SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No fee Required]
For the fiscal year ended January 31, 1999
Commission file number 0-21869
dELiA*s Inc.
(Exact name of registrant as specified in our charter)
Delaware 13-3914035
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
435 Hudson Street, New York, New York 10014
(Address of principal executive offices)
(Zip Code)
(212) 807-9060
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common stock held by non-affiliates of the
registrant as of April 1, 1999 was $212,461,384.
The number of shares outstanding of the registrant's common stock as of April 1,
1999 was 14,240,360.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report, are incorporated by reference in Part III
hereof.
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Statements contained in this document, including, without limitation,
information appearing under "Item 1--Business" and "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations," may
be forward-looking statements (within the meaning of Section 27A of the amended
Securities Act of 1933 and Section 21E of the amended Securities Exchange Act of
1934). When used in this document, the words "believe," "plan," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which apply only as of the date of this report.
These statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in the forward-looking
statements. Such risks and uncertainties include, but are not limited to,
general economic conditions; changes in consumer spending patterns; increases in
the cost of materials, printing, paper, postage, shipping and labor; timing of
catalog mailings; customer response rates; opportunities to expand and the
ability to increase comparable store sales; levels of competition; difficulties
in integrating acquisitions; the ability to locate and obtain acceptable store
sites and lease terms or renew existing leases; acceptance of new retail
concepts; adverse weather conditions, changes in weather patterns and other
factors affecting retail stores; and other factors outside our control. These
factors, and other factors that appear in this report, including, without
limitation, under the "Item 1--Business--Risk Factors," could affect our actual
results and could cause our actual results to differ materially from those
expressed in any forward-looking statements made by us or on our behalf.
All references in this report to a particular fiscal year refer to the year
ended January 31 following the particular year (e.g., "fiscal 1998" refers to
the fiscal year ended January 31, 1999). Unless the context requires otherwise,
financial and other data presented assume our acquisition of TSI Soccer
Corporation was completed as of the beginning of the earliest period presented.
PART I
Item 1. Business.
Overview
We are a leading marketer of casual apparel, accessories and soccer
merchandise to young men and women between the ages of 10 and 24, an age group
known as "Generation Y."
Through our dELiA*s catalog, Web site, discount outlet stores and
recently-opened full-priced store, which target Generation Y girls and young
women, we are the leading direct marketer of casual apparel, related accessories
and cosmetics to this demographic group. Through our TSI Soccer catalog, retail
stores and Web site, we are a leading direct marketer and retailer of specialty
soccer merchandise to Generation Y boys and girls. Our other catalogs include
Contents, mailed in fiscal 1998 as a dELiA*s insert which offers home
furnishings to Generation Y, and Droog, a recently-launched apparel and
accessories title that targets Generation Y young men, as well as dot dot dash
and Storybook Heirlooms, our pre-teen apparel titles.
In July 1998, we acquired assets located in certain retail stores operated
under the Screeem! and Jean Country names, as well as the related leases and
trademarks. The purchase price for the acquisition consisted of $10.0 million in
cash, 812,501 shares of our common stock and the right to receive additional
stock based on the future trading price of our common stock. Through these
recently-acquired retail stores,
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we offer young men and women progressive, fashion-forward, branded apparel
through a dynamic mall-based shopping experience featuring live DJs, fashion
models and promotional appearances and events.
In September 1998, we acquired assets from the estate of Fulcrum Direct,
Inc. for approximately $4.8 million in cash. The primary assets included the
trademarks and customer lists for the zoe, Storybook Heirlooms, Playclothes,
After the Stork and Just for Kids catalogs. We also purchased inventory and
assumed certain Storybook Heirlooms customer refund liabilities. In January
1999, we mailed our first Storybook Heirlooms catalog, which primarily targets
girls ages 4 to 11 with fashionable, upscale special occasion outfits, casual
apparel and accessories.
We have recently combined the components of our Internet operations,
including www.dELiAs.cOm, www.TSISoccer.com, www.discountdomain.com,
www.Droog.com, www.ContentsOnline.com, www.dotdotdash.com and
www.StorybookHeirlooms.com as well as the www.gURL.com community Web site, into
our iTurf Inc. subsidiary. On April 14, 1999, we completed an initial public
offering of iTurf's Class A common stock, which represents approximately 28% of
the value of that subsidiary. iTurf used $17.7 million of the proceeds to
purchase 551,046
shares of our common stock from us.
The following table sets forth our principal product categories:
<TABLE>
<CAPTION>
Percentage of Sales
Product Category Fiscal 1998
- ---------------- -----------
<S> <C>
Apparel................................................................ 70%
Footwear............................................................... 15%
Soccer equipment, home furnishings and other........................... 15%
</TABLE>
Merchandising and Marketing. Our dELiA*s, Droog and dot dot dash catalogs
and dELiA*s, Screeem! and Jean Country retail stores offer carefully selected
assortments of recognized and emerging brands of teen apparel and accessories,
complemented by our own proprietary brands. We believe 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. We monitor leading
teen magazines (including Teen, Seventeen and YM), television channels (such as
MTV) and other trend-setting media to identify brands and styles that we believe
are attracting the attention of the teen market. Our buyers regularly attend
apparel shows and meet with vendors and, in some cases, the editorial staffs of
teen magazines, to stay abreast of popular brands, fashions and styles.
Our catalogs and retail stores 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 our customers to
fulfill many of their fashion needs. Merchandise is presented in a manner that
reflects the specific style of the catalog or store. We present merchandise in
coordinated groupings to encourage customers to create outfits, which we believe
increases average purchase size and enhances sales.
Our TSI Soccer catalog and retail stores offer a full range of soccer
merchandise, including footwear, apparel and equipment, almost all of which
consists of products from the leading suppliers of athletic footwear and
apparel, as well as manufacturers of well-known specialty brands. We offer
difficult-to-find sizes, men's, women's and children's styles, and special team
colors and product color combinations. We occasionally offer exclusive products,
designs or color combinations from leading suppliers. As we have grown, we have
been able to provide a greater breadth and depth of new products. We believe
that few other direct marketers currently offer as complete a line of soccer
footwear, apparel and equipment covering the depth of products we offer.
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We seek to develop strong relationships with numerous vendors and designers
in order to maintain ongoing access to recognized and emerging brands. Strong
customer acceptance of our catalog and retail concepts make us a preferred
outlet for certain of our vendors and enable us to offer an exceptionally broad
and deep product selection, including premier branded products with limited
distribution and certain merchandise on an exclusive basis.
Brands currently offered through our catalogs and retail stores include
nationally recognized names as well as brands recognized within the teen market.
Marketing by these leading suppliers, particularly the athletic vendors that
spend heavily to market their products through targeted advertising and
sponsorships of professional and amateur soccer events, increases the demand for
our products. We also obtain merchandise from emerging designers and specialty
soccer suppliers, a strategy we believe differentiates us from other retailers
and helps to establish us as a valuable resource for our customers.
Our Storybook Heirlooms catalog markets a carefully selected assortment of
proprietary product including upscale girls' dresses, special occasion outfits,
casual outfits, sportswear separates and related accessories. The catalog is
targeted at girls age 4 to 11 and therefore, provides a strong feeder of
customers for our dot dot dash and dELiA*s catalogs.
Catalog Publishing. In fiscal 1998, we issued 18 separate editions of our
catalog titles. Combined catalog circulation (excluding sales circulars) was 61
million. We publish distinctive catalogs that include detailed product
descriptions and specifications, full color photographs and pricing information.
Our catalogs are designed to create a unique and entertaining shopping
experience and to offer customers more than the typical apparel catalog by
combining the feel and editorial flair of a magazine with the convenience of
direct mail shopping
We mail our catalogs to persons listed in our proprietary database, as well
as to persons from rented lists. In addition, we arrange for bulk distribution
of our catalogs on college campuses. We believe we can leverage our proprietary
database to develop additional targeted mailings to specific customer segments,
and may expand our strategy of more frequent mailings of supplemental catalogs
to repeat customers. While most of our catalogs are mailed to customers in the
United States, we also distribute the catalog to a small number of customers in
Canada and Japan.
Retail Stores. The following table summarizes our retail stores as of
January 31, 1999.
<TABLE>
<CAPTION>
Concept Stores Size Range Average Size Locations
- ------- ------ ---------- ------------ ---------
(square feet)
<S> <C> <C> <C> <C>
Screeem! 15 2,900 - 5,200 4,100 Massachusetts, New Jersey, New York, Pennsylvania
Jean Country 11 2,100 - 4,800 3,300 Connecticut, Massachusetts, New Jersey, New York
TSI Soccer 13 2,500 - 4,600 3,300 Georgia, Maryland, North Carolina, Virginia
dELiA*s outlet 4 2,800 - 4,000 3,300 New Jersey, New York, Pennsylvania
</TABLE>
In February 1999, we opened our first full-priced dELiA*s retail store in
The Westchester mall in White Plains, New York. Since January 31, 1999, we have
also opened two additional TSI Soccer stores and signed several new leases for
dELiA*s and TSI Soccer stores. During fiscal 1999, we expect to open 10 to 15
new dELiA*s retail stores and 7 to 10 new TSI Soccer retail stores.
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All of our retail stores have point-of-sale terminals that transmit
information daily on sales by item, color and size. We evaluate this
information, together with weekly merchandise statistics reports, prior to
making merchandising decisions regarding reorders of fast-selling items and the
allocation of merchandise.
Team Sales. We sell customized soccer apparel in team-sized lots to amateur
and scholastic soccer teams and leagues. We screen print customized lettering
and logos on branded apparel produced by our leading suppliers. These products
are typically sold at a discount to equivalent non-customized products found in
our TSI Soccer catalogs and retail stores.
Proprietary Database Development. We have historically developed our
proprietary customer database primarily through referrals, word-of-mouth,
returns of catalog request cards and targeted classified advertising in selected
magazines, including, for the dELiA*s catalog, Seventeen and YM. During fiscal
1998, approximately 2 million new names were added to our database through such
channels. In addition, during fiscal 1998, we acquired approximately 5 million
names from the estate of Fulcrum Direct, Inc. As of January 31, 1999, our
proprietary database included approximately 11 million names, 6 million of which
were customers. Our 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). In some cases, we also gather additional
demographic data including e-mail addresses.
Teleservices and Order Entry. We provide our catalog and Internet customers
with 24-hour, seven-day-a-week, toll-free telephone access. Teleservice
representatives process orders directly into our management information system.
The teleservice representatives are versed in product sizes, colors and features
and are trained to cross-sell accessories and related products and provide
information about promotional items.
We believe our customers are particularly sensitive to the way merchants
and salespeople communicate with them. We strive to hire energetic,
service-oriented teleservice representatives who can understand and relate to
our customers.
We currently have over 400 in-house phone stations between our three call
center facilities. Our approximately 700 (as of January 31, 1999) full- and
part-time teleservice representatives have the capacity to handle over 4,200
calls per hour. We also use an outside teleservices provider for overflow
orders. We process telephone orders in an average of three to four minutes,
depending upon the nature of the order and whether the customer is a first-time
or repeat customer.
Customer Service and Returns. We maintain 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. Return experience is closely
monitored to identify trends in product offerings, product defects and quality
issues.
Distribution and Fulfillment. We process and fulfill the majority of our
customer orders and distribute inventory to our retail stores through our
warehouse and fulfillment center in Hanover, Pennsylvania. We use an integrated
picking, packing and shipping system with a live connection to our order entry
system. 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. We are currently making an average of over 14,000
shipments a day (excluding weekends). We believe we have the physical capacity
to ship 25,000 packages per day.
We have excess inventory in varying degrees over the course of the year. We
mail sales catalogs, run promotional sales of excess items and sell excess
inventory through our outlet stores. We have also used
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third-party liquidators, event sales and charitable donations to dispose of
excess inventory and may consider other liquidation options in the future.
A majority of our catalog orders are shipped within 48 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 we
have received confirmation from the cardholder. Customers generally receive
orders within three to five business days after shipping. Currently,
approximately 99% of all shipments are 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. Our fulfillment systems
automatically determine the most cost-effective method of shipping each order.
Intellectual Property
We have registered the dELiA*s name, stylized logo and daisy symbol ("*"),
among other trademarks, with the U.S. Patent and Trademark Office. We use the
TSI name under a royalty-free license from a third party. Applications for
registration of our other trademarks are currently pending in the United States,
Japan and other international territories. We also use the trademarks,
tradenames, logos and endorsements of our suppliers with their permission. We
are not aware of any pending material conflicts concerning our marks or our use
of others' intellectual property rights.
Competition
The apparel, accessories and soccer specialty merchandise industries are
highly competitive, and we expect competition in these markets to increase. We
compete with traditional department-store retailers, as well as specialty
apparel, accessory, soccer and general athletic merchandise retailers, for teen
and young-adult customers. We also compete with other direct marketers, some of
which may specifically target our customers. Many of our competitors are larger
than us and have substantially greater financial, distribution and marketing
resources. Increased competition could result in pricing pressures, increased
marketing expenditures and loss of market share. We believe our success will
depend, in part, on our ability to adapt to new technologies and to respond to
competitors' actions in these areas.
Employees
As of January 31, 1999, we had approximately 1,700 employees. None of our
employees are represented by a collective bargaining unit. We consider our
relations with our employees to be good.
Risk Factors
The following principal risk factors should be considered carefully in
addition to the other information contained in this report by prospective
investors or current stockholders evaluating an investment in our common stock.
Actual results could differ materially from those described. Factors that could
cause or contribute to these differences include, but are not limited to, those
discussed below and in the section entitled "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Historical results may not be indicative of future results due to seasonal,
cyclical and quarterly fluctuations. We experience seasonal fluctuations in our
merchandise sales and results of operations. In addition, due to the cyclical
nature of the industry and our sensitivity to consumer spending patterns,
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purchases of apparel and accessories tend to decline during recessionary periods
and may decline at other times. Our quarterly results may also fluctuate as a
result of numerous factors, including
o general economic conditions;
o changes in consumer spending patterns;
o increases in the cost of materials, printing, paper, postage, shipping
and labor;
o the timing, quantity and cost of catalog mailings and the response
rates to those mailings;
o market acceptance of our merchandise (including new merchandise
categories or products introduced);
o opportunities to expand, including the ability to locate and obtain
acceptable store sites and lease terms or renew existing leases, and
the ability to increase comparable store sales;
o levels of competition;
o the timing of merchandise deliveries;
o difficulties in integrating acquisitions;
o adverse weather conditions, changes in weather patterns and other
factors affecting retail stores; and
o other factors outside our control.
Our growth-strategy may present operational, management and inventory
challenges. Our recent growth has placed significant demands on our management
and other administrative, operational and financial resources. We intend to
continue to pursue a growth-oriented strategy for the foreseeable future and our
future operating results will largely depend on our ability to open and operate
new retail stores and to manage a larger business. Managing our growth will
require us to continue to implement and improve our operations and financial and
management information systems and to continue to expand, motivate and
effectively manage our workforce. Operation of new retail concepts and a greater
number of new stores as well as expansion into new retail markets may present
competitive and merchandising challenges that are different from those we
currently encounter in our existing stores and markets and in our catalog
business. In addition, expansion of its retail concepts within our existing
markets may adversely affect the individual financial performance of existing
stores or consolidated results. New stores may not achieve sales and
profitability levels consistent with existing stores. Investments in
infrastructure for our catalog, retail and internet businesses will increase our
operating expenses, which could have a material adverse effect on the results of
our business if anticipated sales do not materialize. Furthermore, as our sales
increase, we anticipate maintaining higher inventory levels. This anticipated
increase in inventory levels will expose us to greater risk of excess
inventories and inventory obsolescence, which would have a material adverse
effect on our business.
We may fail to anticipate and respond to fashion trends. Our failure to
successfully anticipate, identify or react to changes in styles, trends or brand
preferences of our customers may result in lower revenue from reduced sales and
promotional pricing. Our success depends, in part, on our ability to anticipate
the frequently-changing fashion tastes of our customers, and to offer
merchandise that appeals to their preferences on a timely and affordable basis.
If we misjudge merchandise selection, our image with our customers would be
materially adversely affected. Poor customer reaction to our products or our
failure to effectively source these products would materially affect our
business.
We may not be able to attract new buyers to replenish our customer base.
Our customers are primarily teens and young adults. As these individuals age
beyond their teens, they may no longer purchase products aimed at younger
individuals. Accordingly, we must constantly update our marketing efforts to
target new, prospective teen customers. Failure to do so would have a material
adverse effect on our business.
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Our catalog response rates may decline. Response rates will usually decline
when we mail additional catalog editions within the same fiscal period. In
addition, as we continue to increase the number of catalogs distributed and mail
our catalogs to a broader group of new potential customers, we have observed
that these new potential customers respond at lower rates than our existing
customers have historically responded. This trend in response rates has had and
is likely to continue to have an adverse effect on our rate of sales growth and
on our profitability.
Proposed legislation may limit our ability to capture customer information.
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. List brokerage is not currently a material part of our business but we
do market to persons whose names were derived from purchased or rented lists. We
may increase our use of purchased and rented lists or, in the future, decide to
increase our list brokerage business. Consequently, the proposed legislation, or
other similar laws or regulations that may be enacted, could impair our ability
to collect customer information, use that information in the course of our
business or profit from future plans to sell customer information, which could
have a material adverse effect on our business.
Fluctuations in Comparable Store Sales Results. A variety of factors affect
our comparable store sales, including among others, fashion trends, the general
retail sales environment, our ability to efficiently source and distribute
products, changes in our merchandise mix and our ability to execute our business
strategy efficiently. Comparable store sales may fluctuate significantly, which
could adversely affect our business.
We may face challenges in identifying, completing, integrating and
financing acquisitions. We expect from time to time to consider making
additional acquisitions within and outside the direct mail, retail and apparel
and Internet industries, but may not be able to make these acquisitions, either
on favorable terms or at all. In addition, recent acquisitions or future
acquisitions may not prove successful.
Acquisitions involve a number of special risks, including the diversion of
management's attention to the integration of operations and the assimilation and
retention of the personnel of acquired companies and potential adverse
short-term effects on our operating results. In addition, we may require
additional debt or equity financing for future acquisitions, which may not be
available on favorable terms, or at all. Our inability to successfully finance,
complete and integrate acquisitions in a timely manner could have a material
adverse effect on our business.
We rely on third party shippers. We rely on third party shippers (including
the United States Postal Service, United Parcel Service and FedEx) to ship
merchandise to our customers and retail stores. Strikes or other service
interruptions affecting our shippers would have a material adverse effect on our
ability to deliver merchandise on a timely basis.
We depend on key vendors. Our business depends, in part, on our ability to
purchase current-season brand-name apparel, accessories and soccer merchandise
at competitive prices, in sufficient quantities and of acceptable quality. While
no vendor accounted for more than 8% of our consolidated fiscal 1998 sales, two
vendors accounted for approximately 60% of sales of our soccer business in
fiscal 1998. One of those vendors, adidas, accounted for approximately 8% of our
consolidated sales in fiscal 1998. We do not have a long-term contract with
adidas or any other supplier. In addition, many of our smaller vendors have
limited resources, production capacities and operating histories. The failure of
key vendors to expand with us, the loss of one or more key vendors including
adidas, a material change in our current purchase terms or a limitation on our
ability to procure products could have a material adverse effect on our
business.
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We may fail to retain and integrate our key personnel to operate our
business, and we may be unable to hire and retain qualified personnel as our
business grows. Our success depends upon the continued service of our key
technical, sales and senior management personnel. Loss of the services of
Stephen I. Kahn, Chairman of our board of directors and Chief Executive Officer,
Evan Guillemin, President and Chief Financial Officer, Christopher C. Edgar,
Executive Vice President and Chief Operating Officer, or other key employees
would have a material adverse effect on our business.
Our success also depends on our ability to continue to attract, retain and
motivate skilled employees. We may be unable to retain our key employees or
attract, assimilate or retain other qualified employees in the future. Our
business will be materially adversely affected if we fail to attract and retain
key employees.
Our industries are highly competitive. The apparel, accessories and soccer
specialty merchandise industries are highly competitive, and we expect
competition in these markets to increase. We compete with traditional
department-store retailers, as well as specialty apparel, accessory, soccer and
general athletic merchandise retailers, for teen and young-adult customers. We
also compete with other direct marketers, some of which may specifically target
our customers. Many of our competitors are larger than us and have substantially
greater financial, distribution and marketing resources.
There are few barriers to entry in the teen apparel and accessories market
and in the soccer specialty market. We believe that our success in the teen
apparel market has attracted other catalogers, store-based retailers and apparel
manufacturers to this market. We could also face competition from manufacturers
of apparel and accessories (including our current vendors), who could market
their products directly to retail customers or make their products more readily
available in other retail stores or through other catalogs. In addition,
competitors could enter into exclusive distribution arrangements with our
vendors and deny us access to their products. Increased competition could result
in pricing pressures, increased marketing expenditures and loss of market share,
and would have a material adverse effect on our business.
Our industry is being affected by technological changes in distribution and
marketing methods, such as on-line catalogs, retail kiosks and Internet
shopping. We believe our success will depend, in part, on our ability to adapt
to new technologies and to respond to competitors' actions in these areas.
Adapting to new technologies could require significant capital expenditures.
Postage and paper expenses fluctuate. Significant increases in paper or
catalog delivery costs would have a material adverse effect on our business.
We rely on information systems which are subject to disruption. Our success
depends, in part, on our ability to provide prompt, accurate and complete
service to our customers on a competitive basis, and to purchase and promote
products, manage inventory, ship products, manage sales and marketing and
maintain efficient operations through our telephone and management information
systems. A significant disruption in our telephone and management information
systems could adversely affect our relations with our customers and vendors and
our ability to manage our operations. Furthermore, extended or repeated reliance
on our back-up computer and telephone systems would have a material adverse
effect on our business.
We may become subject to currency, political, tax and other uncertainties
as we expand internationally. We distribute our dELiA*s and Storybook Heirlooms
catalogs in Japan and Canada and plan to explore distribution opportunities in
other international markets. Our international business is subject to a number
of risks of doing business abroad, including:
o fluctuations in currency exchange rates;
o the impact of recessions in economies outside the United States;
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o regulatory and political changes in foreign markets;
o reduced protection for intellectual property rights in some countries;
o potential limits on the use of some of our vendors' trademarks outside
the United States;
o exposure to potentially adverse tax consequences or import/ export
quotas;
o opening and managing distribution centers abroad;
o inconsistent quality of merchandise and disruptions or delays in
shipping; and
o difficulties in developing customer lists and marketing channels.
In addition, some of our vendors procure products from outside the United
States and we have begun to purchase merchandise for our dELiA*s-branded apparel
directly from non-U.S. manufacturers. Furthermore, expansion into new
international markets may present competitive and merchandising challenges
different from those we currently face. We cannot assure you that we will expand
internationally or that any such expansion will result in profitable operations.
We depend on intellectual property. The actions we take to establish and
protect our trademarks and other proprietary rights may not prevent imitation of
our products and services or infringement of our intellectual property rights by
others. In addition, others may resist or seek to block sales of our products by
claiming violation of their trademark and proprietary rights.
We may be required to collect sales tax. At present, we do not collect
sales or other similar taxes in respect of direct shipments of goods to
consumers into most states. However, various states have sought to impose state
sales tax collection obligations on out-of-state mail-order companies. A
successful assertion by one or more states that we should have collected or be
collecting sales taxes on the direct sale of products would have a material
adverse effect on our business.
Our principal stockholder may exert control over our business. As of March
31, 1999, Stephen I. Kahn, our Chairman and Chief Executive Officer,
beneficially owned approximately 45% of the outstanding shares of our common
stock, including shares he owns directly and additional shares covered by a
stockholders agreement among some of our existing stockholders. Therefore, Mr.
Kahn can control the election of our directors and the outcome of all issues
submitted to a vote of our stockholders. The foregoing, together with provisions
in our certificate of incorporation, may make it more difficult for a third
party to acquire, and may discourage acquisition bids for, dELiA*s and could
limit the price that investors might be willing to pay for shares of our common
stock. In addition, a majority of stockholders may take any action in writing
without a meeting according to Delaware law and our bylaws, which may allow Mr.
Kahn to direct corporate action without advance notice to other stockholders.
Anti-takeover provisions may have an adverse effect on the market price of
our common stock. Some provisions of our certificate of incorporation and bylaws
may make it more difficult for a third party to acquire, or may discourage
acquisition bids for, dELiA*s and could limit the price that investors might be
willing to pay in the future for shares of our common stock. In addition, the
rights of holders of our common stock will be subordinate 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 us from engaging in a "business
combination" with an "interested stockholder" (in general, a stockholder owning
15% or more of our outstanding voting stock) for a period of three years from
the date that the stockholder becomes an "interested stockholder."
Our stock price has been particularly volatile. Our stock price has
fluctuated substantially since our initial public offering in December 1996. We
believe 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 our common stock to fluctuate
significantly. Further, the stock
10
<PAGE>
market has historically experienced volatility that sometimes has been unrelated
to a company's operating performance.
Failure of our computer systems to properly recognize the year 2000 could
disrupt the operation of our business and technical systems. We depend upon
complex computer software and systems for all phases of our operations. The
failure of any of our software or systems to be Year 2000 compliant could
prevent us from being able to process or fulfill orders from our customers or
could disrupt our financial and management controls and reporting systems. Any
such failure, if not quickly remedied, would have a material adverse effect on
our business, results of operations and financial condition.
We have not yet begun performing tests on all of our material operating
software and systems to assess and ensure Year 2000 compliance. We cannot assure
you that all of our software and systems will be Year 2000 compliant. Many
existing computer programs and systems use only two digits to identify a year in
the date field. These programs and systems were designed and developed without
considering the impact of the upcoming turn of the century. If not corrected,
such computer applications could fail or create erroneous results by or at the
Year 2000.
In addition to the systems and software that we use directly, our
operations also depend on the performance of software and systems of our third
party service providers. These include providers of financial,
telecommunications and parcel delivery services. We also cannot assure you that
our service providers have, or will have, operating software and systems that
are Year 2000 compliant.
In addition, a significant portion of our sales are made with credit cards.
Our business, results of operations and financial condition may be materially
adversely affected to the extent our customers are unable to use their credit
cards due to Year 2000 issues.
Item 2. Properties
The following table sets forth information regarding our principal
facilities, excluding retail stores. All such facilities are currently leased.
<TABLE>
<CAPTION>
Appr. Sq. Lease
Location Use Footage Expiration Date
-------- --- --------- ---------------
<S> <C> <C> <C>
New York, NY Corporate offices and call center 45,000 2007
Hanover, PA Warehouse, fulfillment and distribution center 350,000 2000(1)
Durham, NC Corporate offices and call center 65,000 2007
Foster City, CA Corporate offices and call center 20,000 2001
Hayward, CA Warehouse, fulfillment and distribution center 33,000 2000
</TABLE>
(1) We have two three-year options to extend the term of this lease. In
December 1998, we entered an agreement to purchase the 450,000 square foot
distribution facility that includes the space we currently lease. The
transaction is expected to be completed in fiscal 1999.
We believe our facilities are well maintained and in good operating
condition. We plan to lease additional corporate office space during fiscal
1999.
Item 3. Legal Proceedings.
11
<PAGE>
We are not involved in any legal proceedings that we believe would have a
material adverse effect on our business.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Our common stock is traded on the NASDAQ National Market under the symbol
DLIA. The following table sets forth the high and low sales prices for our
common stock as reported by NASDAQ for the periods indicated. These quotations
reflect interdealer prices without adjustments for retail markups, markdowns, or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal year ended January 31, 1998
1st Quarter.............................................................. $19.750 $13.750
2nd Quarter.............................................................. 25.875 14.250
3rd Quarter.............................................................. 25.000 16.125
4th Quarter.............................................................. 30.750 19.750
Fiscal year ended January 31, 1999
1st Quarter.............................................................. $30.188 $22.125
2nd Quarter.............................................................. 28.000 14.500
3rd Quarter.............................................................. 19.000 4.125
4th Quarter.............................................................. 22.938 7.500
</TABLE>
On April 1, 1999, there were 157 holders of record of common stock and
approximately 3,900 beneficial owners of common stock.
Dividend Information
Since our initial public offering in December 1996, we have neither
declared nor paid any cash dividends on our common stock. We currently intend to
retain our earnings for future growth and, therefore, do not anticipate paying
any cash dividends in the foreseeable future. We have entered into a credit
agreement with First Union National Bank which prohibits us from paying
dividends.
Sales of Unregistered Securities in the Fourth Quarter of Fiscal 1998
On December 17, 1998, we issued 5,000 shares of our common stock to the
three New York State residents who were shareholders of gURL, Interactive Inc.
as partial payment for all of the outstanding capital stock of that entity. The
issuance of such securities was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.
Item 6. Selected Financial Data.
The selected financial data set forth below have been derived from our
consolidated financial statements, which have been prepared according to
generally accepted accounting principles. The following selected data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto appearing elsewhere in this report.
All financial and operating data have been restated to give effect to the
1996 Reorganization, as defined in Note 1 of Notes to Consolidated
Financial Statements, and our acquisition of TSI Soccer Corporation. In
1997, dELiA*s adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." All per share data for prior periods have been
restated. Pro forma net income is computed for the year ended January 31,
1997 and all
13
<PAGE>
prior periods on the basis described in Note 7 of Notes to Consolidated
Financial Statements and assuming the pro forma tax provisions described in
that note. Prior to the IPO, which was completed in December 1996, dELiA*s
effected the 1996 Reorganization, in which dELiA*s converted from a limited
liability company to a C corporation. See Note 7 of Notes to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(in thousands, except share and per share data)
Income Statement Data:
Net sales............................ $12,053 $23,391 $54,224 $113,049 $158,364
Cost of sales........................ 7,212 13,652 28,291 57,811 78,368
--------- --------- --------- ---------- ----------
Gross profit......................... 4,841 9,739 25,933 55,238 79,996
Selling, general and
administrative expenses 4,949 9,720 22,194 47,943 71,711
Merger-related costs................. -- -- -- 1,614 --
Other income (expense), net.......... (45) (56) 103 1,201 962
--------- --------- --------- ---------- ----------
Income (loss) before income taxes.... (153) (37) 3,842 6,882 9,247
Provision (benefit) for income taxes. -- (5) (351) 2,456 3,405
--------- --------- --------- ---------- ----------
Net income (loss).................... $ (153) $ (32) $ 4,193 $ 4,426 $ 5,842
========= ========= ========= ========== ==========
Basic net income (loss) per share.... $ (0.01) $ (0.00) $ 0.40 $ 0.34 $ 0.42
========= ========= ========= ========== ==========
Diluted net income (loss) per share.. $ (0.01) $ (0.00) $ 0.40 $ 0.34 $ 0.41
========= ========= ========= ========== ==========
Pro forma net income (loss).......... (95) (22) $ 2,257
========= ========= =========
Pro forma basic and diluted net
income (loss) per share............ $ (0.01) $ (0.00) $ 0.22
========= ========= =========
Shares used in the calculation of
basic net income (loss) per share.. 10,263 10,263 10,477 12,941 13,779
========= ========= ========= ========== ==========
Shares used in the calculation of
diluted net income (loss) per share 10,263 10,263 10,499 13,083 14,318
========= ========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
January 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands, except retail store data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ............ 635 726 21,717 4,485 10,981
Working capital ...................... 950 349 19,099 37,959 25,480
Total assets ......................... 2,807 4,381 32,660 64,572 82,144
Total stockholders' equity ........... 848 916 21,024 44,144 63,607
Selected Operating Data:
Number of catalogs distributed ....... 5,400 13,050 39,850 61,322
House names (1) ...................... 685 1,873 4,192 10,671
Buyers (2) ........................... 269 644 1,308 6,072
Retail stores (3) .................... 2 10 14 43
</TABLE>
(1) House names represent the number of customers who have made at least one
purchase or have requested a catalog in the preceding 36 months, determined
at the end of the applicable fiscal period. The numbers presented include
names purchased from Fulcrum, but are net of duplicate names based on
management estimates.
(2) Buyers represent the number of customers who have made at least one
purchase, determined at the end of the applicable fiscal period. The
numbers presented include names purchased from Fulcrum, but are net of
duplicate names based on management estimates.
(3) Retail stores represent the number of retail stores we operated at the end
of the applicable fiscal period.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with
"Item 6--Selected Financial Data" and our Consolidated Financial Statements and
Notes thereto included elsewhere in this report. Except for the historical
information presented, the discussion in this report contains forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary statements made
in this report should be read as being applicable to all related forward-looking
statements wherever they appear in this report. Our actual results could differ
materially from those discussed here. Factors that could cause or contribute to
these differences include, but are not limited to, those discussed below and
under "Item 1--Business--Risk Factors" as well as those discussed elsewhere in
this report.
Overview
Through our catalogs, retail stores and Web sites, we are a leading
marketer of casual apparel, accessories and soccer merchandise to young men and
women between the ages of 10 and 24, an age group known as "Generation Y."
Through our dELiA*s catalog and Web site, which target Generation Y girls
and young women, we are the leading direct marketer of casual apparel, related
accessories and cosmetics focused on this demographic group. Through our TSI
Soccer catalog, retail stores and Web site, we are a leading direct marketer and
retailer of specialty soccer merchandise to Generation Y boys and girls. Our
other catalogs include Contents, mailed in fiscal 1998 as a dELiA*s insert which
offers home furnishings to Generation Y, and Droog, a recently-launched apparel
and accessory title that targets Generation Y young men, as well as dot dot dash
and Storybook Heirlooms, our pre-teen apparel titles. Through our recently
acquired Screeem! and Jean Country retail stores, we offer our customers
progressive, fashion-forward, unisex branded apparel through a dynamic
mall-based shopping experience featuring live DJs, fashion models and
promotional appearances and events. In January 1999, we mailed our first
Storybook Heirlooms catalog, which targets girls ages 4 to 11 with fashionable,
upscale special occasion outfits, casual apparel and accessories. We acquired
the Storybook Heirlooms trademark, customer list and related inventory in
September 1998.
In fiscal 1998, we distributed approximately 61 million catalogs, 10
editions of dELiA*s, five editions of TSI Soccer, two editions of droog and one
edition of Storybook Heirlooms. During the same period, we also opened three
additional retail outlet stores. In addition, we acquired retail stores through
our Screeem! business acquisition and acquired assets of the Fulcrum Direct
catalog business.
We have recently combined the components of our Internet operations,
including www.dELiAs.cOm, www.TSISoccer.com, www.discountdomain.com,
www.Droog.com, www.ContentsOnline.com, www.dotdotdash.com and
www.StorybookHeirlooms.com, as well as the www.gURL.com community Web site, into
our iTurf Inc. subsidiary. On April 14, 1999, we completed an initial public
offering of approximately 28% of iTurf's common stock. iTurf used $17.7 million
of the proceeds to purchase 551,046 shares of dELiA*s common stock from us.
In February 1999, we opened our first full-priced dELiA*s retail store in
The Westchester mall in White Plains, New York. Since January 31, 1999, we have
also opened two new TSI Soccer stores and signed several leases for additional
dELiA*s and TSI Soccer stores. During fiscal 1999, we expect to open 10 to 15
new dELiA*s retail stores and 7 to 10 new TSI Soccer retail stores.
Capital Investments. In order to support our direct marketing operations,
we have made and continue to make significant capital expenditures for telephone
and management information systems and have hired and maintained an in-house
workforce of teleservice representatives.
We have made, and expect to continue to make, significant capital
expenditures to build infrastructure, including high-performance sophisticated
retail management systems, to support the additional sales volume expected as a
result of expected growth in our various businesses.
Risks. As our revenue base grows and we further penetrate our target
market, we will probably not be able to sustain the levels of percentage annual
growth in net sales and operating income experienced historically. In addition,
as we continue to increase the number of catalogs we mail, we have observed that
15
<PAGE>
new customers respond at lower rates than our existing customers have
historically responded. We have also observed that when customers receive
multiple editions of catalogs within the same fiscal quarter, aggregate response
rates have declined.
Legislation 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 could adversely affect our use of purchased and rented lists, as well
as our ability to generate new names for our proprietary database.
A variety of factors affect our comparable store sales, including, among
others, fashion trends, the general retail sales environment, our ability to
efficiently source and distribute products, changes in our merchandise mix and
our ability to execute our business strategy efficiently. Comparable store sales
may fluctuate significantly as we roll out new retail concepts and enter new
markets.
Results of Operations
On December 10, 1997, we acquired TSI Soccer Corporation in a transaction
accounted for as a pooling of interests. Accordingly, our historical results
have been restated to include the historical operations of TSI.
The following table sets forth, for the periods indicated, the percentage
relationship of items from our income statement to net sales. Any trends
reflected by the following table may not be indicative of future results.
<TABLE>
<CAPTION>
Percentage of Net Sales
------------------------------------------------------
Fiscal Year 1996 Fiscal Year 1997 Fiscal Year 1998
Ended Ended Ended
January 31, January 31, January 31,
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0%
Cost of sales................................... 52.2 51.1 49.5
------ ------ ------
Gross profit.................................... 47.8 48.9 50.5
Selling, general, and administrative expenses 40.9 42.4 45.3
Merger related expenses......................... 1.4
Interest income, net............................ 0.2 1.0 0.6
------ ----- ------
Income before income taxes...................... 7.1 6.1 5.8
Provision (benefit) for income taxes............ (0.6) 2.2 2.1
------- ------ -----
Net income...................................... 7.7% 3.9% 3.7%
====== ====== ======
Pro forma net income............................ 4.2%
======
</TABLE>
Pro forma net income is computed for the year ended January 31, 1997 on the
basis described in Note 7 of Notes to Consolidated Financial Statements and
assuming the pro forma tax provisions described in that note. Prior to the IPO,
which was completed in December 1996, dELiA*s effected the 1996 Reorganization,
in which dELiA*s converted from a limited liability company to a C corporation.
Comparison of Fiscal Years 1997 and 1998
Net sales. Net sales increased approximately $45.4 million, from $113.0
million in fiscal 1997 to $158.4 million in fiscal 1998. The increase in net
sales was primarily due to our fiscal 1998 Screeem!
16
<PAGE>
acquisition and an increase in the number of catalogs mailed offset in part by
reduced response rates to our catalogs.
Gross margin. Gross margin increased from 48.9% in fiscal 1997 to 50.5% in
fiscal 1998. The increase in gross margin was primarily due to a larger
proportion of higher-margin apparel sales compared to relatively lower-margin
soccer merchandise sales. Gross margin also increased due to improved sourcing
of merchandise, including larger volume discounts from suppliers and a greater
proportion of private label products sourced directly from overseas contract
manufacturers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $23.8 million, from $47.9
million (before non-recurring charges) in fiscal 1997 to $71.7 million in fiscal
1998. Selling, general and administrative expenses increased as a percentage of
net sales from 42.4% in fiscal 1997 to 45.3% in fiscal 1998. The increase in
selling, general and administrative expenses was primarily due to greater
marketing expenditures on catalog circulation and greater spending on our
corporate infrastructure, including expenditures to support retail and internet
growth.
Interest and other income, net. Interest and other income, net, decreased
approximately $0.2 million, from $1.2 million in fiscal 1997 to $1.0 million in
fiscal 1998. The decrease in interest income, net, was primarily due to our use
of the net proceeds from our IPO and another public offering we completed in
1997, which proceeds were previously invested, for our 1998 acquisitions.
Comparison of Fiscal Years 1996 and 1997
Net sales. Net sales increased approximately $58.8 million, from $54.2
million in fiscal 1996 to $113.0 million in fiscal 1997. The increase in net
sales was primarily due to an increase in the number of catalogs mailed, as well
as an increase in average order size and, to a lesser degree, the opening of
three new TSI Soccer retail stores. The increase in average order size resulted
from a combination of factors, including increased prices on existing items and
the addition of more expensive items.
Gross margin. Gross margin increased from 47.8% in fiscal 1996 to 48.9% in
fiscal 1997. The increase in gross margin was primarily due to a larger
proportion of higher-margin apparel sales from the dELiA*s catalog compared to
relatively lower-margin soccer merchandise sales from the TSI Soccer catalog and
retail stores.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $25.7 million, from $22.2
million in fiscal 1996 to $47.9 million (before non-recurring charges) in fiscal
1997. Selling, general and administrative expenses increased as a percentage of
net sales from 40.9% in fiscal 1996 to 42.4% in fiscal 1997. The increase in
selling, general and administrative expenses was primarily due to greater
marketing expenditures on catalog circulation and greater spending on
infrastructure, which were partly offset by the leveraging of fixed costs over a
larger revenue base.
Merger-related costs. Merger-related costs of $1.6 million were incurred in
fiscal 1997 in connection with the TSI acquisition and included professional
fees, costs related to consolidation of distribution facilities, the write-off
of property and equipment and cancellation of contracts.
Interest income, net. Interest income, net, increased approximately $1.1
million, from $103,000 in fiscal 1996 to $1.2 million in fiscal 1997. The
increase in interest income, net, was primarily due to our investment of the net
proceeds from the IPO and another public offering we completed in 1997.
Provision (benefit) for income taxes. Provision (benefit) for income taxes
increased approximately $2.8 million from a benefit of $351,000 in fiscal 1996
to a provision of $2.5 million in fiscal 1997. This
17
<PAGE>
increase relates to the 1996 Reorganization, which was effected in the fourth
quarter of fiscal 1996, in which we converted from a limited liability company
to a C corporation.
Selected Quarterly Results of Operations and Seasonality
The following table sets forth unaudited income statement data for the
eight quarters ended January 31, 1999, as well as the data expressed as
percentages of our total net sales for the periods indicated. The data have been
derived from unaudited consolidated financial statements that, in the opinion of
management, include all adjustments consisting only of normal recurring
adjustments necessary for fair presentation when read in conjunction with our
annual audited consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------------------------------
Fiscal 1997 Fiscal 1998
------------------------------------------- ------------------------------------------
Apr. 30, July 31, Oct. 31, Jan. 31, Apr. 30, July 31, Oct. 31, Jan. 31,
1997 1997 1997 1998 1998 1998 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except share and per share data)
Net sales..................... $ 17,697 $ 21,086 $31,357 $ 42,909 $ 31,194 $ 26,451 $40,821 $ 59,898
Cost of sales................. 9,278 10,622 16,514 21,397 14,223 13,712 19,979 30,454
-------- -------- ------- -------- -------- -------- ------- --------
Gross profit................ 8,419 10,464 14,843 21,512 16,971 12,739 20,842 29,444
Selling, general and
administrative expenses 8,048 10,204 12,684 17,007 14,092 13,499 19,691 24,429
Merger-related costs........ -- -- -- 1,614 -- -- -- --
Other income) net........... 213 268 338 382 341 300 126 195
-------- -------- ------- -------- -------- -------- ------- --------
Income (loss) before
income taxes........... 584 528 2,497 3,273 3,220 (460) 1,277 5,210
Provision (benefit) for
income taxes........... 262 141 870 1,183 1,220 (317) 530 1,972
-------- -------- ------- -------- -------- -------- ------- --------
Net income (loss)........... $ 322 $ 387 $ 1,627 $ 2,090 $ 2,000 $ (143) $ 747 $ 3,238
======== ======== ======= ======== ======== ======== ======= ========
Per share data:
Basic net income (loss) per
share.................. $ 0.03 $ 0.03 $ 0.12 $ 0.16 $ 0.15 $ (0.01) $ 0.05 $ 0.23
======== ======== ======= ======== ======== ======== ======= ========
Shares used in calculation
of basic net income
(loss) per share
Diluted net income (loss) per 12,288 12,866 13,301 13,310 13,321 13,498 14,139 14,159
share.................. $ 0.03 $ 0.03 $ 0.12 $ 0.15 $ 0.15 $ (0.01) $ 0.05 $ 0.21
======== ======== ======= ======== ======== ======== ======= ========
Shares used in calculation
of diluted net income
(loss) per share....... 12,387 13,003 13,445 13,498 13,569 13,498 14,735 15,300
</TABLE>
<TABLE>
<CAPTION>
Percentage of Total Net Sales
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............... 52.4 50.4 52.7 49.9 45.6 51.8 49.0 50.8
------ ----- ------ ------ ------ ------ -------- --------
Gross profit................ 47.6 49.6 47.3 50.1 54.4 48.2 51.0 49.2
Selling, general,
administrative and
merger-related expenses 45.5 48.4 40.4 43.4 45.2 51.0 48.2 40.8
Other income, net........... 1.2 1.3 1.1 0.9 1.1 1.1 0.3 0.3
------ ------ ------ ------ ------- ------- -------- --------
Income (loss) before income
taxes.................. 3.3 2.5 8.0 7.6 10.3 (1.7) 3.1 8.7
Provision (benefit) for
income taxes........... 1.5 0.7 2.8 2.7 3.9 (1.2) 1.3 3.3
----- ------ ------ ------ ------- ------- -------- --------
Net income (loss)........... 1.8% 1.8% 5.2% 4.9% 6.4% (0.5)% 1.8% 5.4%
====== ====== ====== ====== ======= ======= ======== ========
</TABLE>
We experience seasonal fluctuations in our merchandise sales and results of
operations. We expect our sales and operating results generally to be lower in
the first and second quarters and higher in the third quarter and fourth
quarter, which includes the holiday season, of each fiscal year. Our quarterly
results may fluctuate as a result of numerous factors, including
o the timing, quantity and cost of catalog mailings;
o the timing of new store openings;
18
<PAGE>
o the timing of sale circulars and liquidations;
o the timing of merchandise deliveries;
o market acceptance of our merchandise, including new merchandise
categories or products introduced, and response rates to catalog
mailings;
o the mix of products sold;
o the timing of inventory writedowns;
o the incurrence of other operating costs; and
o factors beyond our control, such as general economic conditions,
changes in consumer spending patterns; actions of competitors and
weather and other factors affecting retail stores.
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.
Liquidity and Capital Resources
On December 7, 1998 we entered into a credit agreement with First Union
National Bank. The credit agreement was amended in April 1999 to permit the
iTurf initial public offering. The credit agreement established a new credit
facility which replaced our previous line of credit agreement. The credit
facility, which terminates on December 7, 2001, consists of a revolving line of
credit permitting us to borrow up to $25 million and provides for the issuance
of documentary and standby letters of credit up to $10 million. Our obligations
under the credit agreement are secured by a lien on substantially all of our
assets, except specified real property, the Class B common stock of iTurf that
we own and the assets of iTurf and its subsidiaries. Our ability to borrow under
the credit agreement is contingent on a number of conditions including our
compliance with tangible net worth, fixed charge coverage ratio and debt to cash
flow covenants. The availability of the unused revolving line of credit is
limited to specified percentages of the value of our eligible inventory
determined under the credit agreement. At our option, borrowings under this
facility bear interest at First Union National Bank's prime rate or at LIBOR
plus 200 basis points. The credit agreement contains covenants and default
provisions customary for credit facilities of this nature, including limitations
on our payment of dividends. A fee of 0.375% per year is assessed monthly on the
unused portion of the line of credit. There were no funds borrowed under line of
credit agreements during the fiscal years ended January 31, 1998 and 1999.
Without giving effect to our acquisition of TSI Soccer Corporation, since
our inception, we have met our operating and cash requirements through funds
generated from operations, the private sales of equity securities and our public
offerings. In addition, we have used our bank credit facilities for letters of
credit. TSI's operating and cash requirements were provided primarily by bank
loans, loans from stockholders and private equity financing. Following the TSI
Soccer acquisition, we repaid substantially all of TSI's outstanding long-term
debt and bank line of credit.
Cash used by operations in fiscal 1998 was $9.2 million compared to cash
provided by operations of $6.6 million in fiscal 1997. This change primarily
related to a fiscal 1998 decrease in current liabilities, after adjusting for
acquisitions, while the current liabilities balance increased significantly
during fiscal 1997. In addition, we used more cash to invest in inventory and
other current assets. These cash uses were offset by increased cash provided by
operations as reflected by an increase in net income before depreciation and
amortization expense.
Cash provided by investing in fiscal 1998 was $15.6 million, while
investing activities used $43.0 million in fiscal 1997, excluding cash invested
in short-term securities, as we used the proceeds from the sale of investments
purchased in the prior year to finance our operations. During fiscal 1999, we
expect to make capital expenditures in excess of $22 million for the purchase of
and improvements to our warehouse
19
<PAGE>
and distribution facility, expansion of our retail concepts, investment in iTurf
and other information system projects as well as leasehold improvements and
other equipment relating to new corporate office leases.
We believe that our cash on hand and cash generated by operations, together
with the funds available under our credit agreement and the funds raised by the
IPO of iTurf, will be sufficient to meet our capital and operating requirements
through fiscal 1999. Our future capital requirements, however, depend on
numerous factors, including, without limitation, the success of our marketing,
sales and distribution efforts. Additional funds, if required, may not be
available to us on favorable terms or at all.
Year 2000
We are heavily dependent upon complex computer software and systems for our
operations. Many existing computer programs and systems use only two digits to
identify a year in the date field. These programs and systems were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer applications could fail or create erroneous
results by or at the Year 2000.
State of Readiness
All of our material operating software and our information technology and
other systems, including telecommunications and warehouse systems, were
developed by and are supported by third party vendors. Each of the third party
vendors of our mission-critical operating software, with the exception of the
vendor of the phone switch used by our Storybook Heirlooms business, have
provided written warranties or assurances that such software will not be
affected by the changes in the century. We are continuing communications with
the vendor of our Storybook Heirlooms phone switch, although the lease on such
switch expires in fiscal 1999 and our renegotiations will be contingent on Year
2000 compliance. The majority of the third party vendors of our other material
operating software and systems have also provided warranties or assurances that
such software and systems would be compliant by December 31, 1998. We have
prepared a Year 2000 compliance program which involves:
o identifying the material operating software and systems on which we
depend, whether used by us or by our service providers;
o obtaining written warranties or assurances from third party software
and systems vendors and service providers;
o monitoring the compliance efforts of those vendors and service
providers; and
o testing our material operating software and systems.
We expect to begin performing tests in the second quarter of fiscal 1999 of
some of our material operating software and systems to verify the assurances
given by these third party vendors and ensure Year 2000 compliance. We have not
yet begun to perform these tests on any of our software and systems and we may
not be able to test all of our material operating systems. As a result, we have
not identified any material software or systems as requiring remediation or
replacement. However, we can not assure you that all of our material operating
software and systems will be Year 2000 compliant.
In addition to the operating systems and software we use directly, our
operations are also dependent upon the performance of operating software and
systems used by our significant service providers, including providers of
financial, telecommunications and parcel delivery services. We have contacted
each of our significant service providers and have obtained written assurances
from the majority of such providers that their relevant operating software and
systems are in Year 2000 compliance or would be by December 31, 1998. We are
monitoring the status of all our significant service providers' Year 2000
compliance efforts to minimize the risk of any material adverse effect on our
operations resulting from
20
<PAGE>
compliance failures. However, there can be no assurance that our service
providers have, or will have, operating software and systems that are Year 2000
compliant.
21
<PAGE>
Risks
The failure of our software or systems to be Year 2000 compliant could
prevent us from being able to process or fulfill orders from our customers or
could disrupt our financial and management controls and reporting systems. Any
such worst-case scenario, if not quickly remedied, would have a material adverse
effect on our business. Therefore, we are developing contingency plans with
respect to our systems and software. We expect our contingency plans to be
completed by the end of the second quarter of fiscal 1999.
In addition, a significant portion of our merchandise sales are made with
credit cards, and our operations may be materially adversely affected to the
extent our customers are unable to use their credit cards due to Year 2000
issues that are not rectified by the customers' credit card vendors.
We have not identified significant exposure to Year 2000 problems outside
of the information technology issues identified above.
Costs
To date, we have spent less than $10,000 on Year 2000 compliance. We expect
our incremental costs of addressing Year 2000 issues in fiscal 1999 and beyond
to be between $50,000 and $75,000. We believe that we have sufficiently budgeted
for technology investments, including Year 2000 compliance, and that such
investments will be funded by our cash from operations, the iTurf IPO and our
credit facility, as necessary. However, given our dependence on third-party
software and system vendors and service providers, including our customers'
vendors, there can be no assurance to that effect.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income. The adoption of SFAS No. 130 as of February 1, 1998 did not have an
effect on our financial statements or disclosure as we have no reconciling
items. Therefore, net income and comprehensive income are the same.
In fiscal 1998, we adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual consolidated financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related disclosures about
products and services, geographic areas and major customers. Although we sell
different types of products and use several distribution methods, the adoption
of SFAS No. 131 did not affect our disclosure of segment information as the
level of operating results currently available to and reviewed by the chief
operating decision maker, as defined by the statement, categorizes our business
as a single operating segment under SFAS No. 131.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," SFAS No. 133,
which is effective for fiscal years beginning after June 15, 1999, requires us
to recognize all derivatives on the balance sheet at fair value. We have
determined that the adoption of this new standard will not have a material
effect on our consolidated financial statements or disclosure for all periods
presented.
22
<PAGE>
Item 8. Financial Statements and Supplementary Data.
See Item 14 of Part IV of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
During the two most recent fiscal years, there has been no change in, or
disagreement with, the independent accountant engaged as the principal
accountant to audit our consolidated financial statements or the operations of a
significant subsidiary.
PART III
The information required by Part III (Items 10 through 13) is incorporated
by reference to the captions "Beneficial Ownership of Voting Securities,"
"Election of Directors," "Management" and "Certain Transactions" in our
definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of our
fiscal year covered by this report.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K.
(a) See Index to Financial Statements on page F-1.
(b) We filed the following reports on Form 8-K during fiscal 1998:
(i) current report on Form 8-K/A, dated February 23, 1998, reporting
Item 7. This report contained financial statements relating to
our acquisition of TSI Soccer Corporation in the fourth quarter
of fiscal 1997.
(ii) current report on Form 8-K, dated March 20, 1998, reporting Item
5. This report contained our consolidated net sales and net
income for the 30-day period ended January 9, 1998.
(iii) current report on Form 8-K, dated July 27, 1998, reporting Item
5. This report contained information about the acquisition of our
Screeem! business.
(iv) current report on Form 8-K/A, dated September 11, 1998, reporting
Item 7. This report contained historical and pro forma financial
information about our Screeem! business.
(c) See Exhibit Index immediately following Signature Page.
23
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of January 31, 1998 and 1999 ............................................. F-4
Consolidated Statements of Income for the fiscal years ended January 31, 1997,
1998 and 1999 ......................................................................................... F-5
Consolidated Statements of Stockholders' Equity for the fiscal years ended January 31, 1997,
1998 and 1999 ......................................................................................... F-6
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 1997,
1998 and 1999 ......................................................................................... F-7
Notes to Consolidated Financial Statements .............................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of dELiA*s Inc.
New York, New York
We have audited the consolidated balance sheets of dELiA*s Inc. and subsidiaries
(the "Company") as of January 31, 1998 and 1999, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
fiscal years in the period ended January 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits. The
consolidated financial statements give retroactive effect to the merger between
a wholly-owned subsidiary of the Company and TSI Soccer Corporation ("TSI"),
which has been accounted for as a pooling of interests as described in Note 3 to
the consolidated financial statements. We did not audit the statements of
income, stockholders' equity, and cash flows of TSI for the year ended December
31, 1996, which statements reflect total revenues of $24.0 million for the year
ended December 31, 1996. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for TSI for 1996, is based solely on the report of such other
auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of dELiA*s Inc. and subsidiaries as of
January 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended January 31, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
March 30, 1999
(April 14, 1999 as to Notes 1 and 15)
New York, New York
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
TSI Soccer Corporation
Durham, North Carolina
We have audited the statements of income, stockholders' equity and cash flows of
TSI Soccer Corporation for the year ended December 31, 1996 (not separately
included herein). 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, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of TSI Soccer
Corporation for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
High Point, North Carolina
March 18, 1998
F-3
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 4,485 $ 10,981
Short-term investments .................................................... 37,075 -
Merchandise inventories ................................................... 11,233 21,232
Prepaid expenses and other current assets ................................. 5,120 11,352
--------------- ----------------
Total current assets ................................................ 57,913 43,565
PROPERTY AND EQUIPMENT - Net ................................................. 6,222 12,542
GOODWILL AND OTHER ASSETS .................................................... 437 26,037
--------------- ----------------
TOTAL ASSETS ................................................................. $ 64,572 $ 82,144
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .......................................................... 11,697 10,185
Accrued expenses .......................................................... 5,157 4,739
Liabilities due to customers .............................................. 1,206 1,763
Income taxes payable ...................................................... 1,188 -
Other current liabilities ................................................. 706 1,398
--------------- ----------------
Total current liabilities ........................................... 19,954 18,085
LONG-TERM LIABILITIES ........................................................ 474 452
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; Authorized - 1,000,000 shares;
Issued and outstanding - none ........................................... - -
Common stock, par value $.01 per share; Authorized - 50,000,000 shares;
Issued and outstanding - 13,318,914 and 14,185,425 shares,
at January 31, 1998 and 1999, respectively .............................. 133 142
Deferred compensation ..................................................... (50) -
Additional paid-in capital ................................................ 40,571 54,133
Retained earnings ......................................................... 3,490 9,332
--------------- ----------------
Total stockholders' equity .......................................... 44,144 63,607
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................... $ 64,572 $ 82,144
=============== ================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED JANUARY 31, 1997, 1998 AND 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
-------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
NET SALES ........................................................ $ 54,224 $ 113,049 $ 158,364
COST OF SALES .................................................... 28,291 57,811 78,368
------------- ----------- ------------
GROSS PROFIT ..................................................... 25,933 55,238 79,996
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ..................... 22,194 47,943 71,711
MERGER RELATED COSTS (Note 3) .................................... - 1,614 -
INTEREST AND OTHER INCOME, NET ................................... 103 1,201 962
------------- ----------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES ......................... 3,842 6,882 9,247
PROVISION (BENEFIT) FOR INCOME TAXES ............................. (351) 2,456 3,405
------------- ----------- ------------
NET INCOME ....................................................... $ 4,193 $ 4,426 $ 5,842
============= =========== ============
BASIC NET INCOME PER SHARE ....................................... $ 0.40 $ 0.34 $ 0.42
============= =========== ============
DILUTED NET INCOME PER SHARE ..................................... $ 0.40 $ 0.34 $ 0.41
============= =========== ============
PRO FORMA INCOME DATA (UNAUDITED)
Income before provision for income taxes as reported .......... $ 3,842
Pro forma provision for income taxes .......................... 1,585
-------------
Pro forma net income .......................................... $ 2,257
=============
Pro forma basic and diluted net income per share .............. $ 0.22
=============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED JANUARY 31, 1997, 1998 AND 1999
(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, JANUARY 31, 1996 ............ 9,454,562 $ 95 $ -- $ -- $ 1,220 $ (399) $ 916
Issuance of common stock ............. 808,065 8 (50) (217) 259 -- --
LLC Distribution (Note 1) ............ -- -- -- -- (417) (3,583) (4,000)
Net proceeds from issuance of common
stock in initial public offering
(Note 1) ........................... 2,052,500 21 -- -- 19,824 -- 19,845
Deferred compensation expense (Note 8) -- -- -- 70 -- -- 70
Net income ........................... -- -- -- -- -- 4,193 4,193
---------- ------ ---- ----- ------- ------- -------
BALANCE, JANUARY 31, 1997 ............ 12,315,127 124 (50) (147) 20,886 211 21,024
Cancellation of common stock ......... (49,523) (1) 5 (4) -- -- --
Net proceeds from issuance of common
stock in public offering ........... 1,000,000 10 -- -- 19,415 -- 19,425
Issuance of common stock (Note 8) .... 35,300 -- -- -- 638 -- 638
Payments to statutory dissenters
(Note 3) ........................... -- -- -- -- (730) -- (730)
Payment of note receivable from
stockholder (Note 14) .............. -- -- 50 -- -- -- 50
Issuance of common stock in connection
with acquisition (Note 3) .......... 5,000 -- -- -- 108 -- 108
Exercise of stock options ............ 2,250 -- -- -- 25 -- 25
Issuance of common stock in
satisfaction of Stock Appreciation
Rights (Note 3) 10,760 -- -- -- 233 -- 233
Deferred compensation expense (Note 8) -- -- -- 92 -- -- 92
Net income ........................... -- -- -- -- -- 4,426 4,426
Adjustment to conform fiscal year
of pooled company (Note 3) ......... -- -- -- -- -- (1,147) (1,147)
---------- ------ ---- ----- ------- ------- -------
BALANCE, JANUARY 31, 1998 ............ 13,318,914 133 -- (50) 40,571 3,490 44,144
========== ====== ==== ===== ======= ======= =======
Deferred compensation expense (Note 8) -- -- -- 50 -- -- 50
Issuance of common stock in connection
with acquisitions (Note 3) ......... 817,501 8 -- -- 13,242 -- 13,250
Exercise of stock options ............ 49,010 1 -- -- 320 -- 321
Net income ........................... -- -- -- -- -- 5,842 5,842
---------- ------ ---- ----- ------- ------- -------
BALANCE, JANUARY 31, 1999 ............ 14,185,425 $ 142 $ -- $ -- $54,133 $ 9,332 $63,607
========== ====== ==== ===== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 31, 1997, 1998 AND 1999
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
-----------------------------------------------------
1997 1998 1999
------------- -------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 4,193 $ 4,426 $ 5,842
Adjustment to conform fiscal year of pooled company .... - (1,147) -
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 288 857 2,677
Loss on disposition of fixed assets .................. - 85 -
Amortization of investments .......................... - 204 160
Compensation expense related to restricted stock and
stock appreciation rights .......................... 70 325 50
Decrease in note receivable from stockholder ......... - 50 -
Changes in operating assets and liabilities:
Merchandise inventories .............................. (4,827) (4,228) (6,888)
Prepaid expenses and other current assets ............ (1,026) (3,504) (6,191)
Other assets ......................................... (32) (130) (1,007)
Current liabilities .................................. 7,583 9,317 (4,023)
Long-term liabilities ................................ 14 296 142
------------- --------------- ----------------
Net cash (used in) provided by operating activities ....... 6,263 6,551 (9,238)
------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (1,551) (4,839) (6,158)
Purchase of investment securities:
Held-to-maturity ..................................... - (62,782) -
Available-for-sale ................................... - (49,501) (46,513)
Proceeds from maturity of held-to-maturity investment
securities ........................................... - 32,555 30,024
Proceeds from sale of available-for-sale investment
securities ........................................... - 42,450 53,404
Acquisition of businesses, net of cash acquired ........ - (843) (15,203)
------------- ---------------- ----------------
Net cash provided by (used in) investing activities ....... (1,551) (42,960) 15,554
------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ............. 19,845 20,063 -
Exercise of stock options .............................. - 23 321
Payments for dividends ................................. (4,000) - -
Borrowings (repayments) under line of credit agreement . 503 (503) -
Proceeds from issuance of long-term debt ............... 68 - -
Principal payments on long-term debt and capital lease
obligations .......................................... (137) (406) (141)
------------- --------------- ----------------
Net cash provided by financing activities ................. 16,279 19,177 180
------------- --------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................ 20,991 (17,232) 6,496
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............ 726 21,717 ` 4,485
------------- --------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................. $ 21,717 $ 4,485 $ 10,981
============= =============== ================
SUPPLEMENTARY CASH FLOWS INFORMATION:
Income taxes paid ...................................... $ 96 $ 1,738 $ 3,328
============= =============== ================
Interest paid .......................................... $ 119 $ 255 $ 13
============= =============== ================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 31, 1997, 1998 and 1999
1. BUSINESS AND BASIS OF PRESENTATION
dELiA*s Inc. (together with its consolidated subsidiaries, the "Company" or
"dELiA*s"), through its catalogs, retail stores and Web sites, is a leading
marketer of casual apparel, accessories and soccer merchandise to young men
and women between the ages of 10 and 24, an age group known as "Generation
Y."
The Company has recently combined the components of its Internet operations
into its iTurf Inc. subsidiary ("iTurf"). On April 14, 1999, the Company
completed an initial public offering of approximately 28% of iTurf's common
stock. See Note 15.
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 and higher
in the third quarter and fourth quarter, which includes the holiday season,
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, dELiA*s was incorporated in Delaware. Prior to the
completion of the Company's December 1996 initial public offering of its
common stock (the "IPO"), dLLC and dELiA*s engaged in a reorganization
transaction (the "1996 Reorganization") pursuant to which dLLC contributed
its assets to dELiA*s and dELiA*s assumed, and agreed to pay, perform and
discharge, all liabilities of dLLC (except for income tax liabilities). In
connection with the 1996 Reorganization, dELiA*s issued 10,000,000 shares
of its common stock to dLLC, of which 704,474 shares were restricted under
the Company's Restricted Stock Plan. See Note 12. The 1996 Reorganization
also resulted in the distribution to existing members of dLLC of $4,000,000
and shares of common stock of dELiA*s in accordance with the dLLC operating
agreement (the "LLC Distribution"). The accompanying consolidated financial
statements and footnotes are presented to reflect the 1996 Reorganization
as described above, which was 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. The
consolidated financial statements have been retroactively restated to
include the financial statements of TSI Soccer Corporation ("TSI") for
all periods prior to the consummation of the acquisition discussed in
Note 3.
b. Principles of Consolidation - The consolidated financial statements
include the accounts of dELiA*s and subsidiaries, all of which were,
for all periods presented, wholly-owned. All significant intercompany
balances and transactions have been eliminated in consolidation.
F-8
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c. 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.
d. Investments - The Company's short-term and long-term investments
consist of debt and equity securities, principally instruments of the
U.S. Government and its agencies, of municipalities and of short-term
mutual municipal and corporate bond funds.
Securities that may be sold as part of the Company's asset management
strategy, in response to or in anticipation of changes in interest
rates, or for other similar factors, are classified as available for
sale and carried at fair value. Unrealized holding gains and losses on
such securities are reported net of related taxes, if any, as a
separate component of stockholders' equity. Securities that the
Company has the ability and positive intent to hold to maturity are
classified as held to maturity and carried at amortized cost. There
are no trading account securities. Realized gains and losses on sales
of securities are reported in earnings and computed using the specific
identification cost basis.
e. Merchandise Inventories - Merchandise inventories, which are primarily
finished goods, are stated at the lower of cost (determined on a
first-in, first-out basis) or market value.
f. Catalog Costs - Catalogs costs, which primarily consist of catalog
production and mailing costs, are capitalized and amortized over the
expected life of the related future revenue stream, which principally
covers three to five months from the date catalogs are mailed. The
Company accounts for catalog costs in accordance with AICPA Statements
of Position ("SOP") 93-7, "Reporting on Advertising Costs." SOP 93-7
requires that amortization expense relating to capitalized advertising
costs should be computed using the ratio of current period revenues
for the catalog cost pool to the total of current and estimated future
period revenues for that catalog cost pool. Deferred catalog costs as
of January 31, 1998 and 1999 were $3,226,000 and $6,436,000,
respectively. Catalog costs, which are included in selling, general
and administrative expenses, were $8,171,000, $22,637,000 and
$30,987,000, for the fiscal years ended January 31, 1997, 1998 and
1999, respectively.
g. Property and Equipment - Property and equipment are stated at cost and
are depreciated on the straight-line method over the estimated useful
lives or, for leasehold improvements, the shorter of the estimated
useful lives or the remaining term of the lease. See Note 4.
h. Goodwill and Other Assets - Goodwill and costs related to trademarks
and licenses are amortized on a straight-line basis over their
expected useful lives.
F-9
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i. Income Taxes - Prior to the IPO, 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 discussed in Note 1, the Company effected the 1996
Reorganization that changed the income tax status of the Company to a
taxable C corporation. Since the 1996 Reorganization, deferred income
tax assets and liabilities are recorded in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." See Note 7.
j. Deferred Credits - Deferred credits, which are included in long-term
liabilities, represent deferred rent that results from the accounting
for rent expense on a straight-line basis over the lease term for
leases with scheduled rent increases.
k. Revenue Recognition - Revenue is recognized when merchandise is
shipped to customers or at the point of sale for retail sales. The
Company accrues a sales return allowance in accordance with its return
policy for estimated returns of merchandise subsequent to the balance
sheet date that relate to sales prior to the balance sheet date. At
January 31, 1998 and 1999, the sales return allowance was $601,000 and
$681,000, respectively. These amounts are included in other current
liabilities.
l. 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 amounts reported in the financial
statements and footnotes thereto. Actual results could differ from
those estimates.
m. Recent Accounting Pronouncements - In fiscal 1998, the Company adopted
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information". SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. SFAS No. 131 also establishes standards for
related disclosures about products and services, geographic areas and
major customers. Although the Company sells different types of
products and uses several distribution methods, the adoption of SFAS
No. 131 did not affect the disclosure of segment information as the
level of operating results currently available to and reviewed by the
chief operating decision maker, as defined by the statement,
categorizes our business as a single operating segment under SFAS No.
131.
F-10
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ACQUISITIONS
TSI Soccer Corporation
On December 10, 1997, the Company acquired TSI in a transaction accounted
for as a pooling of interests. In connection with the TSI transaction, the
Company issued an aggregate of 308,687 shares of its common stock,
including 297,927 shares to certain shareholders of TSI and 10,760 shares
to employees of TSI pursuant to a "change of control" provision in TSI's
stock appreciation rights plan. The Company also made cash payments of
approximately $730,000 to former stockholders of TSI. The $730,000 of cash
payments, which were made to stockholders exercising statutory dissenters
rights, was recorded by dELiA*s as a reduction in equity. These
stockholders held 104,373 shares (or 9.23% of the outstanding shares) out
of an aggregate of 1,134,411 shares of TSI outstanding immediately prior to
consummation of the acquisition. None of these dissenting stockholders
received consideration other than the cash referred to above. The holders
of the 1,029,674 other shares (or 90.77% of the outstanding shares) of TSI
received only dELiA*s common stock as consideration for their TSI shares,
other than cash payments of approximately $137 made for fractional shares.
In accordance with pooling-of-interests accounting, prior financial
statements and information have been restated to include TSI as if the
companies had been combined for all periods presented.
Prior to the acquisition, TSI's fiscal year ended on December 31. For
fiscal 1997, the combined companies reported on the basis of dELiA*s fiscal
year. Accordingly, the Consolidated Statement of Income for the fiscal year
ended January 31, 1998 includes the results of TSI for the year ended
December 31, 1997. As a result, TSI's operations for the one-month period
ended January 31, 1998 are not reflected in the Consolidated Statements of
Income and Cash Flows for the year ended January 31, 1998. TSI's operating
results for the one-month period ended January 31, 1998, comprising total
revenues and a net loss of approximately $986,000 and $1,147,000,
respectively, are reflected as an adjustment to retained earnings. The
results for this one-month period reflect no unusual items and the
seasonal nature of the business.
Merger related costs totaling $1,614,000 included professional fees and
costs related to the consolidation of distribution facilities, the writeoff
of property and equipment and cancellation of contracts.
The table below sets forth the unaudited separate and combined results of
dELiA*s and TSI for the fiscal year ended January 31, 1998.
<TABLE>
<CAPTION>
Total Revenues
--------------
<S> <C>
dELiA*s ............................... $ 86,610,000
TSI ................................... 26,439,000
--------------
Total ................................. $ 113,049,000
==============
Net Income (Loss)
-----------------
dELiA*s ............................... $ 5,861,000
TSI ................................... (1,435,000)
--------------
Total ................................. $ 4,426,000
==============
</TABLE>
F-11
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ACQUISITIONS (continued)
gURL, Interactive Inc.
On December 17, 1997, a wholly-owned subsidiary of the Company acquired the
net assets of gURL, Interactive Inc. ("gURL"), an interactive entertainment
Web site, for cash, 5,000 shares of the Company's common stock and rights
to an aggregate of 10,000 additional shares of the Company's common stock
subject to the satisfaction of certain performance targets by December 1998
and 1999. The acquisition was accounted for by the purchase method and the
results of the operations of the acquired business have been included in
the consolidated financial statements since the date of acquisition.
Goodwill was subsequently increased in connection with the achievement of
the defined targets. The value of the 5,000 additional shares issued to the
sellers in fiscal 1998 and the remaining 5,000 shares, which will be issued
in fiscal 1999, has been recorded as goodwill and stockholder's equity. The
Company's operating results would not have been materially different on a
pro forma basis assuming the acquisition had occurred on the first day of
each fiscal year reported.
The SCREEEM! Business
In July 1998, the Company, through two wholly-owned subsidiaries, acquired
assets located in 26 retail stores operated under the Screeem! and Jean
Country names, as well as the leases for such stores and several related
trademarks (together, the "Screeem! Business") from American Retail
Enterprises, L.P. ("ARE"). The purchase price for the acquisition consisted
of $10,025,000 in cash, 812,501 shares of dELiA*s Inc. common stock and the
right to receive additional shares of dELiA*s common stock in the future
contingent on the stock's trading price. (See Note 11.) The acquisition has
been accounted for as a purchase. Accordingly, the operating results of the
Screeem! Business have been included in the Company's consolidated
financial statements since the date of acquisition. The excess of the
aggregate purchase price over the fair market value of net assets acquired
of $19,378,000 was allocated to goodwill based upon preliminary estimates
of fair values and is being amortized over thirty years. The Company does
not expect the final purchase allocation to differ significantly from the
preliminary purchase price recorded. On a pro forma basis, assuming the
acquisition had occurred on the first day of each fiscal year, net sales,
net income and diluted earnings per share would have been approximately
$147,783,000, $5,624,000 and $0.41, respectively, for the year ended
January 31, 1998 and $172,889,000, $4,727,000 and $0.32, respectively, for
the year ended January 31, 1999. These results are presented for
informational purposes only and do not necessarily represent results which
would have occurred nor are they indicative of future results of combined
operations.
Assets of Fulcrum Direct, Inc.
In September 1998, the Company acquired certain assets from the estate of
Fulcrum Direct, Inc. for approximately $4.75 million in cash. The primary
assets included the trademarks and customer lists for the zoe, Storybook
Heirlooms, Playclothes, After the Stork and Just for Kids catalogs. The
Company also purchased selected inventory and assumed certain Storybook
Heirlooms customer refund liabilities. The acquisition has been accounted
for as a purchase with the excess of the aggregate purchase price over the
fair market value of net assets acquired allocated to goodwill based upon
preliminary estimates of fair values. The Company does not expect the final
purchase allocation to differ significantly from the preliminary purchase
price recorded. The Company's operating results would not have been
materially different on a pro forma basis assuming the acquisition had
occurred on the first day of each fiscal year reported.
F-12
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
Estimated January 31, January 31,
Useful Lives 1998 1999
------------ ---- ----
<S> <C> <C> <C>
Furniture, fixtures and equipment ............ 5 - 10 years $ 5,444,000 $ 10,862,000
Leasehold improvements ....................... Term of lease 1,842,000 4,871,000
------------ -------------
Total - at cost .............................. 7,286,000 15,733,000
Less accumulated depreciation and amortization 1,064,000 3,191,000
------------ -------------
Total property and equipment - net ........... $ 6,222,000 $ 12,542,000
============ =============
</TABLE>
5. CREDIT AND FINANCING AGREEMENTS
On December 7, 1998 the Company entered into a credit agreement with First
Union National Bank (the "Credit Agreement"). The Credit Agreement
established a new credit facility which replaced the Company's previous
line of credit agreement. The Credit Agreement, which terminates on
December 7, 2001, consists of a revolving line of credit permitting the
Company to borrow up to $25 million and provides for the issuance of
documentary and standby letters of credit up to $10 million. The Company's
obligations under the Credit Agreement are secured by a lien on
substantially all of the Company's assets, except certain real property.
The ability of the Company to borrow under the Credit Agreement is subject
to a number of conditions including compliance with tangible net worth,
fixed charge coverage ratio and debt to cash flow covenants. The
availability of the unused revolving line of credit is limited to specified
percentages of the value of the Company's eligible inventory determined
under the Credit Agreement. At the option of the Company, borrowings under
this facility bear interest at First Union National Bank's prime rate or at
LIBOR plus 200 basis points. The Credit Agreement contains certain
covenants and default provisions customary for credit facilities of this
nature, including limitations on payment of dividends by the Company. A fee
of 0.375% per year is assessed monthly on the unused portion of the line of
credit.
There were no funds borrowed under the line of credit agreements during the
fiscal years ended January 31, 1998 and 1999.
Outstanding letters of credit established to facilitate international
merchandise purchases at January 31, 1999 were $1,342,000.
6. LONG-TERM DEBT
The Company had no long-term debt balances at January 31, 1999. Long-term
debt at January 31, 1998 consisted of the following:
<TABLE>
<S> <C>
Installment notes payable, $5,057 per month
including interest at 9.9%, through November 1999,
collateralized by vehicles ......................... $ 85,000
Less current maturities ............................ 55,000
----------
Total long-term debt ............................... $ 30,000
==========
</TABLE>
F-13
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1997 Fiscal Year 1998
Ended Ended Ended
January 31, 1997 January 31, 1998 January 31, 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal:
Current ............................. $ 14,000 $ 2,262,000 $ 1,700,000
Deferred ............................ (478,000) (498,000) 918,000
State and local:
Current ............................. 212,000 694,000 575,000
Deferred ............................ (99,000) (2,000) 212,000
------------- ------------- -------------
Total provision (benefit) ................... $ (351,000) $ 2,456,000 $ 3,405,000
============= ============= =============
</TABLE>
In 1996, the Company effected the 1996 Reorganization that changed the
income tax status of the Company from an LLC treated as a partnership to a
taxable C corporation. As discussed in Note 3, in December 1997, the
Company acquired TSI, a C corporation.
The effective income tax rates differed from the federal statutory income
tax rates as follows:
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1997 Fiscal Year 1998
Ended Ended Ended
January 31, 1997 January 31, 1998 January 31, 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal taxes at statutory rates .................... $ 1,306,000 $ 2,340,000 $ 3,144,000
State and local taxes net of federal benefit ........ 273,000 451,000 519,000
Effect of LLC ....................................... (1,923,000) - -
Tax-exempt interest income .......................... - (346,000) (252,000)
Other ............................................... (7,000) 11,000 (6,000)
------------- ------------- -------------
.................................................... $ (351,000) $ 2,456,000 $ 3,405,000
============= ============= =============
</TABLE>
The significant components of the Company's net deferred tax assets are as
follows:
<TABLE>
<CAPTION>
January 31, 1998 January 31, 1999
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves ........................... $ 790,000 $ 611,000
Sales return allowance ....................... 238,000 277,000
Deferred compensation expense ................ 68,000 -
Uniform capitalization - inventories ......... 258,000 523,000
Net operating loss ........................... 328,000 595,000
Reserves and accruals ........................ 425,000 348,000
Other ........................................ 204,000 94,000
----------- ------------
Total deferred tax assets ................ 2,311,000 2,448,000
Deferred tax liabilities:
Catalog costs ................................ (1,211,000) (2,296,000)
Property and equipment ....................... - (37,000)
----------- ------------
Total deferred tax liabilities ........... (1,211,000) (2,333,000)
----------- ------------
Net deferred tax assets .................. $ 1,100,000 $ 115,000
=========== ============
</TABLE>
F-14
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INCOME TAXES (continued)
The Company had a net operating loss carryover ("NOL") of approximately
$1,382,000 at January 31, 1999 representing the separate company loss of
TSI existing at the date of acquisition. Although this NOL is subject to
limitations under provisions of the Internal Revenue Code, the Company
expects to fully utilize this NOL in future periods. The NOL expires in
2012.
Pro Forma 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 1996 Reorganization
described in Note 1 and which reflects the provision/ benefit for income
taxes assuming the TSI acquisition was consummated on February 1, 1996.
The pro forma provision for income taxes for the fiscal year ended January
31, 1997 is comprised of the following:
<TABLE>
<S> <C>
Federal:
Current ......................................... $ 1,308,000
Deferred ........................................ (176,000)
------------
Total Federal ............................ 1,132,000
State and local:
Current ......................................... 491,000
Deferred ........................................ (38,000)
Total state and local .................... 453,000
------------
Total provision ................................... $ 1,585,000
============
</TABLE>
8. STOCKHOLDERS' EQUITY
Effective upon the 1996 Reorganization, as described in Note 1, the Company
has 1,000,000 shares of preferred stock authorized, $.01 par value per
share, no shares issued or outstanding; 50,000,000 shares of common stock
authorized, $.01 par value per share, 13,318,914 and 14,185,425 shares
issued and outstanding at January 31, 1998 and 1999, respectively.
Prior to January 31, 1996, dLLC issued Class A membership interests for
capital contributions of $1,300,000, which upon the 1996 Reorganization
were converted into 9,191,935 shares of dELiA*s Inc. common stock. During
the fiscal year ended January 31, 1997, the Company issued Class C
membership interests for capital contributions of $50,000, which upon the
1996 Reorganization were converted into 103,591 shares of dELiA*s Inc.
common stock.
During the fiscal year ended January 31, 1997, 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' $217,000 fair market value at the award date, was credited to
stockholders' equity and was amortized against earnings over the vesting
period of 30 months. Deferred compensation expense recognized during the
fiscal years ended January 31, 1997, 1998 and 1999 was $70,000, $92,000 and
$50,000, respectively. Upon the 1996 Reorganization, the Class B restricted
membership interests converted into 704,474 shares of restricted dELiA*s
Inc. common stock. See Note 12 and Note 14.
F-15
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. STOCKHOLDERS' EQUITY (continued)
During the fiscal year ended January 31, 1998, TSI issued 134,409
additional shares of TSI common stock. Of the 134,409 shares issued, 23,834
shares were used to repay $113,400 of subordinated unsecured notes payable
to TSI stockholders. Net proceeds from the sale of the balance of 110,575
shares at $4.75 per share were used principally to fund working capital.
The 134,409 shares of TSI common stock were exchanged for 35,300 shares of
dELiA*s common stock in the TSI acquisition. See Note 3.
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
January 31, 1997 January 31, 1998 January 31, 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Numerator (net income) ................. $ 4,193,000 $ 4,426,000 $ 5,842,000
=============== =============== ===============
Denominator for basic earnings per share
(weighted-average shares) ............ 10,477,000 12,941,000 13,779,000
Effect of dilutive securities:
Stock options ........................ 22,000 142,000 492,000
Contingent stock - acquisitions ...... - - 47,000
--------------- --------------- ---------------
Denominator for diluted earnings per share
(adjusted weighted-average and
assumed conversions) .............. 10,499,000 13,083,000 14,318,000
=============== =============== ===============
Basic net income per share ............. $ 0.40 $ 0.34 $ 0.42
=============== =============== ===============
Diluted net income per share ........... $ 0.40 $ 0.34 $ 0.41
=============== =============== ===============
</TABLE>
Options to purchase zero, 7,000 and 165,000 shares for the fiscal years
ended January 31, 1997, 1998 and 1999 were outstanding but not included in
the computation of diluted earnings per share because the option's exercise
price was greater than the average market price of the Company's common
stock and therefore the effect would be antidilutive. In addition,
outstanding options to purchase iTurf were not significant enough to have
any effect on dELiA*s earnings per share for the fiscal year ended
January 31, 1999.
10. 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 value amounts
reported in the balance sheets for cash and cash equivalents, receivables,
accounts payable and long-term debt approximate fair values. The fair
values of current and noncurrent investments were estimated based on quotes
obtained from brokers for those instruments (see Note 5). The carrying
amounts and fair values of the Company's investments at January 31, 1998
are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Debt Securities ................... $30,024,000 $30,081,000
Equity Securities ................. 7,051,000 7,051,000
</TABLE>
F-16
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. COMMITMENTS AND CONTINGENCIES
a. Leases
As of January 31, 1999, the Company was obligated under various long-term
non-cancelable leases for office, retail, and warehouse and distribution
space and equipment requiring minimum annual rental payments in future
periods as follows:
<TABLE>
<CAPTION>
Year Ending Capital Operating
January 31 Leases Leases Total
- ---------- ----------- ------------ ------------
<S> <C> <C> <C>
2000 ........................ $194,000 $ 5,894,000 $ 6,088,000
2001 ........................ - 5,315,000 5,315,000
2002 ........................ - 4,107,000 4,107,000
2003 ........................ - 3,251,000 3,251,000
2004 ........................ - 3,170,000 3,170,000
2005 and thereafter ......... - 8,731,000 8,731,000
-------- ----------- -----------
Minimum lease payments ...... $194,000 $30,468,000 $30,662,000
======== =========== ===========
</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, 1997, 1998 and 1999 was
$730,000, $2,069,000 and $4,893,000 respectively.
b. Benefit Plan
TSI has a 401(k) retirement plan covering all eligible employees. Under the
plan employees can defer 1% to 15% of compensation. The Company may make
matching contributions on a discretionary basis. The employee's
contribution is 100% vested and the Company's matching contribution vests
over a five-year period. The Company's contribution was $5,000, $13,000 and
$24,000 in fiscal 1996, 1997 and 1998, respectively.
c. Contingent Stock
In connection with the Screeem! Business acquisition, the Company has
agreed that if the mean of the intraday high and low bid prices for the
Company's common stock for the 20 consecutive trading days immediately
preceding January 10, 2000 (the "18-Month Price") is less than $18.00, it
will issue to the sellers that number of additional shares of dELiA*s
common stock that is equal to (i) the excess of (x) the product of 208,334
shares (subject to adjustment) multiplied by $18.00 over (y) the product of
208,334 shares multiplied by the greater of the 18-Month Price or $10.00
divided by (ii) the 18-Month Price.
d. Distribution Center Purchase
In December 1998, the Company entered an agreement to purchase, for $6.2
million cash, the distribution center in Hanover that it has been leasing
since 1997. The purchase is expected to be completed during fiscal 1999.
The Company expects to finance this purchase through a mortgage loan.
F-17
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. 1996 RESTRICTED STOCK PLAN
Concurrent with the 1996 Reorganization, the Company approved and adopted
the 1996 Restricted Stock Plan (the "Restricted Stock Plan") pursuant to
which 704,474 shares of dELiA*s common stock were 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 were 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 lapsed 30 months from the grant date of the original restricted
membership interest in dLLC.
13. STOCK OPTIONS
Concurrent with the 1996 Reorganization, the Company approved and adopted
the 1996 Stock Incentive Plan. Such plan was amended and restated in July
1998. On December 1, 1998, the Company's board of directors approved and
adopted the 1998 Stock Incentive Plan. The 1996 Stock Incentive Plan, as
amended, and the 1998 Stock Incentive Plan (collectively, the "Incentive
Plans") provide 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 a committee of the Company's
board of directors.
The maximum number of shares of common stock that may be issued pursuant to
the Incentive Plans is 3,500,000. The maximum number of shares of common
stock subject to each of the stock options or stock appreciation rights
that may be granted to any individual under the Incentive Plans is 200,000
for each fiscal year under the 1996 Stock Incentive Plan, as amended, and
400,000 under the 1998 Stock 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 Plans.
An executive is party to a stock option agreement with the Company pursuant
to which the Company granted such executive an option to purchase up to an
aggregate of 250,000 shares of Common Stock at an exercise price of $11.00
per share, the fair market value on the date of grant. The option becomes
exercisable as to 50,000 shares on each of July 21, 1997, 1998, 1999, 2000
and 2001.
On June 22, 1998 and September 15, 1998, in an effort to retain employees
at a time when a significant percentage of employee stock options had
exercise prices that were above fair market value, the Company reduced the
exercise price of outstanding common stock options held by the Company's
employees, consultants and directors to the fair market value per share as
of the date of the reduction in price. All options maintained the same
vesting and expiration terms. Not all grants to officers were repriced.
Executive officers forfeited a portion of prior grants in connection with
the repricing.
On September 16, 1998, two employees and a financial advisor were granted
options to purchase stock in Storybook Inc., a wholly-owned subsidiary of
the Company. The options become exercisable two years after the date of
grant and expire ten years after the date of grant. The defined exercise
price is equal to the fair market value at the date of grant.
F-18
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCK OPTIONS (continued)
A summary of stock option activity under the Company's Incentive Plans for
the fiscal years ended January 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
January 31, 1997 January 31, 1998 January 31, 1999
--------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period .. - $ - 383,750 $ 11.00 744,437 $ 14.96
Granted (excludes repricing) ..... 383,750 11.00 362,937 19.13 2,496,183 15.83
Exercised ........................ - - (2,250) 11.00 (49,010) 6.56
Canceled (excludes repricing) .... - - - - (152,500) 18.04
---------- ---------- ----------
Outstanding at end of period ........ 383,750 $ 11.00 744,437 $ 14.96 3,039,110 $ 6.77
========== ======= ========== ======= ========== =======
Options exercisable at end of period - $ - 107,500 $ 11.24 351,327 $ 5.75
========== ======= ========== ======= ========== =======
</TABLE>
The following summarizes stock option information at January 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- -------------------
Weighted-Average Weighted- Weighted-
Range of Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Under $8.63 ......... 2,724,110 9 years $6.12 351,327 $5.75
$8.64 to $12.50 ..... 164,000 10 years $9.56 - -
$12.51 to $16.38 .... 151,000 9 years $15.51 - -
=============== ==============
Total ............... 3,039,110 9 years $6.77 351,327 $5.75
=============== ==============
</TABLE>
On January 1, 1999, iTurf established a stock incentive plan, reserved
shares for grant under the plan, and issued employees options to purchase,
at the fair market value at that date, shares representing approximately
11% of outstanding iTurf shares, all of which were held by dELiA*s.
Approximately 85% of the options granted vest in eight six-month intervals
generally beginning six months from the date of grant, while the remaining
15% vest 20% per year beginning one year from the date of grant. At January
31, 1999, all of the options remained outstanding, although none were
exercisable.
The Company applies APB No. 25 and related interpretations in accounting
for the Incentive Plan. Accordingly, no compensation expense has been
recognized for the plan in the years ended January 31, 1997, 1998 or 1999.
Had compensation expense been determined based on the fair value of stock
option grants on the date of grant in accordance with SFAS No. 123, the
effect on the Company's net income and earnings per share would have been
as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997 Fiscal 1998
Ended January 31, 1997 Ended January 31, 1998 Ended January 31, 1999
<S> <C> <C> <C>
Pro forma net income ..................... $ 4,162 $ 3,345 $ 1,663
=========== =========== ===========
Pro forma basic and diluted net income
per share ............................. $ 0.40 $ 0.26 $ 0.12
=========== =========== ===========
</TABLE>
F-19
<PAGE>
dELiA*s INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCK OPTIONS (continued)
The average estimated fair market value of options granted during the years
ended January 31, 1997, 1998 and 1999 was $4.08, $7.30 and $3.00 per share.
The fair value of options granted by the Company during the years ended
January 31, 1997, 1998 and 1999 was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used:
no dividend yield; expected volatility for dELiA*s of 45% for the years
ended January 31, 1997 and 1998 and 65% for the year ended January 31, 1999
and 0% for iTurf; risk-free interest rate of 6.4%, 5.5% and 4.6%,
respectively; expected lives of three to five years.
14. FAMILY STOCKHOLDERS AGREEMENT
Concurrent with the 1996 Reorganization, certain stockholders (the "Family
Holders") and a stockholder/executive of the Company (the "Executive")
entered into a stockholders' agreement with the Company (the "Family
Stockholders Agreement"). The Family Holders are permitted to transfer
shares of the Company's stock owned by them in accordance with the
requirements of Rule 144 under the Securities Act of 1933. The Family
Stockholders Agreement also permits each of the Family Holders to cause the
Company to register shares of its common stock under some circumstances
concurrently with offerings of common stock by the Company. The Company
will generally be required to bear the expenses of all such registrations,
except underwriting discounts and commissions. In addition, the Family
Stockholders Agreement gives the Executive the right to vote all of the
shares of Company common stock owned by the Family Holders on all matters
that come before the stockholders of the Company. The Family Holders
collectively owned 22.4 percent of the outstanding dELiA*s common stock as
of January 31, 1999. The Family Stockholders Agreement will expire on the
tenth anniversary of the completion of the 1996 Reorganization.
15. SUBSEQUENT EVENTS
On April 14, 1999, the Company completed an initial public offering of 4.8
million shares of iTurf's Class A common stock, which represented
approximately 28% of that subsidiary's value. iTurf used $17.7 million of
the total $97.8 million in proceeds to purchase 551,046 shares of dELiA*s
common stock from dELiA*s, which the Company will treat as treasury stock
in consolidation.
On April 8, 1999, the Company and First Union National Bank amended the
Credit Agreement such that in connection with the iTurf IPO, iTurf is no
longer considered a borrower under the agreement. Accordingly, First Union
National Bank released its security interest in the assets of iTurf as well
as its pledge, assignment and security interest in the capital stock of
iTurf for the remaining term of the agreement.
******
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
our behalf by the undersigned thereunto duly authorized.
/s/ Stephen I. Kahn
---------------------------
Stephen I. Kahn
Chairman of the Board and
Chief Executive Officer
Date: April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Stephen I. Kahn Chairman of the Board and April 15, 1999
- ---------------------------- Chief Executive Officer
Stephen I. Kahn (principal executive officer)
/s Evan Guillemin President, Chief Financial April 15, 1999
- ---------------------------- Officer and Treasurer
Evan Guillemin (principal financial and
accounting officer)
/s/ Christopher C. Edgar Executive Vice President, April 15, 1999
- ---------------------------- Chief Operating Officer and
Christopher C. Edgar Director
/s/ S. Roger Horchow Director April 15, 1999
- ----------------------------
S. Roger Horchow
/s/ Geraldine Karetsky Director April 15, 1999
- ----------------------------
Geraldine Karetsky
/s/ Joseph J. Pinto Director April 15, 1999
- ----------------------------
Joseph J. Pinto
</TABLE>
24
<PAGE>
EXHIBIT INDEX
2.1 Bill of Sale and Contribution and Assumption Agreement between dELiA*s LLC
and dELiA*s Inc. (incorporated by reference to Exhibit 2.1 to our
registration statement on Form S-1 (Registration No. 333-15153))
3.1 Certificate of incorporation of dELiA*s Inc. (incorporated by reference to
Exhibit 3.1 to our registration statement on Form S-1 (Registration No.
333-15153))
3.2 Bylaws of dELiA*s Inc. (incorporated by reference to Exhibit 3.2 to our
registration statement on Form S-1 (Registration No. 333-15153))
10.1 Form of Employment Agreement between dELiA*s Inc. and Stephen I. Kahn
(incorporated by reference to Exhibit 10.1 to our registration statement
on Form S-1 (Registration No. 333-15153))
10.2 Employment Agreement between dELiA*s Inc. and Christopher C. Edgar
(incorporated by reference to Exhibit 10.2 to our registration statement
on Form S-1 (Registration No. 333-15153))
10.3 Employment Agreement between dELiA*s Inc. and Evan Guillemin (incorporated
by reference to Exhibit 10.3 to our registration statement on Form S-1
(Registration No. 333-15153))
10.4 Form of Family Stockholders Agreement among dELiA*s Inc., Stephen I. Kahn
and the persons listed on exhibit A thereto (incorporated by reference to
Exhibit 10.4 to our registration statement on Form S-1 (Registration No.
333-15153))
10.5 Amended and Restated 1996 Stock Incentive Plan (incorporated by reference
to our Schedule 14A filed on June 12, 1998)
10.6 Restricted Stock Plan (incorporated by reference to Exhibit 10.6 to our
registration statement on Form S-1 (Registration No. 333-15153))
10.7 Stock Option Agreement between dELiA*s Inc. and Evan Guillemin
(incorporated by reference to Exhibit 10.7 to our registration statement
on Form S-1 (Registration No. 333-15153))
10.8 [omitted]
10.9 Lease Agreement dated May 3, 1995 between dELiA*s Inc. 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 (incorporated by reference to Exhibit 10.9 to our
registration statement on Form S-1 (Registration No. 333-15153))
10.10 Form of Restricted Stock Agreements between dELiA*s Inc. and holders of
our common stock subject to the Restricted Stock Plan (incorporated by
reference to Exhibit 10.10 to our registration statement on Form S-1
(Registration No. 333-15153))
10.11 Employment Agreement dated April 5, 1999 between iTurf Inc. and Stephen I.
Kahn (incorporated by reference to Exhibit 10.10 to iTurf's registration
statement on Form S-1 (Registration No. 333-71123))
10.12 Lease Agreement dated April 25, 1997 between dELiA*s Inc. and Keystone
Distribution Center, Inc. (incorporated by reference to Exhibit 10.12 to
our annual report on Form 10-K for the fiscal year ended April 30, 1997)
10.13 Agreement, dated April 4, 1997, between dELiA*s Inc. and The Rector,
Church Wardens and Vestrymen of Trinity Church in the City of New York
amending the Lease Agreement
25
<PAGE>
(incorporated by reference to Exhibit 10.13 to our annual report on Form
10-K for the fiscal year ended April 30, 1997)
10.14 Agreement, dated October 7, 1997, between dELiA*s Inc. and The Rector,
Church Wardens and Vestrymen of Trinity Church in the City of New York
amending the Lease Agreement (incorporated by reference to Exhibit 10.14
to our current report on Form 10-Q for the fiscal quarter ended
October 31, 1997)
10.15 Amendment No. 1 to Employment Agreement between dELiA*s Inc. and
Christopher C. Edgar, dated September 15, 1998 (incorporated by reference
to Exhibit 10.15 to our current report on Form 10-Q for the fiscal quarter
ended October 31, 1998)
10.16 Amendment No. 1 to Employment Agreement between dELiA*s Inc. and Evan
Guillemin, dated September 15, 1998 (incorporated by reference to Exhibit
10.16 to our current report on Form 10-Q for the fiscal quarter ended
October 31, 1998)
10.17 Credit Agreement dated December 7, 1998 between First Union National Bank,
dELiA*s Inc. and our subsidiaries listed on Schedule 1 thereto
(incorporated by reference to Exhibit 10.17 to our current report on Form
10-Q for the fiscal quarter ended October 31, 1998)
10.18* 1998 Stock Incentive Plan
10.19 Intercompany Services Agreement between dELiA*s Inc. and iTurf Inc., dated
April 8, 1999 (incorporated by reference to Exhibit 10.1 to iTurf's
registration statement on Form S-1 (Registration Statement No. 333-71123))
10.20 Trademark License Agreement between dELiA*s Inc. and iTurf Inc., dated
April 8, 1999 (incorporated by reference to Exhibit 10.2 to iTurf's
registration statement on Form S-1 (Registration Statement No.
333-71123))
10.21* Amendment No. 1, dated April 8, 1999, to Credit Agreement between First
Union National Bank, dELiA*s Inc. and our subsidiaries listed on the
signature page thereto
21* Subsidiaries of the Registrant
23.1* Consent of Deloitte & Touche LLP
23.2* Consent of BDO Seidman, LLP
27* Financial Data Schedule
* Filed herewith
26
dELiA*s Inc.
1998 STOCK INCENTIVE PLAN
<PAGE>
dELiA*s Inc.
1998 STOCK INCENTIVE PLAN
ARTICLE I.
PURPOSE
The purpose of this dELiA*s Inc. 1998 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
and Consultants 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 and Consultants in order to attract,
retain and reward such individuals and strengthen the mutuality of interests
between such individuals 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 or Termination of Consultancy, 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.
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
<PAGE>
2.8. "Consultant" shall mean any adviser or consultant to the Company and
its Subsidiaries.
2.9. "Disability" shall mean total and permanent disability, as defined in
Section 22(e)(3) of the Code.
2.10. "Effective Date" shall mean the date on which this Plan is approved
and adopted by the Board.
2.11. "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.
2.12. "Exchange Act" shall mean the Securities Exchange Act of 1934.
2.13. "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, 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.
2.14. "Good Reason" shall mean, with respect to a Participant's Termination
of Employment or Termination of Consultancy 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.
2.15. "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.
2.16. "Non-Qualified Stock Option" shall mean any Stock Option awarded
under this Plan that is not an Incentive Stock Option.
2.17. "Participant" shall mean the following persons to whom an Award has
been made pursuant to this Plan: Eligible Employees and Consultants 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.
2.18. "Restricted Stock" shall mean an award of shares of Common Stock
under the Plan that is subject to restrictions under Article VII.
2.19. "Restriction Period" shall have the meaning set forth in Subsection
7.3(a) with respect to Restricted Stock for Eligible Employees.
2.20. "Retirement" with respect to a Participant's Termination of
Employment shall mean a Termination of Employment or Termination of Consultancy
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).
3
<PAGE>
2.21. "Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.22. "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.
2.23. "Stock Appreciation Right" shall mean the right pursuant to an Award
granted under Article IX. A Tandem Stock Appreciation Right shall mean the right
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.
2.24. "Stock Option" or "Option" shall mean any Option to purchase shares
of Common Stock granted to Eligible Employees or Consultants pursuant to Article
VI or non-employee directors of the Company pursuant to Article IX..
2.25. "Subsidiary" shall mean any corporation that is defined as a
subsidiary corporation in Section 424(f) of the Code.
2.26. "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.
2.27. "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.
2.28. "Termination of Consultancy" shall mean, with respect to a
Consultant, that the Consultant is no longer acting as a Consultant to the
Company and its Subsidiaries. In the event an entity shall cease to be a
Subsidiary, there shall be deemed a Termination of Consultancy of any individual
who is not otherwise a Consultant of the Company or another Subsidiary at the
time the entity ceases to be a Subsidiary.
2.29. "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.
2.30. "Transfer" or "Transferred" shall mean anticipate, alienate, attach,
sell, assign, pledge, encumber, charge or otherwise transfer.
2.31. "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.
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
4
<PAGE>
to Eligible Employees or Consultants. 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 and Consultants 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 or Consultants;
(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 or Consultant 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
or Consultant (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 or Consultants 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 or
Consultant, 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 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.
5
<PAGE>
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 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 1,000,000
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
6
<PAGE>
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 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 400,000 shares (subject to
any increase or decrease pursuant to Section 4.2) during each fiscal year
of the Company.
(i) There are no annual individual Participant limitations on
Restricted Stock.
(ii) 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 400,000 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 or Consultant'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 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
7
<PAGE>
referred to as "Acquisition Events"), then the Committee may, in its sole
discretion, terminate all outstanding Options and Stock Appreciation Rights
of Eligible Employees and Consultants, 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 and
Consultants 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.
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 and Consultants 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 AND CONSULTANT 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. The
Committee shall have the authority to grant to any Consultant one or more
Non-Qualified Stock Options (with or without Stock Appreciation Rights).
Notwithstanding any other provision of the Plan to the contrary or any provision
in an agreement evidencing the grant of an Option to the contrary, any Option
granted to a Consultant shall be a Non-Qualified Stock Option.
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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 of Common
Stock subject to a Non-Qualified Stock Option shall be determined by the
Committee. 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 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.
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(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 or Termination of Consultancy. 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 or Termination of Consultancy 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 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 or Termination of Consultancy 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 or Termination of Consultancy 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 or Termination of
Consultancy 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.
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(e) Termination Without Good Reason. If a Participant's Termination of
Employment or Termination of Consultancy 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.
(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 or Termination of Consultancy 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 or Termination of Consultancy 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 or Termination of
Consultancy 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 or Termination of Consultancy 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 or Consultants 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.
(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:
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"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") 1998 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.
(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 or Termination of Consultancy 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. Consultants shall not be eligible for a grant of
Tandem Stock Appreciation Rights granted in conjunction with all or part of an
Incentive Stock Option.
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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.
(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.
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(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 or Termination of
Consultancy of a Participant.
(a) Termination by Death. If a Participant's Termination of Employment
or Termination of Consultancy 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 or Termination of Consultancy 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.
(c) Termination by Reason of Retirement. If a Participant's
Termination of Employment or Termination of Consultancy 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 or Termination of
Consultancy 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
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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 or Termination of Consultancy 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 or Termination of Consultancy 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 or Termination of Consultancy by the Company for Cause (without
regard to any notice or cure period 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 or Termination of
Consultancy 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 or Termination of Consultancy 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 other than Geraldine Karetsky and Sidney S.
Kahn elected subsequent to the Effective Date shall subject to the terms of the
Plan, be granted Options to purchase 40,000 shares of Common Stock upon the date
the non-employee director begins service as a director on the Board.
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, 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 each of the five anniversaries following the date
of grant. All Options shall fully vest upon a Change in Control.
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(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 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
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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 and Consultants, all outstanding Options and the related
Tandem Stock 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 or Consultant 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
ss. 1.425-1 (and any amendments thereto).
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(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-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
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
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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, Consultants 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, 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.
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14.3. No Right to Employment/Consultancy/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 or consultancy 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 employed or a
Consultant is retained to terminate his employment or consultancy, as
applicable, 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.
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.
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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.
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. 1998 Stock Incentive Plan.
AMENDMENT NO. 1 TO AND CONSENT UNDER CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO AND CONSENT UNDER CREDIT AGREEMENT (this "Amendment
No. 1") is made this 8 day of April, 1999 by and among dELiA*s INC., a
Delaware corporation ("dELiA*s") and certain of its subsidiaries listed on the
signature pages hereto under the heading "Existing Borrowers" (each, together
with dELiA*s, individually and collectively, the "Existing Borrower(s)");
dELiA*s Real Estate Holding Company, a Delaware corporation ("dREHC"); TSI Real
Estate Holding Company, a Delaware corporation ("TREHC," together with dREHC,
individually and collectively, "Additional Borrower(s)") (Additional Borrowers
together with Existing Borrowers, individually and collectively, "Borrower(s)");
iTurf Inc., f/k/a/ dELiA*s Interactive Company, a Delaware corporation
("iTurf"), and FIRST UNION NATIONAL BANK, a national banking association (the
"Bank").
BACKGROUND
Existing Borrowers, iTurf and Bank entered into a Credit Agreement dated
December 7, 1998 (as amended hereby and as may be further amended from time to
time, the "Credit Agreement") to provide a revolving credit facility for the
general corporate purposes of the Borrowers, including working capital, and for
the issuance of letters of credit.
In connection with the simultaneous initial public offering of the shares
of common stock of iTurf, a Borrower under the Credit Agreement, Bank has agreed
to release iTurf from the Credit Agreement, the Pledge Agreement, the
Intellectual Property Security Agreement and the Security Agreement, and
Borrowers and Bank have agreed to add two new subsidiaries of dELiA*s as
Borrowers under the Credit Agreement, and to make certain other amendments to
the Credit Agreement as set forth herein, subject to the terms and conditions
hereof.
In consideration of the foregoing and the promises and the agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Definitions
a. General Rule. Unless otherwise defined herein, terms used herein
which are defined in the Credit Agreement shall have the respective
meanings assigned to them in the Credit Agreement.
b. Additional Definitions. The following definition is hereby added to
Section 1 of the Credit Agreement to read in its entirety as follows:
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"dELiA*s and its consolidated Subsidiaries" means dELiA*s and its
consolidated Subsidiaries, other than iTurf Inc., f/k/a dELiA*s
Interactive Company and any of its Subsidiaries.
"Amendment No. 1" means Amendment No. 1 to and Consent under
Credit Agreement dated April 8, 1999 by and among Borrowers and
Bank.
2. Amendment to Schedule 1 (Borrowers). Schedule 1 to the Credit Agreement
(Borrowers) is hereby amended and restated in its entirety as set forth on
Schedule 1 to this Amendment No. 1.
3. iTurf Releases.
(a) Subject to the terms and conditions hereof, Bank and Borrowers
hereby agree that simultaneously with the effectiveness of the registration
statement relating to the initial public offering (the "IPO") of 4,200,000
shares of class A common stock of iTurf Inc. (possibly increasing to
4,830,000 shares of class A common stock if the underwriters of the
offering exercise their overallotment option), iTurf shall cease to be a
Borrower under the Credit Agreement. As set forth in the Credit Agreement,
all Borrowers (which term shall thereafter no longer include iTurf) are and
shall remain jointly and severally liable to Bank for all obligations of
iTurf and the Borrowers to Bank incurred under the Credit Agreement.
(b) Paragraph 6.7 of the Credit Agreement prohibits the sale by a
Borrower of all or any portion of its assets to a person other than to a
Borrower or in the normal and ordinary course of business for value
received. In connection with the IPO, TSI Soccer Corporation will sell
certain of its assets identified on Exhibit A attached hereto (the "TSI
Assets") to iTurf for a purchase price no greater than $100,000 (the "TSI
Sale"). The Bank hereby consents to the TSI Sale.
(c) Pursuant to the Security Agreement and the Intellectual Property
Security Agreement, Existing Borrowers and iTurf granted a security
interest to Bank in the Collateral (for purposes of this Paragraph, as
defined in the Security Agreement) and the Intellectual Property Collateral
(as defined in the Intellectual Property Security Agreement), which
includes the TSI Assets and any and all assets owned by iTurf (the "iTurf
Assets"). Simultaneously with the effectiveness of the registration
statement relating to the IPO, Bank hereby releases its security interest
in the TSI Assets and the iTurf Assets. Bank will execute and deliver to
Borrowers UCC-3 termination statements and any additional documents
reasonably requested by Borrowers to effect the release.
(d) Pursuant to the Pledge Agreement, Existing Borrowers and iTurf
pledged, assigned and granted a security interest to Bank in the Collateral
(for purposes of this Paragraph, as defined in the Pledge Agreement), which
includes without limitation all shares of capital stock and/or other
securities of the Subsidiaries of each Existing Borrower. Simultaneously
with the effectiveness of the registration statement relating to the IPO,
Bank
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hereby releases the pledge, assignment and security interest in its favor
in the shares of capital stock of iTurf and any of its Subsidiaries,
whether currently existing or hereafter formed or acquired and will deliver
the certificate(s) representing such capital stock to dELiA*s upon the
effectiveness of this Amendment No. 1. Schedule A to the Pledge Agreement
is hereby amended and restated in its entirety as set forth on Exhibit B to
this Amendment No.1.
(e) Paragraph 6.2 of the Credit Agreement prohibits the Borrowers from
agreeing to become liable, directly or indirectly, for any indebtedness or
liability of another, whether or not contingent. Simultaneously with the
effectiveness of the registration statement relating to the IPO, dELiA*s
and iTurf will enter into an Intercompany Indemnification Agreement in the
form attached as Exhibit C to this Amendment No. 1 (in such form, the
"Indemnification Agreement") whereby dELiA*s will indemnify iTurf for
certain losses and third party claims as further described therein. Bank
hereby consents to dELiA*s entering into the Indemnification Agreement.
(f) Paragraph 6.9 of the Credit Agreement prohibits payments of fees
to Affiliates of a Borrower other than on terms similar to an arms= length
transaction. Simultaneously with the effectiveness of the registration
statement relating to the IPO, dELiA*s and certain of its Subsidiaries will
enter into certain agreements listed on Exhibit D attached hereto with
iTurf and one of its subsidiaries (the "iTurf Agreements"). Bank hereby
consents to dELiA*s and certain of its Subsidiaries entering into the iTurf
Agreements.
4. Representations and Warranties. Borrowers, including without limitation
the Existing Borrowers and the Additional Borrowers, and iTurf, as applicable,
each hereby represent and warrant to Bank as follows:
a. Representations. Except as provided in Exhibit F to this Amendment
No.1 (which amends Exhibit C (Disclosure Pursuant to Representations and
Warranties) to the Credit Agreement), the representations and warranties in
Section 3 of the Credit Agreement are true and correct in all material
respects as of the date hereof (including as applied to Additional
Borrowers); there is no Event of Default or Default under the Credit
Agreement, as amended hereby; and there has been no material adverse change
in the financial condition or business of Borrowers (including Additional
Borrowers) from the date on which Borrowers last delivered financial
statements to Bank.
b. Power and Authority. Borrowers (including Additional Borrowers) and
iTurf each have the power and authority under the laws of each of their
states of incorporation or formation and under their articles or
certificates of incorporation and bylaws or articles of organization and
operating agreements to enter into and perform this Amendment No. 1 and the
other documents and agreements required hereunder (collectively, the
"Amendment Documents"); all actions (corporate or otherwise) necessary or
appropriate for the execution and performance by Borrowers (including
Additional Borrowers) and iTurf of the Amendment Documents have been taken;
and the Amendment Documents and the Credit Agreement, as amended, each
constitute the valid and binding obligations of Borrowers (including
Additional Borrowers), and iTurf, as applicable, enforceable in accordance
with their respective terms.
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c. No Violations of Law or Agreements. The making and performance of
the Amendment Documents by Borrowers (including Additional Borrowers) and
iTurf will not (i) violate any provisions of any law or regulation,
federal, state or local, or the articles or certificates of incorporation
or bylaws of any Borrower (including any Additional Borrower) or (ii)
result in any breach or violation of, or constitute a default or require
the obtaining of any consent under, any agreement or instrument by which
any Borrower (including any Additional Borrower), iTurf, or its property
may be bound.
5. Conditions to Effectiveness of Amendment. This Amendment No. 1 shall be
effective upon Bank=s receipt of the following documents, each in form and
substance satisfactory to Bank:
a. Amendment No. 1. This Amendment No. 1 duly executed by Borrowers,
iTurf and Bank.
b. Officer=s Certificate. A certificate from the Chief Financial
Officer of dELiA*s certifying as to various matters relating to and the
effectiveness of the registration statement relating to the IPO.
c. Joinder to Promissory Note. The Joinder to Promissory Note, duly
executed by Additional Borrowers, in the form of Exhibit E attached hereto.
d. Opinion of Counsel. An opinion of counsel to Additional Borrowers
in form and substance satisfactory to Bank.
e. Authorization Documents. A certificate of the secretary of each
Additional Borrower attaching and certifying as to (i) the certificate or
articles of incorporation and bylaws of such Additional Borrower; (ii)
resolutions or other evidence of authorization by the board of directors of
each Additional Borrower authorizing its execution and full performance of
this Amendment No. 1, the other Amendment Documents and all other documents
and actions required hereunder; and (iii) an incumbency certificate setting
forth the name, title and specimen signature of each officer of such
Additional Borrower who is authorized to execute the Amendment Documents on
behalf of such Additional Borrower.
f. UCC-1 Financing Statements. Such additional financing statements
(duly executed by Additional Borrowers as debtor) as are necessary or, in
the opinion of Bank desirable, to perfect or continue to perfect the
security interests granted by the Security Agreement, Intellectual Property
Security Agreement and Pledge Agreement.
g. Other Documents. Such additional documents as Bank may reasonably
request.
6. Joinder of Additional Borrowers. Each Additional Borrower is hereby made
a Borrower under the Credit Agreement, and in furtherance thereof:
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a. Each Additional Borrower hereby expressly agrees that it shall be
bound by all terms and conditions of the Credit Agreement and shall be
liable, jointly and severally with the Existing Borrowers, for all
indebtedness and obligations thereunder and under the Note and the other
Loan Documents.
b. Each Additional Borrower hereby expressly agrees that it shall be
bound by all terms and conditions of the Security Agreement, the
Intellectual Property Security Agreement, the Pledge Agreement, the Master
L/C Agreement, the Electronic L/C Agreement and all other Loan Documents.
Each Additional Borrower hereby grants to Bank a security interest in all
the Collateral and any part thereof as security for the payment of all
Liabilities and Obligations (as such terms are defined in the Security
Agreement and the Pledge Agreement respectively) and a security interest in
all the Intellectual Property Collateral and any part thereof as security
for the payment of all Debtor=s Obligations (as such terms are defined in
the Intellectual Property Security Agreement).
c. dELiA*s hereby expressly agrees to be bound by all the terms and
conditions of the Pledge Agreement with respect to each Additional Borrower
and pledges to Bank a security interest in all shares of capital stock
and/or other securities of each Additional Borrower in accordance with and
under the terms of the Pledge Agreement. Schedule A to the Pledge Agreement
is hereby amended and restated in its entirety as set forth on Exhibit B to
this Amendment No. 1.
7. Affirmations. Borrowers (including Additional Borrowers) hereby: (i)
affirm all the provisions of the Credit Agreement, as amended by this Amendment
No. 1, and (ii) agree that the terms and conditions of the Credit Agreement
shall continue in full force and effect as supplemented and amended hereby.
8. Disclosure. Exhibit C to the Credit Agreement (Disclosure Pursuant to
Representations and Warranties) is hereby amended and restated as set forth on
Exhibit F to this Amendment No. 1, which, among other things, reflects matters
related to the Additional Borrowers.
9. Bank Certificate. Upon satisfaction of the conditions described in
Paragraph 5 hereof, Bank shall deliver a certificate to iTurf certifying that
this Amendment No. 1 has become effective.
10. Miscellaneous.
a. Borrowers agree to pay or reimburse Bank for all reasonable fees
and expenses (including without limitation reasonable fees and expenses of
counsel) incurred by Bank in connection with the preparation, execution and
delivery of this Amendment No. 1.
b. This Amendment No. 1 shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
-5-
<PAGE>
c. All terms and provisions of this Amendment No. 1 shall be for the
benefit of and be binding upon and enforceable by the respective successors
and assigns of the parties hereto.
d. This Amendment No. 1 may be executed in any number of counterparts
with the same effect as if all the signatures on such counterparts appeared
on one document and each such counterpart shall be deemed an original.
e. Except as expressly set forth herein, the execution, delivery and
performance of this Amendment No. 1 shall not operate as a waiver of any
right, power or remedy of Bank under the Credit Agreement and the
agreements and documents executed in
-6-
<PAGE>
connection therewith or constitute a waiver of or consent to any further
provision thereof, and the consent granted hereby is limited to the matters
set forth herein.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 the
day and year first above written.
EXISTING BORROWERS:
dELiA*s INC.
By: ___________________________
Name:
Title:
dELiA*s DISTRIBUTION COMPANY
By: ___________________________
Name:
Title:
dELiA*s FOREIGN SALES CORPORATION
By: ___________________________
Name:
Title:
dELiA*s OPERATING COMPANY
By: ______________________________
Name:
Title:
[EXECUTIONS CONTINUED]
-7-
<PAGE>
dELiA*s PROPERTIES INC.
By: ______________________________
Name:
Title:
dELiA*s RETAIL COMPANY
By: ______________________________
Name:
Title:
SCREEEM! INC.
By: ______________________________
Name:
Title:
STORYBOOK INC.
By: ______________________________
Name:
Title:
TSI SOCCER CORPORATION
By: ______________________________
Name:
Title:
TSI RETAIL COMPANY
By: ______________________________
Name:
Title:
[EXECUTIONS CONTINUED]
-8-
<PAGE>
ADDITIONAL BORROWERS:
dELiA*s REAL ESTATE HOLDING COMPANY
By: ______________________________
Name:
Title:
TSI REAL ESTATE HOLDING COMPANY
By: ______________________________
Name:
Title:
BANK:
FIRST UNION NATIONAL BANK
By: ______________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
iTURF INC., f/k/a/ dELiA*s INTERACTIVE COMPANY
By: ______________________________
Name:
Title:
-9-
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
- ---- -----------------------------
dELiA*s Operating Company Delaware
dELiA*s Distribution Company Delaware
dELiA*s Retail Company Delaware
dELiA*s Properties Inc. Delaware
dELiA*s Real Estate Holding Company Delaware
iTurf Inc. Delaware
iTurf Finance Company Delaware
Screeem! Inc. Delaware
Storybook Inc. Delaware
TSI Soccer Corporation North Carolina
TSI Retail Company Delaware
TSI Real Estate Holding Company Delaware
dELiA*s Foreign Sales Corporation Barbados
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following registration
statements of dELiA*s Inc.: (a) Form S-3 (Registration No. 333-43665), (b) Form
S-8 (Registration No. 333-42135), (c) Form S-8 (Registration No. 333-22449) and
(d) Form S-3 (Registration No. 333-61289) of our report dated March 30, 1999
(April 14, 1999 as to Notes 1 and 15), appearing in the annual report on
Form 10-K of dELiA*s Inc. for the fiscal year ended January 31, 1999.
DELOITTE & TOUCHE LLP
New York, New York
April 15, 1999
EXHIBIT 23.2
[BDO SEIDMAN, LLP LETTERHEAD]
Consent of Independent Certified Public Accountants
TSI Soccer Corporation
Durham, North Carolina
We hereby consent to the incorporation by reference in the following
registration statements of dELiA*s Inc.:
(a) Form S-3 (Registration No. 333-43665),
(b) Form S-8 (Registration No. 333-42135),
(c) Form S-8 (Registration No. 333-22449) and
(d) Form S-3 (Registration No. 333-61289)
of our report dated March 18, 1998, relating to the financial statements of TSI
Soccer Corporation, appearing in the annual report on Form 10-K of dELiA*s Inc.
for the fiscal year ended January 31, 1999.
BDO Seidman, LLP
April 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 10,981
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 21,232
<CURRENT-ASSETS> 43,565
<PP&E> 15,733
<DEPRECIATION> 3,191
<TOTAL-ASSETS> 82,144
<CURRENT-LIABILITIES> 18,085
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 63,465
<TOTAL-LIABILITY-AND-EQUITY> 82,144
<SALES> 158,364
<TOTAL-REVENUES> 158,364
<CGS> 78,368
<TOTAL-COSTS> 78,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,247
<INCOME-TAX> 3,405
<INCOME-CONTINUING> 5,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,842
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
</TABLE>
