack and ship, 8,500 square feet of
dedicated storage, and up to three inserts per package.
Minimum billing 3,500 packages per week. With a 30 day notice in
writing of reduced volume below the stated minimum, Jay agrees to
waive the weekly minimum billing for a maximum of 8 weeks.
Annual All Risk Insurance Premium $6,259.00
$1,600,000 coverage, $l 000 deductible per occurrence. Any insurance
obtained by dELiA*s or on behalf of dELiA*s is solely for the benefit
of dELiA*s.
3
<PAGE>
Returns Processing 1.68 Each
Price includes receiving return opening package, inspecting,
keying information into dELiA*s system, and returning restockable
merchandise to inventory.
Production Services 18.10/hr
As described but not limited to: Returning goods to Vendor,
Kitting merchandise, special packaging (gift wrapping).
100% inspection above the item counting of wearables, and any
additional inspection above the 100% carton count and 5%
inspection of the cosmetics, shoes, and other hard goods.
Physical inventories, and cycle counting. Approximately 1 hour
to count 10 SKU's at approximately 175 items per SKU, actual
hours will be charged. (dELiA*s to be contacted before services
are to be performed).
Transfer of SKU's from New York warehouse and initial receipt of
all SKU's from vendors for the first catalog. (Estimated number
of hour to receive initial SKU's 200 hours).
Monthly Pallet Storage 8.30 each
Any storage above the 8,500 square feet outlined in the assumptions
above.
Storage will be counted on the 15th of each month and billed for the
next 30 days.
Each additional insert (over 3) 0.02 each
Reporting Included
Vendor Analysis, Cash Management
Production Planning Worksheet
Postage/freight charges to be billed 3rd party or in advance.
7. Jay will concurrently perform monthly quality audits on line items per
package, and package volume.
4
<PAGE>
A. An annual audit of line items per package will initiate a
retroactive amendment. The mechanism for determining the actual
line items shipped per package will be pulled from a standard
MACS report then multiplied by the number of packages shipped for
the annual period (report supplied by dELiA*s on a monthly
basis). The actual line items shipped per package will be
subtracted from the assumption of 3.0. If this number is equal
to zero then no adjustment. If the number is greater or less
than zero, then the number should be multiplied by $0.26, and a
credit or debit will be applied to the respective parties in the
form of an invoice payable in 14 days.
B. An annual audit of package volume will initiate a retroactive
amendment. The mechanism for determining the actual packages
shipped will be pulled from a standard MACS report. If the
package volume is less than the 390,000 volume, an increased
incremental package price will be applied to the actual package
volume in the form of an invoice payable in 14 days. (i.e.
350,000 annual package volume = ($1.47 - $1.40 = $.07 * 350,000 =
$24,500.00)
C. dELiA*s reserves the right to cause an independent audit of Jay's
performance hereunder, to be conducted annually.
8. Jay reserves the right to requote the package price if Non-conveyable
packages are introduced into the product mix.
9. All communications requirements, usage charges, programming
requirements, custom reporting, and information not covered under this
Agreement have not been quoted. An actual quotation will be completed
upon receipt of additional information.
INSURANCE:
Jay shall secure and maintain during the term of this Agreement the following:
1. Public and private liability insurance under comprehensive general
liability form, including contractual liability protection for no less
than a combined single limit of $1,000,000 (one million dollars) for
both bodily injury and property damages per occurrence for Jay and all
Jay employees.
5
<PAGE>
2. Worker's Compensation Insurance and Employer's Liability Insurance to
provide statutory worker's compensation benefits as required by the
laws of the state of Pennsylvania for all Jay employees engaged in work
under this agreement .
3. All Insurance coverage required hereunder shall be carried with
companies acceptable to dELiA*s and licensed to do business in the
state of Pennsylvania. Jay shall provide dELiA*s with certificates of
insurance verifying dELiA*s as a named insured, and stating that the
relevant policies will not be cancelled, reduced or limited without
thirty (30) days prior written notice to dELiA*s.
Please Note: Fire and extended insurance coverage on all merchandise
consigned to a Jay warehouse is the sole responsibility of
dELiA*s.
TERMS AND TERMINATION:
dELiA*s agrees to pay for services provided under this Agreement within 14
days net. Unpaid balances are subject to a finance charge of 1.5% per
month after 14 days. Invoicing will be on a weekly basis, to include a
minimum of 3,500 packages, returns, production services, additional
inserts. Additional pallet storage will be invoiced on a monthly basis if
over the 8,500 square feet.
This Agreement shall continue until the first anniversary of the date on
which this Agreement is countersigned on behalf of dELiA*s. dELiA*s
understands that in the event that this Agreement is renewed beyond such
anniversary date, the pricing is subject to renegotiation.
dELiA*s has the ability to terminate this agreement prior to the first
anniversary of dELiA*s acceptance under the following conditions:
1. An erroneous deviation from the order flow model caused by Jay which
is uncorrected after 10 days written notice.
dELiA*s agrees to use its best efforts to assist in correcting the
deviation prior to terminating the Agreement.
2. Inventory shortage in excess of l% of replacement cost not reimbursed
to dELiA*s.
6
<PAGE>
3. Continued inventory shortages after notification in writing from
dELiA*s.
4. Shipping errors caused by Jay in excess of 1% uncorrected after
written notice by dELiA*s. dELiA*s will, on a regular basis,
communicate the nature of shipping problems to Jay to facilitate
timely correction.
5. A 90 day notification is required for termination resulting from any
change in ownership or affiliation (merger, acquisition, affiliation,
etc).
Upon notification of the cancellation, Jay will continue providing all
services listed within this agreement until the effective date of
termination has been reached.
ADDITIONAL PROVISIONS:
The dELiA*s authorized personnel will have access, during normal business
hours, to the warehouse space provided for dELiA*s.
Jay will maintain daily package records for a period of 6 months.
Title to all dELiA*s's goods stored at Jay's facilities under this
Agreement shall remain with dELiA*s.
All The dELiA*s Catalog information which Jay may encounter in the natural
course of providing its services under this Agreement, shall be held in
confidence by Jay and not used for any purpose not clearly authorized by
this Agreement.
dELiA*s shall pay any and all taxes, charges, and assessments on its goods
and on the storage, handling, transportation or use thereof which Jay may
be required to pay or collect under any federal, state or local law or
authority now in effect or hereafter passed. The Jay Group shall be
responsible for the payment of any taxes, charges and assessments required
to be paid by them under the Internal Revenue code, as amended, or under
any state or local income, gross receipts or similar tax.
Jay shall at all times remain an independent contractor and neither Jay nor
any of its employees, officers, directors or representatives shall be
considered employees of dELiA*s for any purpose. It is further understood
that neither Jay nor any of its officers, employees or representatives is a
legal representative of dELiA*s for any purpose to assume or create any
obligation on behalf of dELiA*s nor speak on
7
<PAGE>
behalf of dELiA*s beyond the information approved or provided by dELiA*s.
Jay represents that there exists no conflict of interest position which
would prevent it from acting in dELiA*s best interest and that during the
term of the Agreement, Jay will advise dELiA*s in advance before accepting
an assignment which could constitute a conflict of interest.
Jay agrees to indemnify and hold harmless dELiA*s from and against any and
all actions, causes of action, claims, demands, liabilities, losses,
judgements, damages or expenses of any kind or nature, including without
limitation attorneys' fees and disbursements, arising from or in any way
relating to the services provided by Jay hereunder.
dELiA*s shall indemnify and hold Jay harmless from and against any and all
actions, causes of action, claims, demands, liabilities, losses,
judgements, damages or expenses of any kind or nature, including without
limitation attorneys' fees and disbursements, that Jay shall at any time
incur, sustain or become subject to by reason of any claims against Jay
regarding advertising or product claims or promises made by dELiA*s or that
otherwise is the responsibility of dELiA*s as provided herein.
Accepted by: Accepted by:
The Jay Group, Inc. dELiA*s LLC
By:/s/ H. Douglas Bushong By:/s/ Stephen Kahn
------------------------ ----------------------
H. Douglas Bushong Stephen Kahn
Title: Chief Financial Officer Title: President
8
<PAGE>
BLDG. NO. 86 FILE NO.
LEASE
THE RECTOR, CHURCH-WARDENS, AND
VESTRYMEN OF
TRINITY CHURCH, IN THE CITY OF NEW-YORK
LANDLORD
TO
DELIA'S, LTD.
TENANT
Dated
----------------------------------
Building 435 Hudson Street
------------------------------
Premises Part 3rd Floor
----------------------------
Term 3 years _________ months
--------------
Beginning May 1, 1995
--------------------
Ending April 30, 1998
--------------------------
Annual Rent $109,000.00
---------------------
<PAGE>
THIS LEASE made this 3rd day of May, 1995 between
LANDLORD: The Rector, Church-Wardens and Vestrymen of Trinity Church in
the city of New-York, a religious corporation (hereinafter referred to as "the
Landlord"), having its offices at 74 Trinity Place, Borough of Manhattan, City,
County and State of New York, and
TENANT: Delia's LLC (hereafter referred to as "the Tenant"), a New York
corporation, having its place of business at 155 Avenue of the Americas, Borough
of Manhattan, City, County and State of New York.
W I T N E S S E T H:
-------------------
GRANT PREMISES: That the Landlord hereby lets and leases to the Tenant,
and the Tenant hereby takes and hires from the Landlord, the following described
space: a portion of the 3rd floor as hatched in red on the diagram attached
hereto and made part of this lease and marked Exhibit "A" (such space is
hereafter referred to as "the premises") in the building known by street number
as No. 435 Hudson Street in the Borough of Manhattan, City, County and State of
New York (hereafter referred to as "the building"), with the privilege to the
Tenant of using (subject to such rules and regulations as the Landlord shall
from time to time prescribe) the necessary entrances and appurtenances to the
premises, reserving to the Landlord all other portions of the building not
herein specifically demised,
TERM: for a term to commence on the first day of May, 1995, at noon,
Standard Time, and to expire on the thirtieth day of April, 1998, at noon,
Standard Time (or until such term shall sooner cease and expire or be terminated
as hereafter provided), at the rent at the annual rate or rates as follows:
RENT: ONE HUNDRED NINE THOUSAND AND NO/100 ($109,000.00) Dollars,
ADDITIONAL RENT: payable at the offices of the Landlord in equal monthly
payments of $9,083.33 each or if more than one annual rate is specified above,
then in installments equal to 1/12th of the rent at the annual rates as above
prescribed for the respective periods in which they are payable, in advance
without demand therefor an installment equal to the amount of the rent payable
under this lease for the first month of the term for which rent is payable upon
the execution hereof by the Tenant, and thereafter, on the first day of each
month during said term, in lawful money of the United States, plus (i) when due
or demanded, such items as shall be provided hereafter are payable by the Tenant
as additional rent, and (ii) should the Tenant at the commencement of the term
of this lease be in default in the payment of rent to the Landlord pursuant to
the terms of any prior lease with the Landlord, or with a predecessor in
interest of the Landlord, the amount of such arrears, which the Landlord may at
its option and without notice thereof to the Tenant, add to any monthly
installments of rent due under this lease.
COVENANTS AND CONDITIONS: THE ABOVE LETTING IS UPON THE FOLLOWING
COVENANTS AND CONDITIONS, each and every one of which the Tenant covenants and
agrees with the Landlord to keep and perform, and the Tenant agrees that the
covenants herein contained on the part of the Tenant to be performed, shall be
deemed conditional limitations, as well as covenants and conditions:
USE: FIRST: (a) The Tenant shall use the premises only for executive
offices, administrative offices and work area in connection with Tenant's
catalogue business.
2
<PAGE>
(b) If any portion of the premises consists of basement space, such
portion shall be used only for storage purposes.
(c) No auction sale and no other sale of all or substantially all of the
Tenant's property, stock, fixtures and machinery, except a sale made in
connection with an assignment of this lease to another tenant for which the
Landlord's consent shall have been obtained shall be held at the premises unless
the provisions of Article TWENTY-NINTH (b) of this lease shall have been
complied with.
RENT: SECOND: (a) The Tenant shall pay the rent and additional rent as
provided in this lease.
(b) If any installments of rent or additional rent or any service charge
shall not be paid within five (5) business days following the date on which the
same shall be due and payable pursuant to this lease then, in addition to, and
without waiving or releasing, any other rights and remedies of the Landlord, the
Tenant shall pay to the Landlord a late charge of one and one-half (1 1/2%)
percent per month computed (on the basis of a 30-day month) from the date on
which each such installment became due and payable to the date of payment of the
installment on the amount of each such installment or installments, as
liquidated damages for Tenant's failure to make prompt payment, and the same may
be collected on demand or as additional rent in accordance with the provisions
of Article TWENTY-FIFTH of this lease.
REPAIRS MACHINERY CLEANING AND WASTE: THIRD: (a) The Tenant shall take
good care of the premises and the fixtures, appurtenances, equipment and
facilities therein and shall make, as and when needed, all repairs in and about
the premises required to keep them in good order and condition; such repairs to
be equal in quality to the original work provided that the Tenant shall not be
obligated for structural or exterior repairs to the building or for repairs to
the systems and facilities of the building for the use or service of tenants
generally, other than fixtures, appurtenances, equipment and facilities in the
premises, except where structural or exterior repairs or repairs to such systems
and facilities are made necessary by reason of one or more of the occurrences
described below in clauses (i) through (iv) of this Article THIRD (a). Should
the Tenant fail to repair any condition in or about the premises or the
fixtures, appurtenances, equipment and facilities therein which is of such a
nature that it neglect would result in damage or danger to the building, its
fixtures, appurtenances, facilities and equipment, or to its occupants (of which
nature the Landlord shall be the judge) or, in the case of repairs of any other
nature, should the Tenant have failed to make the required repairs or to have
begun in good faith, the work necessary to make them within fifteen days after
notice from the Landlord of the condition requiring repair, the Landlord may, in
either such case, immediately enter the premises and make the required repairs
at the expense of the Tenant. The Landlord may make, at the expense of the
Tenant, any reasonably required repairs to the building or to its fixtures,
appurtenances, facilities or equipment, whether of a structural or any other
nature, which are required by reason of damage or injury due (i) to the
negligence or the improper acts of the Tenant or its employees, agents, licenses
or visitors; (ii) to the moving into or out of the building, of property being
delivered to or taken from the premises; (iii) to the installation, repair or
removal of the property of the Tenant in the premises; or (iv) to the faulty
operation of any machinery, equipment, or facility installed in the premises by
or for the Tenant. The Tenant will pay the actual and reasonable cost of any
repairs made by the Landlord pursuant to this paragraph within fifteen days of
the presentation of bills therefor, or the Landlord may, at its option, add such
amounts to any installment or installments of rent due under this lease and
collect the same
3
<PAGE>
as additional rent. The liability of the Tenant under this Article Third shall
survive the expiration or other termination of this lease, except for the
repairs which are the Tenant's obligations under this Article THIRD (a), the
Landlord will, after notice of the need therefor, promptly and its cost and
expense, make the repairs and perform the maintenance necessary for Landlord to
provide the services set forth in this Lease.
MACHINERY: (b) If the Tenant shall install or maintain machinery or
manufacturing equipment of any description in the premises, the operation of
which produces noise or vibration which is transmitted beyond the premises and
the Landlord deems it necessary that the noise or vibration of such machinery or
equipment be diminished, eliminated, prevented or confined to the premises, the
Landlord may give written notice to the Tenant, requiring that the Tenant
provide and install rubber or other approved settings for absorbing, preventing
or decreasing the noise or vibration of such machinery or equipment within
thirty days. The judgment of the Landlord of the necessity of such installation
shall be conclusive, and the installation shall be made in such manner and of
such material as the Landlord may direct. Should the Tenant fail to comply with
such request within thirty days, the Landlord may do the work necessary to
absorb, prevent or decrease the noise or vibration of such machinery or
equipment and the Tenant will pay to the Landlord the cost of such work upon
demand or such cost may, at the option of the Landlord, be added to any
installment or installments of rent under this lease and shall be payable by the
Tenant as additional rent.
CLEANING AND WASTE: (c) The premises shall be kept clean and in order by
the Tenant, at the Tenant's expense, and to the satisfaction of the Landlord.
The Tenant shall, at its own expense, clean the interior and exterior surfaces
of the windows at such times as the windows become dirty to a degree which, in
the judgment of the Landlord, adversely affects the appearance of the building
or the premises. Such window cleaning shall be done in a manner which complies
with the requirements of this lease and all applicable laws and regulations.
The Tenant shall, at its own expense, remove from the building any and all
rubbish, refuse and waste originating in the premises of the Tenant or cause the
same to be removed. The removal of such refuse, rubbish and waste shall be
subject to such rules and regulations as to time and manner of removal as, in
the judgment of the Landlord, are necessary for the proper operation of the
building. In the event that the Tenant shall fail to clean the windows or
remove its refuse, rubbish and waste, such cleaning or removal may be done by
the Landlord, and the Tenant shall pay to the Landlord the cost of the cleaning
of the windows or the removal of any of the Tenant's refuse, rubbish and waste
from the building. Landlord shall deliver the space with clean windows free of
any cracks. Bills for the same shall be rendered by the Landlord to the Tenant
at such times as the Landlord may elect and shall be due and payable when
rendered, and the amount of such bills shall be deemed to be, and be paid as,
additional rent. Should the Landlord clean the windows or remove the rubbish of
the Tenant and of other tenants, the cost of such cleaning or removal shall be
apportioned as between the Tenant and such other tenants respectively on the
basis of the number of windows or the respective approximate quantities of such
rubbish and waste as the case may be. The Landlord's apportionment of such
respective quantities shall be conclusive on the parties.
ALTERATIONS AND FIXTURES: FOURTH: (a) The Tenant shall not make any
alteration, addition or improvement in or upon the premises, nor incur any
expense therefor, without having first obtained the written consent of the
Landlord therefor. If the Tenant shall desire to make alterations, additions or
improvements which will not adversely affect the structure of the building or
the operation of any of the systems or facilities of the building for the use of
all tenants or violate the
4
<PAGE>
requirements of government hereafter referred to and if the Tenant shall furnish
the Landlord with the Tenant's plans and specifications for the proposed
alteration, addition or improvement in sufficient detail to permit the Landlord
to determine that the same will comply with the requirements of this subdivision
(a), the Landlord's approval will not be unreasonably withheld or delayed.
Whenever any alterations, additions or improvements of the premises are made by
the Tenant, the Tenant shall not, knowingly, employ or permit to be employed
therein any labor which will cause strikes or labor troubles with other
employees in the building employed by the Landlord or its contractors. All
alterations, decorations, additions or improvements shall be made and installed
in a good and workmanlike manner and shall comply with all requirements, by law,
regulation or rule, of the Federal, State and City Governments and all
subdivisions and agencies thereof, and with the requirements of the New York
Fire Insurance Exchange, New York Board of Fire Underwriters and all other
bodies exercising similar functions, and shall conform to any particular
requirements of the Landlord expressed in its consent for the making of any such
alterations, decorations, additions, and improvements. Any such work once begun
shall be completed with all reasonable dispatch, but shall be done at such time
and in such manner as not to interfere with the occupancy of any other tenant or
the progress of any work being performed by or on account of the Landlord.
(b) All alterations, decorations, additions or improvements, which may be
made or installed in or upon the premises (whether made during or prior to the
term of this lease or during the term of any prior lease of the premises by the
Landlord, the Tenant or any previous tenant), except the furniture, trade
fixtures, stock in trade, and like personal property of the Tenant (including
modular partitions and furnishings) shall be conclusively deemed to be part of
the freehold and the property of the Landlord, and shall remain upon the
premises, and, upon the expiration or any termination of the term of this lease,
shall be surrendered therein as a part thereof. The Tenant, at or prior to the
expiration or any termination of the term of this lease shall, at its own
expense, remove all its furniture, trade fixtures, stock in trade and like
personal property. The Tenant shall restore and repair, at its own cost and
expense, any damage or disfigurement of the premises occasioned by any other
removals or remaining after such removals, so as to leave the premises in good
order and condition as they were at the time of the making of this Lease or, the
Landlord, at its option, may do such restoration and repair and the Tenant will
pay the cost thereof upon demand. If any furniture, trade fixtures, stock in
trade or other personal property of the Tenant shall not be removed at the
expiration or any termination of this lease, the Landlord, at the Landlord's
option, may treat the same as having been irrevocably abandoned, in which the
Tenant shall have no further right, title or interest therein and the Landlord
may remove the same from the premises, disposing of them in any way which the
Landlord sees fit to do, and the Tenant shall, on demand, pay to the Landlord
the expense incurred by the Landlord for the removal thereof, as well as the
cost of any restoration of the premises above provided. The Tenant's
obligations under this subdivision (b) of this Article Fourth shall survive the
expiration of this lease.
(c) The Landlord may at any time during the term of this lease, change the
arrangement or location of the entrances or passageways, doors and doorways, and
the corridors, elevators, stairs, toilets or other parts of the building used by
the public or in common by the Tenant and other tenants (including, without
limitation, the conversion of elevators from a manually operated to an automatic
self-service basis, provided that such changes shall not materially adversely
affect Tenant's use of the premises. The Landlord agrees that in performing any
work permitted by this paragraph, it will exercise reasonable efforts
5
<PAGE>
to minimize any interference or disruption of the Tenant's business and
operation. The Landlord may alter the staffing of the building and the scale
and manner of the operation thereof, provided that the services to which the
Tenant is entitled as specified in this lease are not diminished and may alter
the facilities, fixtures, appurtenances and equipment of the building as it may
deem the same advisable, or as it may be required so to do by any governmental
authority, law, rule or regulation. The Landlord may, after reasonable notice,
change the name, street number or designation by which the building is commonly
known.
COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS: FIFTH: The Tenant
shall promptly comply, at the Tenant's own expense, with all laws, ordinances,
regulations and requirements of the City, State and Federal Government, and all
subdivisions and agencies thereof, and the New York Fire Insurance Exchange, the
New York Board of Fire Underwriters, and of any fire insurance rating
organization, and of all departments, bureaus, officials, boards and commissions
with regard to the premises or the use thereof by the Tenant, and (if the
premises are situated on the ground floor) the sidewalks adjoining the same in
so far as such compliance is made necessary by the Tenant's use of the
sidewalks, provided that the Tenant shall not be required to make alterations or
additions to the premises, except where the same are required by reason of the
nature of the Tenant's use of the premises, the manner in which its business is
carried on in the premises or a failure on the part of the Tenant to conform to
the provisions of this lease. The Tenant will not permit the maintenance of any
nuisance upon the premises or permit its employees, licensees or visitors to do
any illegal act therein, or in and about the building after notice thereof from
the Landlord. If any such law, ordinance, regulation or requirement shall not
be promptly complied with by the Tenant, then the Landlord may, at its option,
enter upon the premises to comply therewith, and should any fine or penalty be
imposed for failure to comply therewith or by reason of any such illegal act,
the Tenant agrees that the Landlord may, at its option, pay such fine or
penalty, which the Tenant agrees to repay to the Landlord, with interest from
the date of payment, or additional rent. The Landlord will not discriminate
against the Tenant in enforcing the rules and regulations promulgated by the
Landlord for the building.
COMPLIANCE WITH LANDLORD'S RULES: SIXTH: The Tenant and the Tenant's
employees, and any other person subject to the control of the Tenant, shall well
and faithfully observe all the rules and regulations annexed hereto, and also
any and all reasonable rules and regulations affecting the premises, the
building or the equipment, appurtenances, facilities and services thereof,
hereafter promulgated by the Landlord. The Landlord may at any time, and from
time to time, prescribe and regulate the placing of safes, machinery, quantities
of merchandise and other things, and regulate which elevator and entrance shall
be used by the Tenant's employees, and for the Tenant's shipping; and may make
such other and further rules and regulations as in its judgment may, from time
to time, be needed or desirable for the safety, care or cleanliness of the
building and for the preservation of good order therein.
PLATE GLASS: SEVENTH: The Landlord may, at its option, either (i), at the
Tenant's expense, keep the plate glass, if any, in the premises insured in the
name of the Landlord against loss or damage, the premium for which, whether by
separate policy or as a part of a schedule of another policy, shall be paid by
the Tenant to the Landlord, upon demand, or (ii), require the Tenant, at the
Tenant's expense, to keep the plate glass, if any, in the premises insured in
the name of the Landlord against loss or damage, in which event, the Tenant
shall deliver such policy and evidence of due payment of the premium therefor to
the Landlord.
6
<PAGE>
CARE OF SIDEWALKS: EIGHTH: If the premises, or any part thereof, consist
of a first floor or any part thereof, the Tenant shall, at the Tenant's own
expense, keep the sidewalk, gutter and curb in front thereof free from snow and
ice, and in a cleanly condition.
LANDLORD'S ACCESS TO THE PREMISES: NINTH: (a) The Tenant shall, without
in any way affecting the Tenant's obligations hereunder, and without
constituting any eviction, permit the Landlord and its agents at all reasonable
hours and upon reasonable notice except in an emergency; (i) at all reasonable
hours, to enter the premises and have access thereto, for the purpose of
inspecting or examining them and to show them to other persons; (ii) to enter
the premises to make repairs and alterations, and to do any work on the premises
and any work in connection with excavation or construction on any adjoining
premises or property (including, but not limited to, the shoring up of the
building) and to take in any of the foregoing instances, any space needed
therefor; and (iii) during the six months preceding the termination hereof, to
place and maintain thereon the usual "for rent" notices. The Tenant shall
permit the Landlord to erect and maintain ducts, pipes and conduits in and
through the premises. In the exercise of the rights of the Landlord reserved
under clause (ii) or under the next preceding sentence of this subdivision (a)
of Article NINTH the Landlord will do so in a manner which minimizes the
interference with the Tenant's use of the premises so far as practicable and
where ducts, pipes or conduits are to be erected through the premises will
locate them along walls or ceilings wherever practicable.
(b) In the event that the premises shall, in the Landlord's judgment,
become substantially vacated before the expiration of this lease, or in the
event the Tenant shall be removed by summary proceedings or in the event that,
during the last month of the term, the Tenant shall have removed all or
substantially all of the Tenant's property therefrom, the Landlord may
immediately enter into and upon said premises for the purpose of decorating,
renovating or otherwise preparing same for a new tenant, without thereby causing
any abatement of rent or liability on the Landlord's part for other
compensation, and such acts shall have no effect upon this lease.
(c) In the event of an emergency or if the Tenant or an officer or
authorized employee of the Tenant shall not be personally present to open and
permit an entry into said premises as required by paragraph (a) above, when for
any reason an entry therein shall be necessary or permissible hereunder, the
Landlord or the Landlord's agent, may enter the same by master key, or may
forcibly enter the same without rendering the Landlord or such agents liable
therefor (if during such entry the Landlord shall accord reasonable care to the
Tenant's property) and without in any manner affecting the obligations and
covenants of this lease and in no event shall any such entry by the Landlord or
its agents be deemed an acceptance of a surrender of this lease, either
expressed or implied, nor a waiver by the Landlord of any covenant of this lease
on the part of the Tenant to be performed.
ELECTRIC CURRENT; LIVE STEAM: TENTH: (a) Electric current is to be
supplied by the Landlord. The Tenant covenants and agrees to purchase the
Tenant's requirements therefor at the premises from the Landlord or the
Landlord's designated agent at 112% of the rates set forth in the rate schedule
of Consolidated Edison Company of New York, Inc. applicable to the building (or
the conjunctional group in which the building is included), plus any sales or
use tax or other governmental charge or levy; provided, however, that if such
rate schedule includes any adjustment for time-of-day for either demand or
consumption, the rate applicable to the Tenant's demand for and consumption of
electricity, shall be specified for the peak period. The calculation of the
rate shall include the effect of all direct and indirect charges which affect
the cost of the electricity,
7
<PAGE>
including without limitation, consumption charges, demand charges and fuel cost
escalation charges.
(b) Where more than one meter measures the service of the Tenant in the
building, the service rendered through each meter may be computed and billed
separately in accord with the rates herein provided for. No current shall be
furnished until the equipment of the Tenant has been approved by the proper
authorities, and after such approval, no charges shall be made in such equipment
without the written consent of the Landlord. The Tenant shall pay, upon demand,
the bills for electric current furnished and the use of meters; the Landlord
and its agent reserving the right, without releasing the Tenant from any
liability, and without constituting any eviction, and without any liability on
the Landlord's part, to cut off such electric current after five days' notice
for non-payment of any such bill or bills. The Tenant shall comply with such
rules, regulations and contract provisions as are customarily prescribed by
public service corporation supplying such services, for consumption similar to
that of the Tenant.
(c) The Landlord may discontinue the supply of electric current under
subdivision (a) at any time on ninety (90) days' notice to the Tenant without
being liable to the Tenant therefor or without in any way affecting this lease
or the liability of the Tenant hereunder or causing the diminution of rent, and
the same shall be deemed to be a lessening or diminution of services within the
meaning of any law, rule, or regulation now or hereafter enacted, promulgated,
or issued. Should the Landlord give such notice of discontinuance, the Tenant
shall make the Tenant's own arrangement to receive such service direct from such
public utility corporation serving the building and the Landlord shall permit
the Landlord's wires, conduits and meters, to the extent to which they are
safely available for such use and to the extent to which they may be used under
any applicable governmental regulations or the regulations of such public
utility, to be used for the purpose. Should any additional or other wiring,
conduits, meters or any other or different distribution equipment be required in
order to permit the Tenant to receive such service directly from the public
utility, the same will be installed, as the Landlord shall elect, either by the
Landlord, at the sole cost and expense of Tenant, or by the Tenant at the
Tenant's sole cost and expense. In the case of central distribution equipment
which is used in connection with the distribution or metering of current
supplied to the Tenant and other tenants of the building, and which is required
to be installed under governmental regulations or the regulations of such
utility, the cost of installation thereof will be prorated among the several
tenants, serviced through the distribution facility in the proportion which
their average consumption of electric current over the next preceding period of
not less than six months' duration bears to the total consumption of electric
current by all tenants during such period, and the Tenant shall pay to the
Landlord the Tenant's share of such cost of installation, apportioned as above,
within five (5) days following receipt of a statement showing the cost of the
distribution equipment and the manner in which the cost has been allocated to
the Tenant. Should the supply of electric current by the Landlord be
discontinued, but not as a result of the Landlord's election to discontinue the
supply of current, then the Tenant shall, at the Tenant's expense, install all
wiring, metering and distribution facilities which are required in order to
permit the Tenant to purchase the Tenant's requirements for electric current for
the premises from such utility and shall discontinue the use of the Landlord's
electric wires, cables, meters and distribution facilities. All such facilities
installed by the Tenant shall be installed in a workmanlike way which complies
with applicable governmental regulations and the regulations of the public
utility. The Landlord will in any such case permit any pipe-chases or channels
available in the building to be used by the Tenant for the Tenant's cables and
conduits, to
8
<PAGE>
the extent that the same may be available and may be safely used for the
purpose.
(d) The Landlord shall not in any way be liable or responsible to the
Tenant for any loss of damage or expense which the Tenant may sustain or incur
if either the quantity or character of electric service is changed or is no
longer available or suitable for the Tenant's requirements, nor shall the
Landlord be in any way responsible for any interruption of service due to
breakdowns, repairs, malfunction of electrical equipment or any other cause
relating to electrical service which is beyond the Landlord's reasonable
control.
(e) If there be any facilities for the supply of live steam in the
building, such steam shall be supplied to the Tenant only if separate agreements
are made therefor and pursuant to such arrangements. In the event that such
separate agreements shall be made, the appropriate provisions of this Article
TENTH shall be applicable thereto.
CONDEMNATION AND DEMOLITION: ELEVENTH: (a) If the whole of the building
or of the premises or any part thereof, shall be taken or condemned for any
public or quasi public use, this lease and the term hereby granted shall
terminate on the date when title to premises or such part shall actually be
taken for such public or quasi public use. If any other part of the building
shall be so taken and such taking shall, in the judgment of the Landlord, make
the operation of the building impractical, unprofitable or uneconomical (even
though no part of the premises be taken), the Landlord may, at its option, give
to the Tenant, at any time after the vesting of title and prior to the actual
taking of possession, sixty (60) days' notice of intention to terminate this
lease, and upon the date designated in such notice, this lease and the term
hereby granted shall terminate. In no event shall any condemnation award be
apportioned, and the Tenant hereby assigns to the Landlord all right and claim
to any part of such award, but the rent, and all other sums payable by the
Tenant, shall be apportioned as of the date of any such termination of this
lease, provided that nothing contained in the foregoing portion of this Article
ELEVENTH shall be deemed to prevent the Tenant's making claim for and retaining
an award for the damage to or loss of value of its trade fixtures and such of
the installations made by the Tenant as remain the Tenant's property or from
making claim for and retaining any award which may be made to the Tenant for the
Tenant's moving expenses if, and to the extent that, the award to be claimed and
retained by the Tenant is independent of and does not result in a diminution of
the award to the Landlord for the taking of land, building and the Landlord's
other property.
(b) If the Landlord shall desire to demolish the building wherein the
premises are located, the Landlord shall have the right and option to terminate
the term of this lease at any time during the term thereof upon giving to the
Tenant not less than six months' notice of the Landlord's election to terminate
this lease and of the date, which shall be the last day of a calendar month, not
less than 180 days following the date of the Landlord's notice of election to
terminate, on which Landlord elects that this lease shall terminate and come to
an end, together with an affidavit, sworn to by an officer of the Landlord, if
the Landlord at such time is a corporation, or by a general partner of the
Landlord, if the Landlord at such time is a partnership, or by the Landlord, if
the Landlord at such time is an individual, to the effect that the Landlord, its
successor in interest or a lessee intends to demolish the building containing
the premises and to erect a different building in lieu thereof. If such notice
and affidavit are given to the Tenant, then this lease shall terminate and come
to an end on the date of termination specified in the Landlord's notice, as if
that date were the date originally fixed for the termination of the term of this
lease, and on such date the Tenant shall quit, vacate and
9
<PAGE>
surrender up the premises in accord with the provisions of this lease relating
to surrender at the expiration of the term.
MECHANICS'S LIENS: TWELFTH: The Tenant will not permit, during the term
hereby granted, any mechanic's or other lien or order for payment of work,
labor, services, or materials furnished or to be furnished to attach to or
affect the premises or any portion thereof, and agrees that no such lien or
order shall under any circumstances attach to or affect the fee, leasehold or
other estate of the Landlord herein, or the building. The Tenant's obligation
to keep the premises in repair, and its right to make alterations therein, if
any, shall not be construed as the consent of the Landlord to the furnishing of
any such work, labor or materials within the meaning of any present or future
lien law. Notice is hereby given that the Tenant has no power, authority or
right to do any act or to make any contract which may create, or be the
foundation for, any lien upon the fee or leasehold estate of the Landlord in the
premises or upon the land or buildings of which they are a part or the
improvements now erected or hereafter to be erected upon the premises or the
land or building of which the premises are a part; and if any such mechanic's or
other lien or order shall be filed against the premises or the land or building
of which the premises are a part, the Tenant shall, within thirty (30) days
thereafter, discharge said lien or order by payment, deposit or by bond fixed in
a proper proceeding according to law. If the Tenant shall fail to take such
action, or shall not cause such lien or order to be discharged within thirty
(30) days after the filing thereof, the Landlord may pay the amount of such lien
or discharge the same by deposit or by bond or in any other manner according to
law, and pay any judgment recovered in any action to establish or foreclose such
lien or order, and any amount so paid, together with the expenses incurred by
the Landlord, including all attorneys' fees and disbursements incurred in any
defense of any such action, bonding or other proceeding, shall be deemed
additional rent.
SUBORDINATION: THIRTEENTH: This lease, and all the rights of the Tenant
hereunder, are and shall be subject and subordinate to any and all mortgages now
or hereafter liens either in whole or in part on the building, or the land on
which it stands, and also to any and all other mortgages covering other lands or
lands and buildings, which may now or hereafter be consolidated with any
mortgage or mortgages upon the building and the land on which it stands or which
may be consolidated and spread to cover the building and such land and any such
other lands or lands and buildings, and any extension, renewal or modification
of any such mortgages, and to any and all underlying leases on record, or
hereafter to be recorded, against the building or the land on which it stands,
and any extensions, renewals or modifications thereof. The Tenant hereby
constitutes and irrevocably appoints the Landlord the Tenant's attorney in fact
to execute any instrument or certificate evidencing such subordination for an on
behalf of the Tenant.
CERTIFICATE OF OCCUPANCY: FOURTEENTH: The Tenant shall immediately
discontinue any use of the demised premises, which may, at any time, be claimed
or declared by the City or State of New York or other governmental authority to
be in violation of or contrary to the certificate of occupancy of the building,
or by reason of which any attempt amy be made to penalize the Landlord or
require the Landlord to secure any certificate of occupancy other than the one,
if any, now issued for the building.
VAULTS: FIFTEENTH: Notwithstanding anything herein contained, or shown on
any sketch, plan or schedule hereto attached, to the contrary, if any vault
space forms a part of the premises, or adjoins the same, or any part or portion
of the herein demised premises is not within the property line of the building
or premises, and if the use of the said space shall
10
<PAGE>
hereafter be prevented or curtailed by exercise of any governmental authority,
the Tenant shall have no claim whatever upon the Landlord for the loss of such
space, by any abatement of the rent, or otherwise, and the Landlord's covenant
of quiet enjoyment hereinafter contained, shall not be deemed to apply to any
such space. The Landlord makes no representation as to the location of the
property line of the building. The Tenant shall reimburse the Landlord for the
vault charge or tax, if any, imposed by the City of New York and respect of any
such vault space.
LIQUORS: SIXTEENTH: Neither the Tenant nor any occupant of the premises
or of any part thereof, shall at any time during the continuance of the term,
sell, traffic in, expose for sale, dispense or give away, upon any part of the
premises, any strong or spirituous liquor, wine, ale or beer, or take or have a
license for such sale, except that it is understood that as part of the Tenant's
customer relations in its business, the Tenant may from time to time serve
alcoholic beverages to customers at the premises. No charge will be made for
such dispensation or service. Such service of alcoholic beverages will not be
deemed a default or violation under paragraph SIXTEENTH hereof. In no event
shall Tenant dispense or give away any alcoholic beverages to any employee of
the Landlord.
FIRE AND FIRE INSURANCE: SEVENTEENTH: (a) If the premises shall be
damaged by fire, action of the elements or other casualty or cause which is
within the risks covered by insurance carried by the Landlord, the Tenant shall
give immediate notice thereof to the Landlord, and said damage (unless the same
shall be due to the negligence or other fault of the Tenant or its employees)
shall be repaired by the Landlord, at the Landlord's expense, with all
reasonable speed, making due allowance for delay due to labor troubles,
settlement of loss and other causes beyond the control of the Landlord, and the
Tenant shall, in every reasonable way, facilitate the making of such repairs,
and (unless the fire shall be due to the negligence or other fault of the Tenant
or its employees) the rent shall be suspended during such period as the premises
shall have been rendered wholly untenantable and, in the event that the premises
are rendered partially untenantable, the rent shall be abated during such
period, in the proportion which the area of the premises which is rendered
untenantable bears to the area of the whole premises, but no damage to the
premises or the building by fire, or other cause, however extensive, shall
terminate this lease, or give the Tenant the right to quit and surrender the
premises, or impair any obligations of the Tenant hereunder, except with respect
to the payment of rent (and with respect thereto to the extent above provided)
and except that (i) if the damage shall be so extensive that the Landlord shall
determine to demolish or substantially alter the building, the Landlord may at
any time within sixty (60) days following the occurrence of the damage give to
the Tenant 30 days' notice of intention to terminate this lease; (ii) if the
damage to the premises is substantial so that the whole or substantially the
whole of the premises is rendered untenantable by the Tenant and the Landlord
does not within 60 days following the occurrence of the damage notify the Tenant
of the Landlord's intention to repair the damage to the premises so that the
premises are again useable by the Tenant within a period of not more than 120
days following the occurrence of the damage subject to delays due to causes of
the kinds described in Article THIRTY-FOURTH of this lease, the Tenant may
cancel this lease by notice given within 10 days following the expiration of the
said 60-day period for the Landlord's notice of election to repair; and (iii) in
the event of the occurrence of damage to the premises of the degree described
above in clause (ii) of this paragraph (a), the Landlord may also elect to
terminate this lease by notice of election to do so given within 60 days
following the occurrence of the damage. If notice of election to terminate this
lease shall be given as above provided, then, upon the date for
11
<PAGE>
termination designated in any such notice this lease and the term hereby granted
shall terminate and the rent shall be apportioned as of the date of the damage
or as of such later date as the Tenant may actually surrender possession.
Nothing herein contained shall be deemed to obligate the Landlord to restore the
Tenant's trade fixtures, stocks, furnishings or other property remaining the
property of the Tenant.
(b) The Tenant shall conduct its business and use the premises in such a
manner as shall make and keep the rate of insurance upon the entire building as
low as such rate can be made and kept, and so as not to increase the rate of
insurance applicable to the property of other tenants, and the Tenant shall
install and maintain all its furniture, fixtures, equipment, stocks and
materials in such a manner as to accomplish the foregoing purposes. The Tenant
further agrees not to permit any act to be done or anything brought into or kept
upon the premises which will void or avoid the insurer's liability under any
contract of fire insurance on the building or its contents. Should the fire
insurance rate on the building be increased beyond the present rate, by reason
of the Tenant's occupancy or character of its business, or the Tenant's failure
to comply with the terms hereof, the Tenant agrees to pay to the Landlord, on
demand, the additional cost of such insurance, or, at the option of the
Landlord, the same may be added to any installment of rent and be payable as
additional rent. The schedule of the makeup of a rate issued by an authorized
rating organization shall be conclusive evidence of the facts therein stated and
of the items in the rate applicable to the premises.
(c) The Landlord, as to the premises, and the Tenant, as to the
improvements made therein at the Tenant's expense and all of the Tenant's stock,
trade fixtures and other property in the premises, hereby release one another
from all liability for any loss or damage caused by fire or any of the risks
enumerated in standard extended coverage insurance. This release is conditioned
upon the inclusion in their respective policies of insurance of a provision
stating that such release shall not adversely affect said policies or prejudice
any right of the insured to recover thereunder. The Landlord and Tenant agree
that their respective insurance policies will include the aforesaid provision so
long as the same is obtainable without extra cost or if extra cost be charged,
so long as the party for whose benefit the clause is obtained shall pay such
extra cost. If extra cost shall be chargeable therefor the party so affected
shall advise the other thereof, of the amount of the extra cost and the other
party at its election may pay the same or decline to so pay in which event the
release from liability given to said party by this Article SEVENTEENTH (c) shall
be deemed to be withdrawn and of no force and effect.
CHANGE IN USE OF PREMISES, SUBLETTING AND ASSIGNMENT: See Article
EIGHTEENTH (re-written) on Rider No. 2 attached hereto and made part of this
Lease.
WAIVER AND SURRENDER; REMEDIES CUMULATIVE: NINETEENTH: No consent or
waiver of any provision hereof or acceptance of any surrender shall be implied
from any act or forbearance by the Landlord. No agreement purporting to accept
a surrender of this lease, or to modify, alter, amend or waive any term or
provision thereof, shall have any effect or validity whatever, unless the same
shall be in writing, and executed by the Landlord and by the Tenant, and be duly
delivered, nor shall the delivery of any keys to anyone have any legal effect,
any rule or provision of law to the contrary notwithstanding. Any consent,
waiver or acceptance of surrender, in writing, and properly executed and
delivered as aforesaid, shall be limited to the special instance for which it is
given, and no superintendent or employee, other than an officer of the Landlord
or of its managing agent, and no renting representative shall have any authority
to accept a surrender of the premises, or to make any agreement or modification
of this
12
<PAGE>
lease, or any of the terms and provisions hereof. No provision of any lease
made by the Landlord to any other tenant of the building shall be taken into
consideration in any manner whatever in determining the rights of the Tenant
herein. No payment by the Tenant or receipt by the Landlord of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the stipulated rent, nor shall any endorsement on any check, nor any
letter accompanying any such payment of rent be deemed an accord and
satisfaction (unless an agreement to accept a lesser amount be signed by the
Landlord), but the Landlord may accept such payment without prejudice to the
Landlord's full right to recover the balance of such rent and to institute
summary proceedings therefor. The receipt by the Landlord of any rent, or
additional rent or of any other sum of money which may be payable under this
lease, or of any portion thereof, shall not be deemed a waiver of the right of
the Landlord to enforce the payment of any sum of any kind previously due or
which may thereafter become due under this lease, or of the right to forfeit
this lease by such remedies as may be appropriate, or to terminate this lease or
to exercise any of the rights and remedies reserved to the Landlord hereunder,
and the failure of the Landlord to enforce any covenant or condition (although
the Tenant shall have repeatedly or continuously broken the same without
objection from the Landlord) shall not estop the Landlord at any time from
taking any action with respect to such breach which may be authorized by this
lease, or by law, or from enforcing said covenant or any other covenant or
condition on the occasion of any subsequent breach or default. In the event of
any continuing or threatened breach by the Tenant, the Landlord shall have the
right of injunction. The various rights, remedies, powers and elections of the
Landlord, as provided in this lease or created by law, are cumulative, and none
of them shall be deemed to be exclusive of the others, or of such other rights,
remedies, powers or elections as are now or may hereafter be conferred upon the
Landlord by law.
REPRESENTATIONS AS TO PREMISES, CERTIFICATE OF OCCUPANCY AND USE:
TWENTIETH: The Tenant represents to the Landlord that the Tenant had made, or
caused to be made, a careful inspection of the premises and that the Tenant has
made an examination of the certificate of occupancy of the building and that the
area and present condition of the premises are in all respects satisfactory to
the Tenant, except (if at all) as may herein otherwise be expressly stated in
the memorandum of repairs or decorations to be done by the Landlord attached to
this lease, and that the Tenant has determined that the use of the premises, as
set forth in this lease, is consistent with the uses permitted under the
certificate of occupancy. The Tenant acknowledges that no representations or
promises have been made by the Landlord or the Landlord's agents with respect to
the premises or the building or the certificate of occupancy thereof, except as
in this lease set forth. The statements contained in this lease regarding the
use of the premises by the Tenant shall not be deemed a representation or
warranty by the Landlord that such use is lawful or permitted by the certificate
of occupancy of the building.
LIMITATION OF LANDLORD'S LIABILITY: TWENTY-FIRST: (a) The Tenant shall
make no claim upon the Landlord for abatement of rent, constructive eviction,
recision, or otherwise, and the Landlord shall be exempt from all liability,
except for injuries to the Tenant's person or property which are due to
negligence of the Landlord, its agents, servants or employees in the management
of the premises or the real property of which the demised premises are a part,
for or on account of any annoyance, inconvenience, interference with business,
or other damage, caused by: (i) any interruption, malfunction or curtailment of
the operation of the elevator service, heating plant, sprinkler system, gas,
water, sewer or steam supply, plumbing, machinery, electric equipment or other
appurtenances, facilities, equipment and conveniences in the building, whether
such interruption,
13
<PAGE>
malfunction or curtailment be due to breakdowns, or repairs, or strikes or
inability to obtain electricity, fuel or water due to any such cause or any
other cause beyond the Landlord's control; (ii) any work of repair, alteration
or replacement done by or on behalf of the Landlord or the Tenant, pursuant to
the provisions of this lease; (iii) any water, rain, snow, steam, gas
electricity or other element, which may enter, flow from or into the premises or
any part of the building, or any noise or vibration audible in, or transmitted
to the premises; (iv) any vermin; (v) any falling paint, plaster or cement; (vi)
any interference with light or with other easements or incorporeal
hereditaments; (vii) any latent defect or deterioration in the building or the
appurtenances thereof, whether or not the Landlord shall have been notified of
any condition allegedly causing same; (viii) any zoning ordinance or other acts
of governmental or public authority now or hereafter in force; and (ix) any act
or omission of any other occupant of the building or other person temporarily
therein. The Tenant will not hold the Landlord liable for any loss or theft of,
or damage to, any property in the premises done or caused by employee, servant,
or agent of the Landlord who is invited into the premises by the Tenant, nor for
the loss, damage or theft of any property stored or left in the basement or in
any other part of the building, which is not enclosed within the premises or of
any property, left with any employee of the Landlord, not withstanding such
theft, loss or damage may occur through carelessness or negligence of the
Landlord's employees; and the Tenant agrees that any employee in entering the
premises at the invitation of the Tenant or accepting custody of property shall
be then deemed agent of the Tenant or other person at whose instance he may be
acting, and not agent of the Landlord. Employees are not permitted to receive
or accept packages or property for account of Tenants. Store-rooms or storage
space for personal property (if provided) are provided gratuitously by the
Landlord, and the use of same shall be at the Tenant's risk and the Tenant will
not hold the Landlord liable for any loss of or damage to person or property
therein or thereby. Nothing in this lease contained shall impose any obligation
upon the Landlord with respect to any real property other than the building,
whether said other real property be owned by the Landlord or otherwise, or shall
in any way limit the Landlord's right to build upon or otherwise use said other
real property in such manner as the Landlord may see fit. The Tenant shall make
no claim upon the Landlord for abatement of rent, constructive eviction or
rescission, and the Landlord shall have no liability by reason of the Landlord's
failure to enforce the provisions of the lease to any other tenant against such
other tenant.
(b) Any right and authority reserved by and granted to the Landlord under
this lease, to enter upon and make repairs in the premises shall not be taken as
obligating the Landlord to inspect and to repair the premises and the Landlord
hereby assumes no responsibility or liability for the care, inspection,
maintenance, supervision, alteration or repair of the premises except as herein
specifically provided. The Tenant assumes possession and control of the
premises and exclusively the whole duty of care and repair thereof, except as
herein specifically provided, and the duty of care, if any, owed by the Tenant
to the persons on the sidewalks or in the corridors of the building.
INDEMNITY BY LANDLORD: TWENTY-SECOND: The Tenant hereby indemnifies and
agrees forever to save harmless the Landlord against any and all liabilities,
penalties, claims, damages, expenses (including attorneys' and counsel fees) or
judgments, arising from injury to person or property of any kind, occasioned
wholly or in part by the Tenant's failure to perform or abide by any of the
covenants of this lease or occasioned wholly or in part by any act or acts,
omission or omissions of the Tenant, or of the employees, customers, agents,
assigns or under-tenants of the Tenant, or based on any matter or thing
14
<PAGE>
growing out of the Tenant's use or occupation of the premises or any part of the
building.
NOTICES: TWENTY-THIRD: Any notice which is to be given by either party to
the other pursuant to this lease shall be in writing and shall be given as
follows: (a) if such notice is to be given by the Landlord to the Tenant, such
notice may be given personally or by registered mail in the following manner:
(i) notice may be given personally, by delivering the same to the Tenant or, if
the Tenant be a corporation or partnership, to any officer of such corporation
or member of the partnership, at the premises or at any other place; or (ii)
notice may also be given personally at the premises by delivering the same to
the Tenant or any officer or partner of the Tenant; or (iii) notice may be also
given by registered or certified mail, by depositing the notice, enclosed in an
envelope addressed to the Tenant at its address given in this lease or at the
premises, in any United States Post Office, postage and registry or
certification fees prepaid; (b) if such notice is to be given by the Tenant to
the Landlord, the notice shall be given by registered or certified mail, by
depositing the notice, enclosed in an envelope, addressed to the Landlord at 74
Trinity Place, New York, N.Y., or at such other place as the Landlord shall
hereafter designate in writing, in any United States Post Office, postage and
registry or certification fees prepaid. Any notice shall be deemed to have been
given on the date when the same is delivered as above provided or, if given by
mail, on the date when it is deposited as above provided in the United States
Post Office.
INSOLVENCY: TWENTY-FOURTH: If, at any time after the execution and
delivery of this lease, the Tenant shall be adjudicated a bankrupt, or if the
Tenant shall make any assignment for the benefit of creditors, or attempt to
take the benefit of any insolvency law, or if a petition or answer to reorganize
the Tenant shall be approved by any court or judge, or if a petition or answer
for a composition or extension shall be filed by the Tenant, or if a receiver or
trustee shall be appointed for the Tenant's property, or if the Tenant's
interest in this lease shall be attached or levied upon or shall evolve upon or
pass any party other than the Tenant (whether such event occurs prior or
subsequent to the commencement of the term or Tenant's entry into possession)
such event shall be conclusively deemed a default hereunder, and the Landlord
shall have the right to terminate this lease in the manner hereinafter provided,
as if such event were a breach by the Tenant of one of the covenants of this
lease. In the event of such termination, the Tenant or any person claiming
under, by or through the Tenant, by virtue of any statute or of an order of any
court, shall not be entitled to possession or to remain in possession of the
demised premises but shall forthwith quit and surrender same. Exclusive of and
in addition to any other rights or remedies the Landlord may have through any
other portion or provision of this lease or by virtue of any rule of law or
statute, said Landlord may keep and retain, as liquidated damages, any rent,
security, deposit or other moneys or consideration received by the Landlord from
the Tenant, or others on behalf of the Tenant. Also, in the event of
termination of this lease as aforesaid, the Landlord shall be entitled, as and
for liquidated damages from the Tenant for breach of the unexpired term of this
lease, to an amount equal to the difference between the rental value of the
remainder of the term at the time of termination and the actual rent reserved,
both discounted to present worth at the rate of four per cent (4%) per annum.
If at any time within a reasonable period following the date of the termination
of the lease, as aforesaid, the premises should be re-rented by the Landlord,
the rent realized by any re-letting shall be deemed prima facie to be the rental
value. In the event of the occurrence of any of the above-mentioned events of
default occasioned solely through the invocation by the Tenant or by third
paries of the laws of the State of New York, judicial or statutory, as
distinguished from the invocation of Federal laws relating to bankruptcy,
15
<PAGE>
reorganization, or otherwise, the Landlord, in addition to the foregoing, may
accelerate the full amount of rent reserved for the remainder of the lease, and
the same shall forthwith become due and payable to the Landlord. Nothing herein
provided shall be deemed to prevent or restrict the Landlord from proving and
receiving as liquidated damages herein the maximum permitted by any rule of law
or statute prevailing when such damages are to be proved, whether they be
greater or less than those referred to above.
REMEDIES OF THE LANDLORD ON DEFAULT PERFORMANCE BY THE LANDLORD: TWENTY-
FIFTH: (a) If the Tenant shall default in the full and due performance of any
covenant of the lease, the Landlord shall have the right, upon fifteen (15)
days' notice to the Tenant (unless a shorter period of notice or provision for
the performance of such work without notice is elsewhere established), to
perform the same for the account of the Tenant, and in such event all workmen
employed by the Landlord shall be deemed the agents of the Tenant, and any
reasonable payment made, and expense incurred, by the Landlord in this
connection, shall forthwith become due and payable by the Tenant to the
Landlord. If the Landlord is compelled to incur any expenses, including
reasonable attorneys' fees in instituting, prosecuting or defending any action
or proceeding instituted by reason of any default of the Tenant hereunder, the
sum or sums so paid by the Landlord with all interest, costs and damages, shall
be deemed immediately due to the Landlord upon demand. Any and all sums payable
by the Tenant to the Landlord shall bear interest at the rate of six per centum
(6%) per annum from the due date to the date of actual payment, and any and all
such sums (except the rent hereinabove expressly reserved) shall be deemed to be
additional rent for the period prior to such due date, and the Landlord shall
have the remedies for default in the payment of such additional rent as for
default in the payment of the rent expressly reserved.
PERFORMANCE BY THE LANDLORD NOT AN EXCLUSIVE REMEDY: (b) In the event that
under the provisions of this lease the Landlord shall have the privilege of
performing any covenant in respect of which the Tenant may be in default and of
recovering the expenses so involved from the Tenant as additional rent or
otherwise, such remedy shall not be the exclusive remedy of the Landlord but the
Landlord may, at its option, treat such default as a breach of substantial
obligation of this lease and shall have all the other remedies in respect
thereof provided in this or any other Article of this lease.
DISPOSSESS TERMINATION OF LEASE: (c) If the Tenant shall violate or
default in the full and due performance of any covenant, provision or condition
of this lease (other than the covenant to pay the rent or any additional rent),
or any covenant, provision or condition of any other lease under which the
Tenant is a tenant in the building, or if any of the events specified in the
Article of this lease numbered Twenty-fourth and headed "Insolvency" shall
occur, or if the conduct of the Tenant or any occupant of the premises shall
reasonably be deemed objectionable by the Landlord or the Landlord's managing
agent, the Landlord will give to the Tenant five days' notice of such violation,
default or misconduct. In the event that (i) the Tenant shall default in the
payment of the rent or of any additional rent, or (ii) if the premises shall be
vacated, abandoned or deserted, or (iii) in the event that the Tenant, after
notice thereof as above provided, shall fail to stop any violation or fully cure
or remedy any default or terminate any misconduct under this lease (or in the
event that the default is of a nature such that the steps required to cure or
remedy the same fully cannot reasonably be completed within five days, then if
the Tenant shall not have commenced and have diligently and continuously
prosecuted the steps necessary to cure or remedy such default) the Landlord may
give to the Tenant ten (10) days' notice of its intention to terminate this
lease, and, in such
16
<PAGE>
event, on the tenth day following the giving such notice this lease and the term
hereby granted shall terminate and expire as fully and completely as if that day
were the date herein expressly fixed for the expiration of the term, and the
Tenant shall thereupon quit and surrender the premises into the possession of
the Landlord, but the Tenant shall nevertheless remain liable for deficiency in
future rent and for any other defaults hereunder, as hereinafter provided. If
the Tenant shall default in the payment of the rent, or any additional rent
herein mentioned, or of any part of either, or if this lease shall be terminated
by the notice last above provided for, the Landlord may immediately, or at any
time thereafter, re-enter the premises and remove all persons and property
therefrom, either by summary dispossess proceedings, or by any suitable action
or proceeding at law, or by force, or otherwise, without being liable to
indictment, prosecution or damages therefor, and re-possess and enjoy the
premises, together with all additions, alterations, installations and
improvements, and no entry by the Landlord shall be deemed an acceptance of
surrender. Upon any such re-entry, the Landlord may re-let the premises or any
part or parts thereof, and for such term or terms as to the Landlord may seem
wise, even though the same extend beyond the date herein expressly fixed for the
expiration of the term. Any such re-letting shall, at the Landlord's option, be
either for the Landlord's own account, or as the agent for the Tenant. If the
Landlord shall re-let as the agent of the Tenant, the Landlord shall receive the
rents and apply the same, first, to the payment of all expenses which the
Landlord shall have incurred by reason of the Tenant's default and in connection
with such re-entry and re-letting, including, but not by way of limitation,
legal expenses, brokers' commissions, and the cost of reasonable repairs, re-
decoration and alterations, and, secondly to the fulfillment of the covenants of
the Tenant herein contained, and the surplus, if any, existing at the date
herein expressly fixed for the expiration of the term, shall be paid to the
Tenant, but the Tenant shall be entitled to no such payment until said date. So
long as the premises, or any part thereof, shall not be re-let, or shall be re-
let by the Landlord as the agent of the Tenant, the Tenant shall remain liable
for the full and due performance of all the covenants of this lease, and the
Tenant hereby agrees to pay to the Landlord, as damages for any default
hereunder, until the date herein expressly fixed for the expiration of the term,
the equivalent of the amount of all the rent and additional rent reserved
herein, less the net avails of re-letting, as hereinbefore defined, if any, and
the same shall be due and payable by the Tenant to the Landlord on the several
rent days above specified, that is, upon each of the said rent days the Tenant
shall pay to the Landlord the amount of deficiency then existing, and shall not
be entitled to withhold any such payment until the date herein expressly fixed
for the expiration of the term. The liability of the Tenant shall survive the
issuance of a final order and warrant of dispossess, and re-entry by the
Landlord, and any other termination of this lease for default of the Tenant, and
the granting by the Landlord of a new lease of the premises to another tenant,
and the Tenant hereby waives any defense which might be predicated upon any of
said acts or events.
The Tenant hereby expressly waives (i) any and all right to regain
possession of said premises or to reinstate redeem this lease as provided by the
Real Property Actions & Proceedings Law, (and as said law may be amended) or any
such right which is or may be given by any other statute, law or decision now or
hereafter in force; (ii) the service of any notice demanding rent or stating an
intention to re-enter; or any similar right which is or may be given by any
statute, law or decision now or hereafter in force; (iii) any and all rights of
redemption and all other rights to regain possession or to reinstate this lease
(in case the Tenant shall be dispossessed or ejected by, or pursuant to
judgment, order, execution or warrant of any court or judge). Except as
provided in Section 259-c of
17
<PAGE>
the Real Property Law with respect to an action for personal injury or property
damage between the parties hereto, the Tenant waives and will waive all right to
trial by jury in any summary proceedings and in any other proceeding or action
at law hereafter instituted by the Landlord against the Tenant in respect of
this lease, and also in any action or proceeding between the parties hereto for
any cause; and it is hereby agreed, that in any of such events, the manner in
dispute shall be tried before a judge without a jury. In the event the Landlord
shall commence any action or summary proceeding for non-payment of rent or other
breach of covenant or condition, the Tenant hereby agrees not to interpose any
counter-claim of whatever nature or description in any such action or
proceeding. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning.
SURRENDER AT EXPIRATION: TWENTY-SIXTH: Upon the expiration or any
termination of the term of this lease, the Tenant shall quit and surrender the
demised premises, together with any fixtures, equipment or appurtenances
installed in the premises at the commencement of this lease, and any
alterations, decorations, additions and improvements which are not to be removed
in compliance with the provisions of Article Fourth hereof, to the Landlord, in
good order and condition, ordinary wear excepted. The Tenant shall remove all
its furnishings, trade fixtures, stock in trade and like personal property in
accord with the requirements of Article Fourth, so as to leave the premises
broom-clean and in an orderly condition. If the last day of the term of this
lease falls on Sunday, this lease shall expire on the business day immediately
preceding. The Tenant's obligation to observe and perform this covenant shall
survive the expiration or other termination of the term of this lease.
QUIET ENJOYMENT: TWENTY-SEVENTH: The Landlord covenants that, if the
Tenant shall duly keep and perform all the terms and conditions hereof, the
Tenant shall peaceably and quietly have, hold and enjoy the premises for the
term aforesaid, subject however to ground leases, underlying leases and
mortgages as hereinbefore described, and to the lien, rights and estate by
virtue of unpaid taxes of any government having jurisdiction of the premises of
which the herein demised premises are a part. If the Landlord shall hereafter
sell, exchange or lease the entire building or the land and building wherein the
premises are located, subject to this lease, or, being the lessee thereof, shall
assign its lease, the grantee, lessee, or assignee thereof, as the case may be,
shall, without further agreement by any party, be conclusively deemed to be the
Landlord of this lease and to have assumed and undertaken to carry out all of
the obligations hereof on the part of the Landlord to be performed, and the
Tenant does hereby release the above-named Landlord from any claim or liability
arising or accruing hereunder subsequent to such transfer of ownership or
possession, for breach of the covenant of quiet enjoyment, or otherwise.
TENANT'S DEPOSIT: TWENTY-EIGHTH: The Tenant has deposited with the
Landlord the sum of Eighteen Thousand One Hundred Sixty Six and 66/100 Dollars
($18,166.66) ($10,502.25 of this amount is on hand from Tenant's previous Lease
No. 3408 dated January 24, 1994) to secure the faithful performance by the
Tenant of all the terms, conditions, covenants and agreements of this lease, and
to make good to the Landlord any damage which it may sustain by reason of any
act or omission of the Tenant. The Landlord shall segregate the said security
deposit as a trust fund not to be mingled with other funds of the Landlord, and
if, during the term of this lease, the Landlord shall sell, exchange or lease
the entire building, subject to this lease, or, being the lessee thereof, shall
assign its lease, the Landlord shall have the right to pay or transfer the said
deposit to such grantee, lessee, or assignee, as the case may be, and, in such
event, the Landlord shall be released from all responsibility and
18
<PAGE>
liability in connection therewith, and the Tenant will look solely to said
grantee, lessee, or assignee for its return. If the aforesaid security deposit
shall be deposited with a bank or trust company, savings bank or savings and
loan association, the Landlord shall advise the Tenant of the name and address
thereof. The Tenant shall not be entitled to the payment of any interest on the
aforesaid security deposit unless earned and any interest earned upon such
deposit less the amount equal to 1% of the deposit, to which the Landlord shall
be entitled as administration expense shall be added to the amount of the
deposit. The Tenant's interest in said deposit shall not be assigned or
encumbered without the written consent of the Landlord, and within thirty (30)
days after the expiration of the term, the amount of said deposit shall be
repaid to the Tenant, less any proper charges against the same, as hereinabove
or hereinafter provided. If the Tenant shall at any time be in default with
respect to any payment of rent or of additional rent or of any other payment due
from the Tenant to the Landlord under this lease, of the Landlord shall be
damaged by any act or omission of the Tenant the Landlord may, at its option,
apply such portion of said deposit as may be adequate to cure such default or to
make good such damaged, including, but not by way of limitation, interest,
costs, fees and other expenses, paid or incurred by the Landlord, and thereafter
such portion so applied shall be free from any claim by the Tenant for its
return. If the Landlord shall re-enter, pursuant to the provisions of this
lease (other than in the event of insolvency in which event the provisions of
Article Twenty-fourth of the lease shall apply, and shall re-let the premises
for its own account, the entire said deposit shall immediately be and become the
absolute property of the Landlord, as fixed, liquidated and agreed damages, and
not as a penalty, it being impossible in such event to ascertain the exact
amount of the damage which the Landlord may thus sustain, but unless the
Landlord shall so re-let the premises for its own account, the Landlord shall
continue to hold the said deposit, as security for the performance of the
Tenant's obligations, until the date herein expressly fixed for the expiration
of the term, and apply the same from time to time to the unpaid obligations of
the Tenant, under the same terms and conditions as if the said lease were still
in full force and effect. No termination of this lease or re-entry by the
Landlord for default of the Tenant shall entitle the Tenant to the return of any
part of said deposit, not shall the retention of such deposit, after such re-
entry, impair or otherwise affect the Tenant's liability to the Landlord during
the balance of the term originally provided for. If, at any time, the said
deposit shall be diminished, by reason of the Landlord's having applied any part
thereof in accordance with the provisions of this paragraph, the Tenant shall
pay over to the Landlord upon demand, the equivalent of such decrease, to be
added to said deposit and to be held and applied in accordance with the
provisions of this paragraph. Provided that the Tenant shall not be in default
as of July 1, 1996, Landlord shall return to Tenant $9,083.33 of the security
deposit.
ELEVATORS, HEAT: TWENTY-NINTH: (a) Except on Saturdays and Sundays, and
on holidays recognized as legal holidays by State or Federal Government, the
Landlord shall furnish, between the hours of eight a.m. and six p.m., elevator
service with the elevators now in the building, and sufficient heat during the
cold season to heat the premises. If the building is equipped with any
automatic elevators then the Landlord shall have one such elevator in service
and available for the Tenant's use at all other times. The Landlord may suspend
service, if it should become necessary or proper so to do, at any time. The
Landlord shall restore such service within a reasonable time, making due
allowance for labor troubles, acts of God, or any cause beyond the Landlord's
control. Should the Tenant be in default in the payment of any rent hereunder,
the Landlord may, upon not less than three days notice, and without diminution
of the liability of the Tenant hereunder, and without constituting an eviction,
constructive or otherwise, suspend or
19
<PAGE>
refuse the Tenant freight and passenger elevator service and should the Tenant,
after notice, violate the provisions of Rule 14, the Landlord may, without any
diminution of such liability or constituting such eviction, suspend or refuse
the Tenant freight elevator service until the conditions in violation or Rule 14
have been fully remedied.
(b) The Landlord shall be entitled to refuse to furnish passenger or
freight elevator service in connection with any sale at auction of the Tenant's
fixtures, machinery, stock in trade and other property or a sale in any other
manner of all or substantially all of such property unless the Landlord shall
have been given not less than two days' notice of the intention to hold the
auction or other sale and unless the Landlord shall be given an undertaking by a
person, firm or corporation of satisfactory financial resources wherein the
Landlord shall be indemnified against (i) all expense incurred by the Landlord
in connection with the removal by purchasers of any property sold to them at the
auction or other sale, (ii) all expense for removal or storage of any property
sold at the auction or other sale which is not removed by the purchaser within
two days following the sale, and (iii) all expenses which the Landlord may incur
for the removal of property not sold and waste and rubbish from the premises.
[SEE ARTICLE FORTIETH ON RIDER NO. 2 ATTACHED HERETO AND MADE PART OF THIS
LEASE.]
WATER AND SEWER RENTS: THIRTIETH: (a) The Tenant shall pay for all hot
and cold water used on the premises and the Tenant's proportionate share of the
cost of such water used for lavatory purposes in any lavatories used by the
Tenant in common with other tenants at the Landlord's standard rates. In the
event that the Tenant shall use water for any industrial purpose or any purpose
other than usual lavatory purposes, the Tenant shall, at its own expense,
install a meter or meters for the measurement of the quantity of water this
consumed and keep the same in good working order. With respect to water used
for lavatory purposes, whether on the premises or in lavatories used by the
Tenant in common with other tenants, if the quantity of water so used is
measured by a meter which measures the consumption of water by other tenants,
the Tenant shall pay its proportionate share of all water so consumed. Such
proportionate part shall be fixed in accord with the number of persons occupying
the premises and the number of persons occupying all premises using water which
is measured by such meter. In the event that there shall be a separate meter
which measures the use of water by the Tenant for lavatory purposes, the Tenant
will pay for the water so shown to have been used and the cost of maintenance of
such meter. All payments for water shall be due when billed to the Tenant. In
the event that the Tenant defaults in the payment for any water, the amount not
paid shall forthwith be payable as additional rent ant the Landlord may also,
without incurring any liability or disability thereby or constituting a
constructive eviction, discontinue the Tenant's supply of water. The Landlord
is not under obligation to supply hot water and, if hot water is supplied, the
Landlord may at any time without notice discontinue such supply without
constituting an eviction or without incurring any liability or disability
therefor.
(b) The Tenant shall pay the New York City sewer rents apportioned to the
Tenant's consumption of water at the premises. The apportionment of the sewer
rent to the premises shall be made in accord with the measurement or
apportionment of water consumed at the premises as in this lease hereinbefore
provided. The sewer rents shall be billed with the water charges and the
Landlord shall have the same remedies for the collection thereof provided in the
case of the charges for water.
SPRINKLER MAINTENANCE: THIRTY-FIRST: The Tenant shall pay to the Landlord
the Tenant's proportionate share of the cost of maintenance, operation and
rental of the automatic fire alarm supervisory service and manual alarm and
sprinkler system now
20
<PAGE>
installed in the building and the premises. The Tenant's proportionate share of
such cost shall be the fraction of the annual expenditures of the Landlord for
such purposes, of which the numerator is the area of the premises and the
denominator is the rentable area of the entire building. The amount so payable
by the Tenant shall be due when bills therefor are rendered by the Landlord to
the Tenant, and in the event of the default in the payment thereof, the Landlord
may add the amount of any such bill to any succeeding installment of rent and
the same shall be collectible as additional rent.
INSURANCE: THIRTY-SECOND: The Tenant shall, during the demised term,
provide and keep in force public liability insurance, written by insurance
companies approved by the Landlord, covering the Tenant, which shall be in the
limit of at least $500,000 for claims arising from injury to any one person and
(subject to said limit for each individual) with a limit of at least $1,000,000
for total claims arising from any one casualty.
The Tenant shall furnish the Landlord within five (5) days after the
commencement of the term hereof, with a certificate of such insurance, which
certificate shall provide, that in the event of any change or cancellation of
the policy, advance notice thereof will be given to the Landlord. Upon failure
at any time on the part of the Tenant to obtain or keep in force the insurance
required by this paragraph, or to pay the premiums thereof, in addition to the
rights and remedies provided in paragraph Twenty-fifth hereof, the Landlord
shall be at liberty from time to time, and as often as such failure shall occur,
to pay premiums therefor and any and all sums so paid for insurance by the
Landlord shall be and become, and are hereby declared to be, additional rent
under this lease due and payable on the next rent day or any successive rent
day.
DEFAULT UNDER OTHER LEASES: THIRTY-THIRD: (a) If the Tenant, before the
commencement of the term herein granted, shall default in any covenant of any
other lease with the Landlord, then at the option of the Landlord this lease
shall not go into effect and the Tenant shall have no right to possession of the
premises; and the Tenant agrees to reimburse the Landlord upon demand for any
expense or loss that may be suffered due to the Tenant's default.
(b) In the event that during the term herein granted the Tenant shall
default in the performance of the covenants of any other lease with the Landlord
such default shall be deemed a default under the terms of this lease and the
Landlord shall have the remedies herein provided for in the event of a default
under this lease.
WORK TO BE DONE BY LANDLORD: THIRTY-FOURTH: If work of any nature is
agreed herein to be done by the Landlord, the Tenant agrees that it may be done
after the commencement of the term of this lease and that no rebate of rent or
allowance will be granted therefor. The Landlord shall not be required to
furnish any work or materials to the premises, except as expressly provided in
the memorandum of repairs or decorations to be done by the Landlord attached to
this lease. In the case the Landlord is prevented from making any repairs,
improvements, decorations or alterations, installing any fixtures or articles of
equipment, furnishing any services or performing any other covenant herein
contained to be performed on the Landlord's part, due to the Landlord's
inability to obtain, or difficulty in obtaining, labor or materials necessary
therefor, or due to any governmental rules and regulations relating to the
priority of national defense requirements, or due to labor troubles, or due to
any other cause beyond the Landlord's control, the Landlord shall not be liable
to the Tenant for damages resulting therefrom, nor except as expressly otherwise
provided in Article Seventeenth hereof (in respect of damage to the premises due
to
21
<PAGE>
fire), shall the Tenant be entitled to any abatement or reduction of Rent by
reason thereof, nor shall the same give rise to a claim in the Tenant's favor
that such failure constitutes actual or constructive, total or partial, eviction
from the premises.
TRADING WITH THE ENEMY: THIRTY-FIFTH: The Tenant represents and warrants
that the Tenant is not disqualified under the Trading with the Enemy Act or any
other similar legislation or under the rules and regulations of any governmental
department or authority, from acquiring, owning and holding any interest in real
property. The breach by the Tenant of this condition shall be deemed a default
within the meaning of Article Twenty-fifth of this lease.
MARGINAL NOTES: THIRTY-SIXTH: The marginal headings or titles of the
various Articles or paragraphs of this lease are for reference and index
purposes only, and none of them shall be taken into consideration or given any
effect whatever in determining the meaning or scope of the provisions to which
any of them apply. The use of any pronoun referring to either of the parties to
this lease shall be construed to include any or no gender and any number.
22
<PAGE>
Rider No. 1 attached to, and made part of, Lease dated November 3,
1995, between THE RECTOR, CHURCH-WARDENS AND VESTRYMEN OF TRINITY
CHURCH IN THE CITY OF NEW YORK, as Landlord, and DELIA'S LLC, as
Tenant.
- --------------------------------------------------------------------------------
CPI ESCALATION: THIRTY-SEVENTH: (a) Real Estate Tax and CPI
Escalation. In order (i) to adjust, during the term of this lease, for
increases in the expenses of the Landlord for Real Estate Taxes, the Tenant
shall pay to the Landlord, as additional rent, the Tenant's Proportionate Share
of any increases in such Real Estate Taxes, and (ii) to adjust for increases in
other operating expenses of the Landlord, the Tenant shall pay to the Landlord,
as additional rent, the CPI Adjustments for Increases in Other Operating
Expenses, namely the amount by which the Base Rent Allocated to Other Operating
Expenses is increased by application to the Base Rent Allocated to Other
Operating Expenses of increases in the Index over the Base Index, all as
computed as set forth below in this Article.
(b) DEFINITIONS. As used in this Article the following capitalized
words or expressions shall have the meanings ascribed to them below:
1. "REAL ESTATE TAXES" shall mean and include the expenditures of
the Landlord for taxes as assessments payable by the Landlord upon or with
respect to the building and the land upon which it is located, imposed by
Federal, State or local government (plus all expenditures for fees and expenses
incurred in the course of obtaining a reduction in any tentative assessed
valuation), and all taxes imposed by any such authority relating to the
maintenance and operation of the building, but shall not include income,
franchise, inheritance or capital stock taxes.
2. "BASE RENT ALLOCATED TO OTHER OPERATING EXPENSES" shall mean an
amount equal to 75% of the fixed annual rent prescribed on page 1 of this lease,
as such rent may be payable from time to time.
3. "INCREASE IN REAL ESTATE TAXES" shall mean the amount by which
Real Estate Taxes in any Subsequent Year, exceed Real Estate Taxes for the Base
Year.
4. "CPI ADJUSTMENT OF INCREASES IN OTHER OPERATING EXPENSES" shall
mean the amount obtained by multiplying the Base Rent Allocated to Other
Operating Expenses by the percentage by which the Index, at last published on
the date next prior to the Computation Date and the Index as last published on
the date next prior to each anniversary date of the Computation Date, shall
exceed the Base Index.
5. "INDEX" shall mean the "Consumer Price Index for all Urban
Consumers" "(1982/84 = 100)" specified for "All Items," relating to New York
City and published by the Bureau of Labor Statistics of the United States
Department of Labor. In the event the Index shall hereafter be converted to a
different standard reference base or otherwise revised, the determination of the
CPI Adjustment for Increases in Other Operating Expenses shall be made on the
basis of such conversion factor, formula or table for converting the Index as
may be published by the Bureau of Labor Statistics, or, if said Bureau shall not
publish the same, then with the use of such conversion factor, formula or table
as may be published by Prentice-Hall, Inc., or, failing such publication, by any
other nationally recognized publisher of similar statistical information. In
the event either Index shall cease to be published, then, for the purposes of
this Article, there shall be substituted for the Index such other index as
Landlord and Tenant shall agree upon, and, if they are unable
23
<PAGE>
within ninety (90) days after the Index ceases to be published, such matter
shall be determined in New York City by arbitration in accordance with the Rules
of the American Arbitration Association.
6. "BASE INDEX" shall mean the Index as last published prior to
April 1, 1995.
7. "CPI COMPARATIVE STATEMENT" shall mean a statement, in writing,
signed by the Landlord, or, on its behalf, by an officer of any corporation
acting as its managing agent, showing (i) a comparison of (a) Real Estate Taxes
for the Base Year with (b) Projected Real Estate Taxes for a Subsequent Year
(which shall be the same calendar year as the year of the Computation Date used
in such CPI Adjustment for Increases in Other Operating Expenses for such
Subsequent Year, and (iii) if the Tenant paid additional rent pursuant to this
Article with respect to the immediate preceding Subsequent Year, any adjustment
necessitated by a variance between the Projected Real Estate Taxes for such
Subsequent Year (as shown in the last previous CPI Comparative Statement) and
the actual Real Estate Taxes for such Subsequent Year (as shown in the current
CPI Comparative Statement).
8. "BASE YEAR" shall mean the real estate tax year 1995-1996.
9. "SUBSEQUENT YEAR" shall mean any calendar year following the Base
Year, falling wholly or partly within the term of the Tenant under this lease
and the calendar year following the year in which the term of the lease
terminates.
10. "COMPUTATION DATE" shall mean the first day of May, 1996, and, in
Subsequent Years, its anniversary date.
11. "PROJECTED REAL ESTATE TAXES" shall mean the Landlord's estimate
(which in any event must be reasonable in the light of past experience) of Real
Estate Taxes for a particular Subsequent Year.
12. "TENANT'S PROPORTIONATE SHARE" shall mean a fraction, of which
the numerator shall be the number of Rentable Square Feet of Area of the
premises occupied by the Tenant and the denominator shall be 90% of the total
number of Rentable Square Feet of Area in the entire building. The
Proportionate Share for the purpose of this lease is .0.065.
13. "RENTABLE SQUARE FEET OF AREA" shall mean, as to basement and
ground floor space, the number of net square feet of the area thereof and, as to
all floors above the ground floor, shall mean the number of gross square feet of
the area thereof.
The terms "INCREASES IN OTHER OPERATING EXPENSES" and "OPERATING
EXPENSE COMPARATIVE STATEMENT" shall have the meanings assigned to such terms in
paragraph (b) of Article THIRTY-EIGHTH.
(C) STATEMENTS FOR THE TENANT. On or before June 1, 1996, and on or
before that day in each Subsequent Year, the Landlord will furnish a CPI
Comparative Statement to the Tenant. The failure of the Landlord to furnish a
CPI Comparative Statement shall be without prejudice to the right of the
Landlord to furnish a CPI Comparative Statement at any time in the future.
Every CPI Comparative Statement furnished by the Landlord pursuant to
this Article shall be conclusive and binding upon the Tenant unless (i) within
thirty days after the receipt of such CPI Comparative Statement Tenant shall
notify Landlord that it disputes the correctness thereof, specifying the
particular respects in which the CPI Comparative Statement is claimed to be
incorrect, and (ii) if such dispute shall not have been settled by agreement,
the dispute shall have been submitted
24
<PAGE>
to arbitration within ninety days after receipt of the CPI Comparative
Statement. Pending the determination of such dispute by agreement of
arbitration as aforesaid, Tenant shall pay additional rent in accordance with
the CPI Comparative Statement and such payment shall be without prejudice to
Tenant's position and to the Tenant's rights to a refund of any overpayment. If
the dispute shall be determined in Tenant's favor, Landlord shall forthwith pay
Tenant the amount of Tenant's overpayment of additional rent resulting from
compliance with the CPI Comparative Statement.
(D) COMPUTATION OF INCREASE IN RENT PAYABLE BY THE TENANT. When the
Landlord shall furnish the Tenant with any CPI Comparative Statement in
accordance with this Article which shall show an Increase in Projected Real
Estate Taxes or a CPI Adjustment for Increases in Other Operating Expenses, then
the rent payable under the lease shall be increased by the Tenant's
Proportionate Share of the increase in Projected Real Estate Taxes and by the
CPI Adjustment for Increases in Other Operating Expenses which shall be payable
(with payment on account of such increases) as follows: (1) on the first day
for the payment of rent under this lease following the receipt of a CPI
Comparative Statement, the Tenant shall pay to the Landlord a sum equal to one-
twelfth of the Tenant's Proportionate Share of the increase in Projected Real
Estate Taxes plus one-twelfth of the CPI Adjustment for Increases in Other
Operating Expenses (plus or minus, as the case may be any adjustment
necessitated by a variance between (x) the Projected Real Estate Taxes for the
calendar year prior to the year of the Computation Date used in such CPI
Comparative Statement and (y) the actual Real Estate Taxes for such calendar
year) and (2) thereafter, until a different CPI Comparative Statement or
Operating Expense Comparative Statement shall be submitted, the monthly
installments of rent payable under this lease shall continue to be increased by
such amount.
With respect to any CPI Comparative Statement furnished to the Tenant
in the Subsequent Year following the year in which the term of this lease
terminates, if such CPI Comparative Statement shall indicate an adjustment
necessitated by a variance between (x) the Project Real Estate Taxes for the
calendar year prior to the year of the Computation Date used in such CPI
Comparative Statement (i.e., the last calendar year of the lease term) and (y)
the actual Real Estate Taxes for such calendar year, then the Tenant shall
promptly pay to the Landlord, or the Landlord promptly shall pay to the Tenant,
as the case may be, the amount of such adjustment as indicated in such CPI
Comparative Statement.
(E) INSPECTION OF BOOKS. The Tenant or its authorized representative
shall have a right to examine the books of the Landlord showing the Real Estate
Taxes with respect to the building during regular business hours for the
purposes of verifying the information set forth in any CPI Comparative Statement
relating to any Increase in Real Estate Taxes shown in such CPI Comparative
Statement; provided that a written request for such inspection is made by the
Tenant within ten days of the receipt of any such CPI Comparative Statement.
(F) DECREASES IN REAL ESTATE TAXES OR INDEX. In no event shall any
decrease in the Real Estate Taxes or the Index in any way reduce the fixed rent
or additional rent payable by the Tenant under this lease, except to the extent
to which any such decrease shall result in a decrease in the additional rent
payable pursuant to this Article; provided however that no decrease in Real
Estate Taxes shall in any way reduce any additional rent payable on account of
any CPI Adjustment for Increases in Other Operating Expenses, and that no
decrease in the amount of the CPI Adjustment for Increases in Other Operating
Expenses shall in any way reduce any additional rent payable on account of any
Increase in Real Estate Taxes.
25
<PAGE>
RIDER NO. 2
-----------
attached to and made part of Lease, dated November 3, 1995 between THE
RECTOR, CHURCH-WARDENS AND VESTRYMEN OF TRINITY CHURCH IN THE CITY OF
NEW YORK, as Landlord and DELIA'S LLC, as Tenant.
- --------------------------------------------------------------------------------
EIGHTEENTH (re-written): (a) The use to be made of the premises by the Tenant
and the identity of the Tenant being among the inducements to the making of this
lease by the Landlord, the Tenant shall not, except in accordance with the terms
of this Article, (i) use or permit the premises or any part thereof to be used
for any purposes other than those specified in the lease, (ii) sublet or
underlet the premises or any part thereof, (iii) permit the premises or any part
thereof to be occupied by anyone other than the Tenant or its officers or
employees, (iv) mortgage or encumber this lease or any interest therein, (v)
assign or transfer, by operation of law or otherwise, this lease or any interest
therein.
(b) The Tenant shall not, without having first obtained the Landlord's
prior written consent thereto, (i) use or permit the premises or any part
thereof to be used for any purposes other than those specified in the lease, or
(ii) mortgage or encumber this lease or any interest therein.
(c) The Tenant shall not, except in accordance with the provisions of
paragraphs (d) through (l) of this Article, (i) assign or transfer, by operation
of law or otherwise, this lease or any part therein, (ii) sublet or underlet the
premises or any part thereof, or (iii) permit the premises or any part thereof
to be occupied by anyone other than the Tenant or its officers or employees.
(d) If the Tenant shall desire to assign this lease or to sublet the
whole or any part of the premises or to permit the premises to be occupied by
any person other than the Tenant, the Tenant will notify the Landlord as to (i)
the action which the Tenant proposes; (ii) the portion of the premises with
respect to which the Tenant proposes to take such action (the "Affected
26
<PAGE>
Premises"); (iii) the name and business address of the proposed assignee,
sublessee or occupant (the "Proposed Undertenant"); (iv) the name and residence
address of the officers and principal stockholders of the Proposed Undertenant,
if a corporation is involved or the names and residence addresses of the
partners thereof if a partnership or joint venture is involved; (v) the
information, in reasonable detail, as to the Proposed Undertenant which is
required to permit the Landlord to make the determinations described in
paragraph (h) below; (vi) the terms upon which the Tenant proposes to assign
this lease or sublet the premises or permit the premises to be occupied by the
Proposed Undertenant (including the terms under which any additions, alterations
or decorations are to be made to the Affected Premises and the terms on which
the Proposed Undertenant is to buy or lease any fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property from
the Tenant; and (vii) the name and address of any real estate broker or other
person to whom a commission may be owed by any person in connection with such
assignment, subleasing or occupation. (The Tenant's notice of desire to assign,
sublease or permit occupancy of the Affected Premises by others, with the
information prescribed above is hereafter referred to as a "Tenant's Subleasing
Notice").
(e) By written notice executed by the Landlord and delivered to the
Tenant within thirty (30) days following receipt of the Tenant's Subleasing
Notice (for the purposes hereof such notice shall not be deemed to have been
received by the Landlord until all of the information required by paragraph (d)
above shall have been furnished to the Landlord), the Landlord shall have the
absolute right to select one of the alternatives set forth in paragraphs (f),
(g) or (h) below.
(f) [In the event of a proposed assignment of this lease or the
subleasing or occupation of the entire premises subject to this lease for the
then remaining balance of the term of this lease, (i) the Landlord may elect to
require the Tenant to surrender the premises to the Landlord and terminate this
27
<PAGE>
lease with respect to the premises on the last day of the second complete
calendar month following the Tenant's Subleasing Notice and comply with the
provisions of this lease respecting surrender at the end of the term not later
than such date or (ii) the Landlord may give its consent to any such assignment,
sublease or occupation. Any subletting or occupancy by a third party as a
consequence of which 25% or less in an area of the Premises shall remain in
occupancy by the Tenant herein named may, at the Landlord's option, be
considered a subleasing of the whole of the Premises.
(g) In the event of a proposed subleasing or occupation of less than
the entire premises subject to this lease or the entire premises for less than
the then remaining balance of the term of this lease, (i) the Landlord may elect
to require the Tenant to surrender to the Landlord and vacate the Affected
Premises not later than the date upon which the proposed subleasing or
occupation is proposed to commence and comply on such date with the provisions
of this lease as to surrender at the expiration of the term with respect to the
Affected Premises, and the Tenant shall, at its expense, erect the partitioning
required to separate the Affected Premises from the remainder of the premises,
create any doors required to provide an independent means of access to the
Affected Premises from elevators and lavatories and to segregate the wiring and
meters and electric current facilities, so that the Affected Premises may be
used as a unit for commercial purposes, separate from the remainder of the
premises remaining in occupation of the Tenant; in which event the rent and all
additional rent payable under this lease shall be reduced proportionately with
the diminution in the area of the premises upon surrender of the Affected
Premises; or (ii) the Landlord may give its consent to any such sublease or
occupation.
(h) In the case of an assignment, the Landlord shall be under no
obligation to consent thereto or to select one of the alternatives set forth in
paragraph (f) above, unless the Landlord's investigation of the financial
standing of the
28
<PAGE>
proposed assignee discloses that there is no reason to doubt the financial
ability of the assignee to carry out its obligations under this lease for the
balance of the term and the Landlord's investigation of the manner in which the
proposed assignee conducts its business indicates that the assignee will conduct
its business in the premises in conformity with the requirements of this lease
or that there will be no interference with the orderly conduct of their business
and the enjoyment of their premises by other tenants in the building. In the
case of a sublease or occupation, the Landlord shall be under no obligation to
consent thereto or select one of the alternatives set forth in paragraph (f) or
(g) above, as the case may be, unless the Landlord's investigation of the nature
of the business of the proposed sublessee or occupant or the manner in which the
proposed sublessee or occupant will conduct such business indicates that there
is no reason to doubt that such business will be conducted in conformity with
the requirements of this lease and that the use of the premises by the proposed
sublessee or occupant will not result in damage to or deterioration of the
premises or the building, or interfere with the orderly conduct of their
businesses and the enjoyment of their premises by other tenants in the building.
The Landlord shall be under no obligation to consent to any assignment of this
lease or any subletting or occupation of the premises to or by any person other
than the Tenant unless the criteria set forth in this paragraph are satisfied.
(i) If the Landlord's Subleasing Notice shall be to the effect that
the Landlord elects that the Affected Premises be surrendered, then the Affected
Premises shall be surrendered in accordance with clause (i) of paragraph (f) or
(g) above, as the case may be, and any work required to be done to separate the
Affected Premises from the remainder shall be commenced promptly following the
Tenant's receipt of the Landlord's Subleasing Notice and carried on with
diligence and conformity.
(j) No consent given by the Landlord shall be deemed to permit any act
except the act to which it specifically refers, or
29
<PAGE>
to render unnecessary any subsequent consent, and any assignment or subletting
of the premises shall not relieve the Tenant or any mesne assignee from any
obligations, duty or covenant under this lease, and in all cases a violation of
any of the covenants or duties or obligations under this lease by a subtenant or
assignee shall, in addition, be deemed to be the act of the Tenant herein. No
assignment, transfer, mortgage, encumbrance, subletting or arrangement in
respect of the occupancy of the premises shall create any right in the assignee,
transferee, mortgagee, subtenant or occupant, unless the consent of the Landlord
shall first have been obtained, and unless, if an assignment is involved, the
transferee or assignee shall have delivered an agreement duly executed by the
assignee or transferee wherein the assignee or transferee assumes and agrees to
pay or otherwise keep and perform the obligations of the Tenant in this lease
or, if a sublease is involved wherein the sublessee agrees that any act or
omission by the sublessee which, if performed or omitted by the Tenant under
this lease would be a default thereunder shall also be a default under the
provisions of the sublease. Any assignee by accepting an assignment shall
nevertheless be conclusively deemed to have assumed this lease and all
obligations already accrued or to accrue thereunder and further to have agreed
to fully and duly perform all the Tenant's covenants herein contained. If the
Tenant shall, at any time, be in default in the payment of rent, the Landlord
shall have the right to collect rent from any assignee, undertenant or occupant,
and credit the same to the account of the Tenant, and no such collection shall
constitute a waiver of the foregoing covenant or the acceptance of anyone other
than the Tenant, as Tenant or shall otherwise release, impair or otherwise
affect any obligation of the Tenant under this lease. Immediately following the
execution and delivery of any assignment of this lease or any subleasing of the
premises or an agreement as to the occupancy thereof, the Tenant will furnish a
duplicate of the instrument in question to the Landlord.
30
<PAGE>
(k) Subject to paragraphs (j) and (l) of this Article and to continued
compliance with Article FIRST of this lease, the Tenant is authorized to
sublease portions of the premises to a subsidiary corporation or corporations or
to a corporation affiliated with the Tenant, without compliance with the
provisions of paragraph (c) through (g) of this Article. A subsidiary
corporation shall mean and include a corporation of which the Tenant owns and
holds at least a majority of each class of stock which is authorized to vote at
the time when the sublease is executed. An affiliated corporation shall mean
and include a corporation which is owned and controlled by the corporation which
owns and controls the Tenant by ownership of at least a majority of each such
class of stock. Before making any sublease to any such subsidiary or affiliated
corporation, the Tenant shall certify to the Landlord the manner in which such
subsidiary or affiliated corporation is related to and controlled by the Tenant
and the purposes for which the subleased premises will be used. If the Tenant
is a corporation or partnership, the transfer of a controlling interest in such
entity shall be deemed an assignment.
(l) Anything herein to the contrary notwithstanding, the Tenant may
not assign this lease or sublet or permit the occupancy by any other party of
all or any part of the demised premises at any time when the Tenant has not paid
any rent and additional rent when it is payable or at any time prior to the
expiration of the first twelve months following the commencement of the term of
this lease. The Tenant shall furnish the Landlord with a counterpart (which may
be a conformed or reproduced copy) of each sublease, assignment or agreement of
occupancy made hereunder within ten days after the date of its execution.
Tenant shall remain fully liable for the performance of all of Tenant's
obligations hereunder notwithstanding anything provided for herein, and without
limiting the generality of the foregoing, shall remain fully responsible and
liable to Landlord for all acts and omissions of any subtenant, assignee or
occupant or anyone claiming under or through any such person which shall be
31
<PAGE>
in violation of any of the obligations of this lease and any such violation
shall be deemed to be a violation by Tenant. Tenant shall pay Landlord on
demand any expense which Landlord may reasonably be required to incur in acting
upon any request for consent pursuant to this Article.
(m) Notwithstanding anything else in this Article, the Landlord shall
have the right to condition its consent to any proposed sublease of all or a
portion of the premises on the following:
(i) The Tenant shall not be in default in the payment of rent or
the performance of any other of its obligations under this
lease.
(ii) The Tenant shall have delivered to the Landlord a Tenant's
Subleasing Notice as required by Subparagraph (d) above.
(iii) The Tenant shall have complied with the provisions of
paragraphs (j) and (l) of this Article.
(iv) The Tenant shall grant the Landlord a security interest in
the sublease and the rents payable thereunder and shall take
all necessary steps required to perfect such security
interest.
(v) The sublease shall include a provision to the effect that if
the Landlord shall notify the sublessee that the Tenant is
in default in the payment of rent or the performance of its
other obligations under this lease the sublessee shall, if
so requested by the Landlord pay all rent and other amounts
due under the sublease directly to the Landlord.
(n) At the request of the Landlord, the Tenant will furnish to the
Landlord, within ten days of receipt of a request therefor, a certificate
executed in the name and on behalf of the Tenant, confirming that, except as
previously consented to in writing by the Landlord or as otherwise specifically
set forth in
32
<PAGE>
such certificate, the Tenant has not (i) used or permitted the premises or any
part thereof to be used for any purposes other than those specified in this
lease, (ii) mortgaged or encumbered this lease or any interest therein, (iii)
assigned or transferred, by operation of law or otherwise, this lease or any
interest therein, (iv) sublet or underlet the premises or any part thereof, or
(v) permitted the premises or any part thereof to be occupied by anyone other
than the Tenant or its officers or employees. With respect to any exception to
clauses (i) through (v) above which the landlord has not previously consented to
in writing, the Landlord in its sole discretion, may either consent thereto
(which consent may be subject to any conditions specified by the Landlord) or
exercise the rights and remedies available to the Landlord under the terms of
this lease.
THIRTY-NINTH: If the Landlord has instituted, or shall institute, a security
guard program at the building under contract with a recognized security guard or
patrol agency which shall supply guards for lobby, hall, loading bank and other
patrol services at the building on a contract basis, the Tenant will, within ten
business days following receipt of a statement from the landlord of the
Landlord's expenditures for the security guard services, pay to the Landlord the
Tenant's proportionate share of 121% of the Landlord's expenditures for the
security guard services for the building. The amount payable hereunder shall
constitute additional rent. Statements of the Landlord's expenditures in
successive periods of 90 days following the institution of the service shall be
submitted not more frequently than once in each period of three months during
the term. The Tenant's proportionate share of the Landlord's expenditures for
the security guard services shall be .065 for the purposes of this lease.
The Landlord may discontinue any such security guard program at any
time after 90 days' notice to the Tenant of the Landlord's election to do so.
33
<PAGE>
FORTIETH: In addition to the elevator service described in paragraph TWENTY-
NINTH of this lease, the Landlord will maintain in service and available for the
use of the Tenant, one passenger elevator at all times on all days of the week,
including Saturdays, Sundays and legal holidays. In the event that the Tenant
requires freight elevator service, or heat on Saturdays, Sundays, federal and
state holidays and all holidays recognized by the unions representing Landlord's
building personnel or during hours in addition to those prescribed under
paragraph TWENTY-NINTH of this lease, the Landlord will furnish the additional
elevator service or heat or both, as the case may be, upon notice of the
Tenant's need therefor. Such notice may be written or oral and shall be given
as long a time as practicable prior to the time when the additional heat or
freight elevator service is required. The Tenant will pay for any additional
freight elevator service and heat furnished after the hours prescribed in
paragraph TWENTY-NINTH at the respective prevailing rates per hour as
established from time-to-time by the Landlord for such services at the building
or in the buildings of the Landlord, generally, for each hour during which the
additional service is supplied. All charges for additional freight elevator
service and heat shall be payable when billed and in the event of default of
payment therefor, the Landlord may refuse further service and the amount unpaid
shall be deemed additional rent for which the Landlord shall have all remedies
for collection herein specified with respect to rent. The failure on the part
of the Landlord to furnish such additional elevator service or heat, if due to
breakdowns, repairs, maintenance, strikes, or other causes beyond the control of
the Landlord, shall involve no liability on the part of the Landlord nor shall
it constitute an eviction.
FORTY-FIRST: In the event that the Landlord, for any reason, shall be unable to
give possession of the premises hereby demised by the first day of May 1995,
this lease shall nevertheless continue in full force and effect and the Landlord
shall tender and the Tenant will take possession of said premises under the
34
<PAGE>
terms of this lease as soon as the Landlord shall have tendered possession
thereof to the Tenant; the fixed rent, however, to begin on the date upon which
such possession is tendered to the Tenant.
FORTY-SECOND: The Tenant is hereby granted the privilege of occupying the
premises subject to all of the terms, covenants and conditions of this lease,
including but not limited to, the payment of any service charges for electric
current, water, sprinkler maintenance and any overtime elevator or heat service
and to the payment of any additional rent payable pursuant to the provisions of
Article THIRTY-SEVENTH of this lease but otherwise free of the payment of fixed
rent during the following periods:
(i) During the period beginning with the tender of possession of the
premises by the Landlord to the Tenant at any time prior to the commencement of
the term of this lease and ending on April 30, 1995, the date prior to the
commencement of the term.
(ii) During the period of the term of this lease commencing on May 1,
1995, and ending on June 30, 1995, and during the period commencing May 1, 1996,
and ending on June 30, 1996.
The right to occupy the premises free of rent during the periods set
forth in clause (ii) of this Article FORTY-SECOND shall be subject to the
condition that the Tenant shall not default in the payment of any other fixed
rent, or any additional rent or any other charge due under this lease or in the
performance of the other terms, covenants and conditions thereof. In the event
of any such default, then fixed annual rent at the monthly rate set forth in
this lease shall be payable during the period in which the Tenant would
otherwise be entitled to the use of the premises free of fixed annual rent. Any
such payment shall be paid within 10 days following demand and shall constitute
additional rent under this lease.
35
<PAGE>
FORTY-THIRD: In conducting its business in the premises, as permitted by this
lease, the Tenant will not deal in any sexually explicit, pornographic or
similarly objectionable materials. It being understood that violations of the
foregoing restriction may be subject to varying interpretations, it is agreed
that the Landlord shall be the sole judge of what constitutes sexually explicit,
pornographic or similarly objectionable materials.
If the Tenant shall fail to operate the premises in the manner
specified in this Article, the Landlord may give notice to the Tenant to cure
any violation of this article within 30 days. If the Tenant fails to cure such
violations to the satisfaction of the Landlord, as the Landlord in its sole
discretion shall determine, in such 30-day period, such failure shall constitute
a default hereunder and the Landlord shall have the right to terminate this
lease in accordance with the provisions of Article TWENTY-FIFTH of this lease.
FORTY-FOURTH: Upon Landlord tendering possession of premises to be leased under
this Lease, the Lease dated January 24, 1994 (the "Lease"), between the Landlord
and the Tenant shall be modified so that the term of the Tenant in the Premises,
under the Lease, shall terminate and come to an end, as if said date were the
date originally specified for the expiration of the term.
FORTY-FIFTH: The Tenant represents and warrants to the Landlord that all of the
Tenant's negotiations respecting this lease which were conducted with or through
any person, firm or corporation, other than the officers of the Landlord, were
conducted through Delphi Land Company real estate brokers (by Adam Popper), and
the Tenant agrees to pay any fee or commission due to such broker. The Landlord
is not responsible for any commission with respect to this transaction.
Tenant also agrees to indemnify and hold Landlord harmless from any
and all other costs and expenses, including without limitation, Landlord's legal
fees and expenses paid or incurred by Landlord in connection with any claim by a
broker,
36
<PAGE>
co-broker and/or finder in connection with this lease as a result of any action
by Tenant, its agents, or employees.
37
<PAGE>
W O R K S H E E T
Attached to and made part of lease dated May 3, 1995 between
-------------------
THE RECTOR, CHURCH-WARDENS AND VESTRYMEN OF TRINITY CHURCH IN THE CITY OF NEW
YORK, Landlord, and DELIA'S LLC , Tenant.
-----------------------------------
Building 435 Hudson Street
----------------------
Space Part 3rd Floor
-------------------------
It is agreed that the following work is to be done by the Landlord at
the Landlord's expense:
1. Demolish interior partitions as required by tenant's layout.
2. Deliver premises broom clean.
3. Repair all cracked and broken windows and clean once at commencement
of lease.
4. Provide ACP-5 form for the premises in current condition.
It is stipulated and agreed that the foregoing constitutes the
memorandum of repairs or decorations to be done by the Landlord referred to in
the attached and all the work to be done by the Landlord in the demised
premises, except as otherwise expressly provided in the attached lease.
It is further stipulated and agreed that the aforesaid work shall be
commenced by the Landlord as soon as possible after the signing of the attached
lease and the payment by the Tenant of the first installment of rent and the
performance by the Tenant of any other obligations to be performed by the Tenant
at the time of the signing of the lease and shall be completed with reasonable
diligence, provided that the Landlord shall not be required to do the work on
days or hours other than usual working days and hours in the trades in question.
Subject to the foregoing provisions the Landlord reserves the right,
after according reasonable consideration to the Tenant's wishes in the matter,
to make all decisions as to the time or times when, the order and style in
which, said work is to be done, and the labor or materials to be employed
therefor. The work shall be done, unless the Landlord otherwise directs, during
the usual working hours observed by the trades in question. It is stipulated
and agreed that in case the Landlord is prevented from commencing, prosecuting
or completing said work, due to the Landlord's inability to obtain or difficulty
in obtaining the labor or materials necessary therefor, or due to any
governmental requirements or regulations relating to the priority or national
defense requirements, or due to any other cause beyond the Landlord's control,
the Landlord shall not be liable to the Tenant for damages resulting therefrom,
nor shall the Tenant be entitled to any abatement or reduction of rent by reason
thereof, nor shall the same give rise to a claim in the Tenant's favor that such
failure constitutes actual,
38
<PAGE>
constructive, total or partial eviction from the demised premises.
THE RECTOR, CHURCH-WARDENS AND VESTRYMEN OF
TRINITY CHURCH IN THE CITY OF NEW YORK, Landlord.
By: /s/ Jeffrey Smith
---------------------------------
Jeffrey Smith
Director of Leasing
DELIA'S LLC
------------------------------------
Tenant
By: /s/ Christopher C. Edgar
---------------------------------
Christopher C. Edgar
39
<PAGE>
RULES AND REGULATIONS
1. The Tenant shall not clean, nor require, permit or allow any
window in the demised premises to be cleaned from the outside in violation of
Section 202 of the Labor Law or of the Rules of the Board of Standards and
Appeals, or of any other board or body having or asserted jurisdiction;
2. All machinery shall be kept in approved settings, sufficient to
absorb any shock and prevent any noise, vibration or annoyance in the building
of which the demised premises are a part and shall be provided with oil pans
between such machinery and the floor beneath it, sufficient to prevent seepage
of oil on or into the floors;
3. No acid that in any way may injure any of the pipes or plumbing
equipment in the building shall poured or allowed to drain into the pipes or
plumbing equipment thereof, but shall in the event that the building is provided
with an acid line be poured or allowed to drain only therein, or if there be no
acid line, shall be neutralized in a manner satisfactory to the Landlord. No
substance which may cause any objectionable odor shall be left in the demised
premises;
4. During the cold season, the windows shall be kept closed to
maintain the temperature of the demised premises and to prevent any freezing
thereof, or of any equipment or appliance therein;
5. All trucks, vehicles or conveyances used by the Tenant in the
demised premises shall have rubber-tired wheels;
6. The Tenant's employees, except clerical or executive help, shall,
if the Landlord so directs, at all times use only the combination passenger and
freight elevator, if any, in going into or coming out of the demised premises;
7. No sign or lettering shall be inscribed on any door, wall or
window of the demised premises which is visible from the street or the portion
of the building used in common by other tenants except such as may be approved
in writing by the Landlord or its agents or designee;
8. No additional locks or bolts shall be placed anywhere upon or
within the demised premises or any on rooms therein, unless duplicate keys
thereto be given to the Landlord and all such keys must, on the termination of
this lease, be surrendered to the Landlord;
9. The Landlord may exclude any persons visiting or attempting to
visit the premises between 7 P.M. and 8 A.M. and on Saturdays, Sundays and
holidays recognized as such by the state or federal government unless such
person shall be equipped with a pass signed by the Tenant and unless such person
shall sign his name and the premises which he is to visit on the night report.
10. The sanitary and safety facilities used solely by the Tenant or
by the Tenant in common with other occupants of the building of which the
demised premises are a part, shall be used only for the purposes for which they
were constructed;
11. No signs, signals, devices, displays, sounds or advertisements
visible or audible from the street or from the halls and other parts of the
building used in common by the Tenant and other tenants shall be inscribed,
erected or maintained unless the kind, style, location and manner thereof shall
have been approved in writing by the Landlord and if any sign, signal, sound
display or advertising be erected, made or inscribed without such approval, the
Landlord may remove the same and charge the cost of so doing to the Tenant as
additional rent.
40
<PAGE>
Any sign or display which may be installed by the Tenant shall be kept in good
order and repair and in a neat and attractive condition. The Landlord reserves
the right to use the roof and outside walls surrounding the premises for sign
purposes. The Landlord may remove any sign or signs or displays in order to
paint the premises or any part of the building, or make any repairs, alterations
or improvements in or upon the premises or building, or any part thereof,
provided it causes the same to be removed and replaced at the Landlord's
expense, whenever the said painting, repairs, alterations or improvements shall
have been completed;
12. No advertising which, in the opinion of the Landlord, tends to
impair the reputation of the building or its desirability as a loft or office
building, shall be published or caused to be published by the Tenant and, upon
notice from the Landlord, the Tenant shall refrain from or discontinue such
advertising;
13. Awnings, antennae, aerials, ventilating and air-conditioning
apparatus or other projections from the window or outside walls of the demised
premises shall not be erected or installed. All air-conditioning apparatus
installed in windows shall be so arranged that condensate does not drain on the
outside of the building wall or into the street;
14. The lights, skylights, entrances, passages, courts, elevators,
stairways, loading platforms, halls or any part of the building intended for the
use in common by the Tenant and the other occupants thereof shall not be
obstructed or encumbered (whether by means of storing of materials and skids or
otherwise). In the event of any such encumbrance or obstruction, the Landlord
may remove the material causing such encumbrance or obstruction and cause it to
be stored and charge the cost of doing so to the Tenant. No courtyard or yard
appurtenant to the premises or the building shall be used for parking vehicles
of any kind;
15. No part of the premises or the building shall be marked, painted,
drilled into, or in any way defaced. No laying of linoleum, or other similar
floor covering so that the same shall come in direct contact with the floor of
the demised premises shall be made; and if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water.
Cements and other similar adhesive material shall not be used. Removal of any
alterations, decorations or improvements in compliance with paragraph Fourth of
this lease shall include the removal of all linoleum, lining and adhesive
material;
16. No part of the demised premises shall be used in a manner or for
a purpose that is substantially objectionable to the Landlord or to another
tenant, or which in the reasonable judgment of the Landlord, might cause
structural injury to the building;
17. The Tenant's employees shall not stand or loiter around the
hallways, stairways, elevators, front, roof or any other part of the building
used in common by the occupants thereof;
18. No load shall be placed upon any floor of the building exceeding
the floor load per square foot area which such floor was designed to carry, and
all loads shall be evenly distributed. The Landlord reserves the right to
prescribe the weight and position of all safes, machinery and other personal
property in the premises which must be placed so as to distribute their weight;
41
<PAGE>
19. Nothing shall be thrown out of the windows or doors, or down the
passages or skylights of the building, nor shall any of them be covered,
obstructed or encumbered. No improper noises shall be made in the building, nor
shall birds or animals be brought therein;
20. Where freight elevators are provided by the building and are in
operation, all deliveries shall be made to or from the demised premises
exclusively by means of such elevators;
21. Any one doing janitorial work for the Tenant shall at all times
be subject to order and direction by the superintendent of the building,
although he shall not be the servant of either the superintendent or the
Landlord;
22. No peddling, soliciting or canvassing shall be permitted in the
premises or by the Tenant's employees elsewhere in the building;
23. The Landlord may prescribe, and from time to time vary, the time
for any removals or deliveries from or into the premises, at any time, and such
prescriptions shall apply whether or not the material so removed or received is
the property of the Tenant. Removals or deliveries of safes, machinery and any
other heavy or bulky matter shall be done only upon written authorization of the
Landlord and only in such manner and by such persons as may be acceptable to the
Landlord, and the Landlord may require any further assurances or agreements or
indemnity from the Tenant and the movers to that effect. The Landlord reserves
the right to inspect all freight to be brought into the building and to exclude
from the building all freight which violates any of these Rules and Regulations
or the lease of which these Rules and Regulations are a part;
24. The Tenant shall not permit its servants, employees, agents,
visitors or licensees, at any time to bring or keep upon the premises any
inflammable, combustible or explosive fluid, chemical or substance or cause or
permit any unusual or objectionable odors to be produced upon or emanate from
the premises;
25. The passenger and service elevators, other than automatic self-
service elevators, if any, shall be operated only by employees of the Landlord,
and must not in any event be interfered with by the Tenant, his servants,
employees, agents visitors or licensees. Manned freight elevators will be
operated only during such hours as the Landlord may from time to time determine;
26. The Tenant shall not use any other method of heating than that
supplied by the Landlord;
27. If the premises consist of basement space, or if any merchandise
of the Tenant is stored in the basement portion of the building, all such
merchandise shall, at the Tenant's own cost and expense, be placed entirely on
skids or platforms, which will raise such merchandise at least six inches from
the floor;
28. No drilling in floors, walls or ceilings shall be done except in
compliance with paragraph Fourth of this lease and no such drilling shall be
done during usual business hours unless authorized by the Landlord in writing;
29. No vending machine shall be installed or permitted to remain in
the premises unless the Landlord shall first have given its specific written
authorization for the installation of each such machine. The Tenant shall not
authorize or permit any vendor of sandwiches, coffee, or other foods, candies or
beverages to enter the premises for the purpose of soliciting sales of such
wares to the Tenant's employees.
42
<PAGE>
THE TERMS, COVENANTS AND CONDITIONS contained in the foregoing lease
shall be binding on, and shall enure to the benefit of the parties hereto, and
their respective legal representatives, successors, and assigns, but no
assignment made or purported to be made in violation of the provisions of this
lease shall vest in such assignee any right or title in or to this lease or in
or to the estate hereby created.
IN WITNESS WHEREOF, this agreement, consisting of fifteen (15) printed
pages numbered 1 to 15 and typewritten or printed rider pages bearing clauses
numbered EIGHTEENTH (Re-written) and THIRTY-SEVENTH to FORTY-SIXTH inclusive,
has been signed and sealed by the parties hereto, the day and year first above
written.
THE RECTOR, CHURCH-WARDENS AND VESTRYMEN OF
TRINITY CHURCH IN THE CITY OF NEW YORK
Attest:
As to Landlord
/s/ Joseph Palombi By /s/ Jeffrey Smith
- ------------------------ ---------------------------------
Joseph Palombi Jeffrey Smith
Executive Vice President Director of Leasing
of Real Estate
/s/ William Sherk
---------------------------------
William Sherk
Finance Department
Attest:
As to Tenant DELIA'S LLC
---------------------------------
Tenant
/s/ Karen Christensen /s/ Stephen I. Kahn (L.S.)
- ------------------------ ---------------------------------
Karen Christensen Stephen I. Kahn
(L.S.)
---------------------------------
43
<PAGE>
THIS AGREEMENT, made this 26th day of September, 1996, between THE RECTOR,
CHURCH-WARDENS AND VESTRYMEN OF TRINITY CHURCH IN THE CITY OF NEW-YORK, a
religious corporation in the State of New York, having its office and address at
74 Trinity Place in the Borough of Manhattan, City, State and County of New York
(hereinafter referred to as the "Landlord"), and DELIA'S LLC, a New York
corporation, having its place of business at 435 Hudson Street, Borough of
Manhattan, City, County and State of New York (hereinafter referred to as the
"Tenant").
WITNESSETH:
WHEREAS, the Landlord and the Tenant entered into an agreement of lease
dated May 3, 1995, wherein the Landlord leased to the Tenant a portion of the
3rd floor as described in the lease, in the building of the Landlord known as
435 Hudson Street, New York, New York, for a term to commence May 1, 1995, and
expire (unless sooner terminated in accordance with the provisions of the lease)
on April 30, 1998, at the annual rent of $109,000.00, payable in monthly
installments of $9,083.33 in advance as in such lease provided and at the
additional rents and on the other terms and covenants set forth in such lease
(the said lease is hereinafter referred to as the "Lease" and the premises
thereby demised are hereinafter referred to as the "Premises"), and
44
<PAGE>
WHEREAS, the Landlord and the Tenant desire to modify the Lease in certain
respects.
NOW, THEREFORE, it is hereby mutually covenanted and agreed between the
parties hereto as follows:
1. The Lease shall be and it hereby is modified in the following respects
effective on and from May 1, 1998:
(a) The term of the Lease shall be extended by five years so that the last
day of the term of the Lease shall be April 30, 2003 (rather than April 30,
1998).
(b) The fixed rent payable pursuant to the Lease shall be at the rate of
$149,875.00 per annum, which fixed rent shall be payable in twelve equal monthly
installments of $12, 489.58 each.
(c) For the purposes of computing the escalations, the following changes
are made to Article THIRTY-SEVENTH of the Lease :
(i) The term "Base Index" shall mean the Index as last published
prior to May 1, 1998.
(ii) The term "Base Year" shall mean the Real Estate tax year
commencing July 1, 1997 and ending June 30, 1998.
(iii) The term "Computation Date" shall mean the first day of May
1, 1999 and, in Subsequent years, its anniversary date.
(iv) "Statements for the Tenant" shall be furnished on or before
June 1, 1999, and on or before that day in each Subsequent
Year.
It is understood that until May 1, 1998 the provisions of Article THIRTY-
SEVENTH of the Lease shall remain in full force and effect.
(d) By increasing the amount deposited pursuant to Article TWENTY-EIGHT of
the Lease by $15, 790.16 (that is, from $9,189.00 to $24,979.16).
45
<PAGE>
(e) Paragraph EIGHTEENTH (re-written) (k) is hereby deleted and the
following is hereby inserted in lieu thereof:
Notwithstanding anything to the contrary contained herein, Tenant
shall have the right, subject to the terms and conditions hereinafter
set forth, without the consent of Landlord and without Landlord having
the right granted in this Article EIGHTEENTH (re-written) to recapture
the Premises, to assign its interest in this Lease (i) to any person
or entity which is a successor to Tenant either by merger or
consolidation, (ii) to a purchaser of all or substantially all of
Tenant's assets or stock, or (iii) to a person or entity which shall
(1) Control, (2) be under the Control of, or (3) be under common
Control with Tenant (any such person or entity referred to in this
clause (iii) being a "Related Entity"). Notwithstanding anything
---------------
to the contrary contained herein, Tenant also shall have the right,
subject to the terms and conditions hereinafter set forth, without the
consent of the Landlord and without Landlord having the right granted
in this Article EIGHTEENTH (re-written) hereof to recapture the
Premises, to sublease all or any portion of the Premises to a Related
Entity. Any assignment or sub letting described above may only be made
upon the condition that (x) any such assignee or subtenant shall use
the Premises in conformance with paragraph FIRST of the Lease, and (y)
Tenant shall comply with the provision of paragraph (a), (b), (j) and
(l) of this Article
46
<PAGE>
EIGHTEENTH (re-written). For purposes hereof, "Control" shall mean
ownership of more than fifty percent (50%) of the outstanding voting
stock of a corporation and/or the possession of power to direct or
cause the direction of the management and policy of such corporation
or other entity, whether through the ownership of voting securities,
by statute or according to the provision of a contract.
2. The Tenant is hereby granted the privilege of occupying the Premises
subject to all of the terms, covenants and conditions of this lease, including
but not limited to, the payment of any service charges for electric current
water, sprinkler maintenance and any overtime elevator or heat service and to
the payment of any additional rent payable pursuant to the provisions of
Paragraph THIRTY-SEVENTH of the lease but otherwise free of payment of fixed
rent during the period of the term of this lease commencing on May 1, 1998 and
ending on July 31, 1998, and during the period of May 1, 1999 and ending on June
30, 1999, and during the period of May 1, 2000 and ending on May 31, 2000, and
during the period of May 1, 2001 and ending on May 31, 2001.
The right to occupy the premises free of rent during the periods set
forth this Article shall be subject to the condition that the Tenant shall not
default in the payment of another fixed rent, or any additional rent or any
other charge due under this lease or in the performance of the other terms,
covenants and conditions thereof. In the event of any such default, then fixed
annual rent at the monthly rate set forth in this lease shall be
47
<PAGE>
payable during the period in which the Tenant would otherwise be entitled to the
use of the premises free of fixed annual rent. Any such payment shall be paid
within ten (10) days following demand and shall constitute additional rent under
this lease.
3. The Tenant represent that no broker, licenses or otherwise, was
involved in the making of this lease or brought the premises to the attention of
the Tenant and that all of the negotiations respecting this lease were conducted
with and through the offices of the Landlord.
If the foregoing representation is breached, the Tenant agrees to
indemnify and hold Landlord harmless from any and all costs and expenses,
including without limitation, Landlord's legal fees and expenses paid or
incurred by Landlord in connection with any claim by a broker, co-broker and/or
finder in connection with this lease.
4. It is agreed that the Landlord will reimburse the Tenant for the
following work:
(a) Landlord will reimburse tenant up to $16,000 upon invoices marked
"Paid In Full" and waiver of liens towards the cost of installing
an additional 400 amps 3-phase service from the basement to the
3rd floor premises. (Tenant to select vendor that has been
approved by Trinity.)
(b) Landlord will reimburse tenant up to $25,500 upon invoices marked
"Paid In Full" and waiver of liens towards the costs of
installing 16 new radiators on the north side of the premises and
3 new convectors on the south side of the premises.
5. Except as modified in accord with the provisions of this
Agreement, the Lease is hereby ratified and affirmed and the
48
<PAGE>
Tenant covenants and agrees to keep and perform the obligations of the Lease as
hereby modified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE RECTOR, CHURCH-WARDENS AND
VESTRYMEN OF TRINITY CHURCH IN
THE CITY OF NEW-YORK
[CORPORATE SEAL]
ATTEST:
By: /s/ Joseph Palombi By: /s/ Jeffrey Smith
--------------------------- ---------------------------
Joseph Palombi Jeffrey Smith
Executive Vice President Director of Leasing
of Real Estate
By: /s/ William Sherk
---------------------------
William Sherk
Finance Department
[CORPORATE SEAL]
ATTEST: DELIA'S LLC
By: /s/ Karen Christensen By: /s/ Stephen Kahn
--------------------------- ---------------------------
Name: Karen Christensen Name: Stephen Kahn
Title: Vice President Title: President
49
<PAGE>
EXHIBIT 16
[Letterhead of Richard A. Eisner & Company, LLP]
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: dELiA*s Inc. (the "Company")
----------------------------
Dear Sir or Madam:
We agree with the statements made by the Company in its Registration
Statement on Form S-1 in response to Item 304(a) of Regulation S-K.
We are not in a position to agree or disagree with the Company's statement
that the decision to change accountants was made by the managers of dELiA*s LLC.
Sincerely,
/s/Richard A. Eisner & Company, LLP
New York, New York
October 28, 1996
575 Madison Avenue, New York, N.Y. 10022-2597
Telephone: (212) 955-1700, Fax: (212) 355-2414
Member of Summit International Associates, Inc.
