As filed with the Securities and Exchange Commission on March 17, 1999
Registration No. 333-71123
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
iTurf Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 5961 13-3963754
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
435 Hudson Street
New York, New York 10014
(212) 741-7785
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
STEPHEN I. KAHN
435 Hudson Street
New York, New York 10014
(212) 807-9060
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
---------------
Copies of Communications to:
<TABLE>
<S> <C>
RONALD R. PAPA, ESQ. ROBERT A. SCHWED, ESQ.
Proskauer Rose LLP OTHON A. PROUNIS, ESQ.
1585 Broadway Reboul, MacMurray, Hewitt, Maynard & Kristol
New York, New York 10036-8299 45 Rockefeller Plaza
(212) 969-3000 New York, New York 10111
(212) 841-5700
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
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<CAPTION>
Proposed Maximum
Title Of Each Class Of Amount to be Aggregate Amount of
Securities To Be Registered Registered (1) Offering Price (2) Registration Fee (3)
- ------------------------------------------------ ---------------- -------------------- ---------------------
<S> <C> <C> <C>
Class A Common Stock, par value $.01 per share 4,255,000 $51,060,000 $14,195
</TABLE>
(1) Includes 555,000 shares of Class A common stock which the Underwriters have
an option to purchase to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee.
(3) Includes $12,788 previously paid.
---------------
We will amend this registration statement on such date or dates as may be
necessary to delay its effective date until we file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or
until this registration statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a), may
determine.
================================================================================
<PAGE>
Subject to Completion
March 17, 1999
3,700,000 Shares
[iTurf Logo]
Class A Common Stock
--------------
This is the initial public offering of iTurf Inc., and we are offering
3,700,000 shares of our Class A common stock. We anticipate that the initial
public offering price will be between $10.00 and $12.00 per share.
We have applied to list our Class A common stock on the Nasdaq National Market
under the symbol "TURF."
Investing in the Class A common stock involves risks. See "Risk Factors"
beginning on page 7.
<TABLE>
<CAPTION>
Per Share Total
----------- ------------
<S> <C> <C>
Public offering price ........................... $ $
Underwriting discounts and commissions .......... $ $
Proceeds to iTurf Inc. .......................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
We have granted the underwriters the right to purchase up to 555,000 additional
shares of Class A common stock to cover any over-allotments.
Joint Book-Running Managers
BT Alex. Brown Hambrecht & Quist
--------------
J.P. Morgan & Co.
CIBC Oppenheimer
Wit Capital Corporation
as e-Manager[TM]
, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
The inside front cover pages contain the following:
* iTurf Logo with text. Text: 56 million Generation Y consumers with $275
billion in disposable income. iTurf, a leader* in internet marketing to web
users ages 10-24. Together, they just click. (Source: United States Census
Bureau, 1997)(*Based on sales and traffic)
* iTurf Logo with text. Text: iTurf. I'ts where Generation Y lives online.
Girls and boys ages 10-24 to iTurf sites every day for everything: shopping,
entertainment, communication and information. iTurf provides for, listens to
and understands teens. Our sites' unique style, attitude and service make
iTurf Generation Y turf.
* Pictures of iTurf online users, and personal quotes regarding our business.
The inside back cover page contains the following:
* iTurf Logo with text. Text: My time. My Terms. My World. iTurf.
* Pictures of dELiA*s.cOm home page, discountdomain.com home page, TSISoccer.com
home page, droog.com home page, and gURL community web pages. Text: a
representative sample of our Websites is pictured above.
The information on our Web sites is not a part of this prospectus. iTurf,
the iTurf logo and gURL are some of our service marks. dELiA*s, Contents and
Discount Domain are registered trademarks of dELiA*s Inc., and Droog and dot
dot dash are trademarks of dELiA*s Properties Inc. This prospectus also
includes trademarks and trade names of other companies. Each trade name,
trademark or service mark of any other company appearing in this prospectus is
the property of its owner.
This prospectus includes statistical data regarding the Internet industry
and the Generation Y market. This data was obtained from industry publications
and reports which we believe to be reliable sources. However, the accuracy and
completeness of this data are not guaranteed. We have not independently
verified this data nor sought the consent of every organization to refer to
their reports in this prospectus.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus.
Our Business
iTurf is a leading provider of Internet community and commerce services
focused primarily on Generation Y, based on sales and online traffic.
Generation Y is comprised of 56 million people between the ages of 10 and 24
and accounts for over $278 billion of disposable income. iTurf is an online
destination, or "home turf," where Generation Y members can interact and shop
in a domain of their own, away from the pressures of parents and school. Our
network of Web sites offers interactive magazines, or web/zines, with
proprietary content, chat rooms, posting boards, personal homepages, e-mail,
and online shopping. Our gURL community sites provide interactive features and
regularly updated articles on topics of interest to Generation Y girls and
young women. Our electronic commerce, or e-commerce, sites offer a wide range
of apparel, accessories, footwear, athletic gear and home furnishings for
Generation Y.
We are a subsidiary of dELiA*s Inc., the leading direct marketer to
Generation Y. Our relationship with our parent provides the following
advantages:
o exclusive online use of leading brand names including dELiA*s and TSI
Soccer;
o a proprietary ten million-name database that includes six million
individuals who have made catalog purchases;
o advertising space in our parent's catalog publications that collectively
have circulation in excess of 60 million;
o substantial merchandising expertise and strong relationships with
hundreds of vendors; and
o sophisticated services from our parent's distribution center to fill our
product orders.
Our Internet traffic and sales have grown rapidly over the last year. We
estimate that the number of page views per month on our Web sites has grown
from approximately 800,000 in February 1998 to approximately 35 million in
February 1999. Our revenues have increased from $48,000 in the quarter ended
January 31, 1998 to $2.1 million in the quarter ended January 31, 1999. By
selling a selection of branded and proprietary products, we have been able to
achieve higher gross profits per order on merchandise sales than many other
e-commerce companies. In the quarter ended January 31, 1999, our gross margin
on merchandise sales was approximately 50%.
We currently generate a substantial majority of our revenue from
e-commerce sales, but expect to further develop our other revenue streams in
the future. Our four primary sources of revenue are:
o e-commerce sales through our dELiAs.cOm, TSISoccer.com,
contentsonline.com, discountdomain.com, droog.com and dotdotdash.com
sites;
o fees paid for advertising on our sites;
o fees from licensing our gURL brand name and online content; and
o subscription fees paid by members of our discountdomain.com discount
shopping service.
Our Market Opportunity
Generation Y is an increasingly important demographic group on the
Internet. Jupiter Communications estimates that e-commerce sales to teens and
college students will increase from $600 million in 1998 to $3.8 billion in
2002, while spending on advertising to this group will increase from $500
million in 1998 to $2.1 billion in 2002. However, Generation Y is difficult to
reach for traditional retailers, advertisers and e-commerce providers. Members
of Generation Y desire entertainment, communication, and advice focused on
their particular needs. They demand engaging content that does not speak down
to them. Major Internet sites generally do not exclusively address teen issues
of peer, parental and school-related pressures, friendship, sexuality and
competition. Accordingly, we believe there is a need for a Generation Y online
destination consisting of an integrated network of community and commerce in a
trusted environment.
3
<PAGE>
We may not enjoy the same growth rates as the recent rates of growth of
e-commerce spending by or advertising targeting Generation Y.
Our Strategy
Our goal is to build iTurf into the most heavily-trafficked Generation Y
destination online. The key elements of our strategy are to:
o strengthen the recognition of the iTurf brand and each brand in our
network;
o enhance our online offerings to drive traffic to our sites and increase
revenue; and
o expand site infrastructure to enhance functionality and support growth.
Our commerce and community sites will be linked by iTurf.com. We intend to
develop iTurf.com as the online meeting place and community for Generation Y.
We will promote and drive traffic to this site through all of the properties in
our network. We believe that iTurf.com will be able to generate advertising and
sponsorship revenue from advertisers and retailers seeking targeted access to
Generation Y.
Our Parent
Our parent is currently a reporting company under the Securities Exchange
Act of 1934. Our parent owns all of the shares of our Class B common stock as
of the date hereof. The Class B common stock entitles our parent to six votes
per share, as compared to one vote per share of the Class A common stock.
Following this offering, our parent will continue to beneficially own all of
the outstanding shares of the Class B common stock, and therefore, will hold
approximately 95% of the voting power of our outstanding capital stock. See
"Risk Factors--Our parent and its principal stockholder may exert control over
our business."
Our principal offices are located at 435 Hudson Street, New York, New York
10014, and our telephone number is (212) 741-7785.
Unless we otherwise state, the information in this prospectus does not
take into account any exercise of the underwriters' over-allotment option. Any
reference in this prospectus to a particular fiscal year is to the year ended
January 31 following the corresponding calendar year. For example, "fiscal
1998" means the period from February 1, 1998 to January 31, 1999.
4
<PAGE>
The Offering
Class A common stock offered by iTurf..... 3,700,000 shares
Common stock to be outstanding
after the offering:
Class A common stock.................... 3,702,273 shares(1)
Class B common stock.................... 12,500,000 shares
Use of proceeds........................... Marketing activities, capital
expenditures, repayment of
indebtedness due to our parent,
purchase of common stock of our
parent and other general corporate
purposes, including working
capital. For a more detailed
explanation of the intended use of
proceeds of this offering,
including the purchase of our
parent's common stock, see "Use of
Proceeds."
Proposed Nasdaq National Market symbol.... TURF
- ----------
(1) Excludes a total of 1,419,688 shares of Class A common stock issuable upon
exercise of options outstanding as of January 31, 1999, with a weighted
average exercise price of $9.36 per share, and 2,630,312 additional shares
of Class A common stock reserved for issuance under our stock incentive
plan. Includes 2,273 shares, assuming an initial public offering price per
share of $11.00, to be issued to another subsidiary of our parent
concurrently with this offering as consideration in connection with the
transfer to iTurf of the TSISoccer.com domain name.
5
<PAGE>
Summary Financial Data
The following tables summarize our financial results and should be read in
conjunction with the "Selected Financial Data," the iTurf Financial Statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. The
historical financial statements include allocations for administrative,
distribution and other expenses incurred by our parent for services rendered to
iTurf. While we believe such allocations to be reasonable, they are not
necessarily indicative of, and it is not practical for us to estimate, the
levels of expenses that would have resulted had iTurf been operating as an
independent company.
The accompanying financial data include the Internet operations of TSI
Soccer Corporation, that was acquired by our parent in a transaction accounted
for in a pooling of interests, from March 14, 1995, its date of inception. It
also includes the operations of gURL, Interactive Inc. from December 17, 1997,
the date of its acquisition, and additional Internet operations developed since
December 17, 1997, including the dELiAs.cOm Web site, which was launched in May
1998.
<TABLE>
<CAPTION>
Period from
March 14, 1995
(date of inception)
through Year ended January 31
January 31 ----------------------------------------
1996 1997 1998 1999
-------------------- ------------- ---------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ..................................... $ 6 $ 13 $ 134 $ 4,014
Gross profit ................................. 4 7 65 2,327
Income (loss) from operations ................ (2) (7) (49) 860
Net income (loss) ............................ $ (1) $ (4) $ (40) $ 464
======= ======= ======= =======
Basic and diluted net income (loss)
per share(1) ................................ $ (0.00) $ (0.00) $ (0.00) $ 0.04
======= ======= ======= =======
Shares used to compute basic net income (loss)
per share(1) ................................ 12,500 12,500 12,500 12,500
======= ======= ======= =======
Shares used to compute diluted net income
(loss) per share(1) ......................... 12,500 12,500 12,500 12,518
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
January 31, 1999
--------------------------
Actual As Adjusted(2)
-------- ---------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ............ $ 375 $26,653
Working capital (deficiency) ......... (461) 26,390
Total assets ......................... 1,255 27,558
Due to parent ........................ 573 --
Total stockholder's equity ........... 419 27,295
</TABLE>
- ----------
(1) Based on the number of shares actually outstanding as of January 31, 1999
after giving effect to the reclassification of 100 shares of common stock
outstanding at January 31, 1999 into 12,500,000 shares of Class B common
stock. See Notes to iTurf Financial Statements for information concerning
the computation of basic and diluted net income (loss) per share.
(2) As adjusted to reflect (A) the sale of 3,700,000 shares of Class A common
stock in this offering at an assumed initial public offering price of
$11.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses, and the application of the
estimated proceeds therefrom, including our purchase of shares of common
stock of our parent and the repayment of an amount due to our parent, and
(B) the acquisition of the TSISoccer.com domain name from TSI Soccer
Corporation for $25,000 of Class A common stock valued at the initial
public offering price. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
You should consider carefully the following risks before you decide to buy
our Class A common stock. We have described these risks and uncertainties under
the following general categories: "Risks Related to Our Business," "Risks
Related to Our Relationship with Our Parent," "Risks Related to the Internet
Industry" and "Risks Related to This Offering." The risks and uncertainties
described below are not the only ones facing our company and our
securityholders. Additional risks and uncertainties may also adversely impair
our business operations. In such case, the trading price of our Class A common
stock could decline, and you may lose all or part of the money you paid to buy
our Class A common stock.
Risks Related to Our Business
We have a limited operating history on which an investor can evaluate our
business
We have a limited operating history on which an investor can evaluate our
business. Our TSISoccer.com operations began in 1995, and the gURL.com Web site
was launched in 1996. However, we did not begin selling merchandise from the
dELiA*s catalog on the Internet until May 1998. As a result, we have generated
substantially all of our revenues since May 1998. You must consider the risks
and difficulties we encounter as an early-stage company in the new and rapidly
evolving Internet, e-commerce and online advertising markets. These risks
include our ability to:
o sustain historical revenue growth rates;
o implement our business model;
o manage our expanding operations;
o attract, retain and motivate qualified personnel;
o anticipate and adapt to rapid changes in our markets;
o attract and retain a large number of advertisers;
o maintain and enhance our systems to support growth of operations and
increasing user traffic;
o retain existing customers, attract new customers and maintain customer
satisfaction;
o introduce new and enhanced Web pages, services, products and alliances;
o maintain our profit margins in the face of price competition or rising
wholesale prices;
o minimize technical difficulties, system downtime and the effect of
Internet brown-outs;
o manage the timing of iTurf promotions and sales programs; and
o respond to changes in government regulation.
If we do not successfully manage these risks, our business, results of
operations and financial condition will be materially adversely affected. We
cannot assure you that we will successfully address these risks or that our
business strategy will be successful.
We have no history as independent company
Prior to the closing of this offering, we have operated as a wholly-owned
subsidiary of our parent. We do not have an operating history as an independent
company. We rely on our parent to provide merchandising, inventory management,
creative, technical, marketing, customer service, human resources, finance,
accounting, administrative, legal and other services and will continue to
receive such services pursuant to intercompany agreements between us and our
parent. We intend to develop the operational, administrative and other systems
and infrastructure necessary to support our current and future business on an
independent basis. However, our business could be materially adversely affected
if our parent fails to adequately provide such services or if we fail to
develop systems of our own.
7
<PAGE>
The historical financial statements contained in this prospectus include
allocations for administrative, distribution and other expenses incurred by our
parent for services rendered to iTurf. While we believe such allocations to be
reasonable, they are not necessarily indicative of, and it is not practical for
us to estimate, the levels of expenses that would have resulted had iTurf been
operating as a separate, stand-alone company. We have also relied on our parent
to provide financing for our operations. Therefore, investors should not rely
on our cash flows to date as indicative of the cash flows that would have
resulted had iTurf been operating as an independent company during the periods
presented.
We expect to incur substantial net losses for the foreseeable future
We expect to record substantial net losses for the foreseeable future. We
believe that our continued growth will depend in large part on our ability to:
o increase awareness of our brand names;
o provide our customers with superior Internet community and e-commerce
experiences; and
o continue to enhance our systems and technology to support increased
traffic to our Web sites.
Accordingly, we intend to dramatically increase our level of marketing and
promotional expenditures. We also expect to invest heavily to further develop
our Web sites, technology and operating systems. We will incur increased
expenses in connection with fees payable to our parent pursuant to the
intercompany agreements. Slower revenue growth than we anticipate or operating
expenses that exceed our expectations would have a material adverse effect on
our business.
We must successfully anticipate and respond to fashion trends
We derive the majority of our revenues from the online sale of apparel,
accessories and footwear, particularly those featured in the dELiA*s catalog.
Accordingly, our success depends, in part, on our ability and our parent's
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. Poor customer reaction to our parent's products or a failure
by our parent to source these products effectively would have a material
adverse effect on iTurf.
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. If we misjudge merchandise
selection, our image with our customers would be materially adversely affected.
We must retain and integrate our key personnel to operate our business, and we
may not be able to hire and retain qualified personnel as our business grows
Our success depends on the continued service of our key technical, sales
and senior management personnel. Loss of the services of Stephen I. Kahn, our
President, Chief Executive Officer and Chairman of our board of directors,
Dennis Goldstein, our Chief Financial Officer, Alex S. Navarro, our Chief
Operating Officer, Oliver Sharp, our Chief Technology Officer, or other key
employees would have a material adverse effect on our business. Furthermore,
several members of our senior management joined us in January 1999, including
our Chief Financial Officer and our Senior Vice President--Marketing. Our Chief
Technology Officer joined us in February 1999. As a result of these recent
additions, our senior managers may not perform effectively as individuals or
work together as a team.
Our success also depends on our ability to continue to attract, retain and
motivate skilled employees. Competition for employees in our industry is
intense. We may be unable to retain our key employees or attract, assimilate or
retain other qualified employees in the future. We have in the past
experienced, and we expect to continue to experience, difficulty in hiring and
retaining skilled employees with appropriate qualifications. Our business will
be materially adversely affected if we fail to attract and retain key
employees.
8
<PAGE>
Our quarterly operating results are subject to significant fluctuations and
seasonality
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors. Many of these factors are outside our
control and include:
o seasonal fluctuations in consumer purchasing patterns and advertising
spending;
o timing of, response to and quantity of our parent's catalog mailings;
o changes in the growth rate of Internet usage and online user traffic
levels;
o actions of our competitors;
o the timing and amount of costs relating to the expansion of our
operations and acquisitions of technology or businesses; and
o general economic and market conditions.
As a result, our future revenues are difficult to forecast. Any shortfall
in revenues may have a material adverse effect on our business and would likely
affect the market price of our Class A common stock in a manner unrelated to
our long-term operating performance.
Our limited operating history and the new and rapidly evolving Internet
markets make it difficult to ascertain the effects of seasonality on our
business. If seasonal and cyclical patterns emerge in Internet consumer
purchasing or in Internet advertising spending, our results of operations from
quarter to quarter will be less comparable. Sales of apparel, accessories and
footwear are generally lower in the first half of each year. Similarly,
advertising sales in traditional media, such as television and radio, are
generally lower in the first calendar quarter of each year. We may experience
similar seasonality in our business.
You should not rely on quarter-to-quarter comparisons of our results of
operations as indicative of our future performance. It is possible that in some
future periods our results of operations may be below the expectations of
public market analysts and investors. In this event, the price of our Class A
common stock may fall.
Our success depends on our ability to expand our capacity, systems and
features
A key element of our strategy is to generate a high volume of traffic on
our Web sites. However, growth in the number of users accessing our sites may
strain or exceed the capacity of our computer systems and lead to declines in
performance or systems failure. We believe that we will therefore need to
continually improve and enhance the functionality and performance of our
e-commerce, customer tracking and other technical systems. Our inability to add
additional hardware and software to upgrade our existing technology or network
infrastructure to accommodate increased traffic may cause decreased levels of
customer service and satisfaction. We believe our present systems will not be
adequate to accommodate rapid growth in user demand. As a result, we intend to
upgrade our existing systems and implement new systems. Failure to implement
these systems effectively or within a reasonable period of time would have a
material adverse effect on our business, results of operations and financial
condition.
We must also introduce additional or enhanced features and services to
retain current users and attract new users to our sites. If a new service is
not favorably received, our current users may visit our Web sites less
frequently. These new services or features may contain errors, and we may need
to significantly modify the design of these services to correct errors. If
users encounter difficulty with or do not accept our services or features, our
business would be materially adversely affected.
Any growth of our business may strain our management systems and resources
and will require us to implement new operational and financial systems,
procedures and controls. We expect that we will need to continue to expand,
train and manage our workforce. Our inability to accomplish any of these goals
could adversely affect our business.
Our computer systems and equipment may fail or experience delays
Our operations depend on our ability to maintain our computer systems and
equipment in effective working order. We must also protect our computer systems
against damage from fire, power loss, water damage, telecommunications
failures, vandalism and other malicious acts, and similar unexpected adverse
events. Most of our Web sites reside on a computer system located at our New
York City office. This system's continuing and uninterrupted performance is
critical to our success.
9
<PAGE>
Our customers may become dissatisfied as a result of any system failure.
Any sustained or repeated system failure or interruption would reduce the
attractiveness of our Web sites to customers and advertisers. In addition,
interruptions in our systems could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the timeframe we require. Unanticipated problems affecting our
systems have caused from time to time in the past, and in the future could
cause, interruptions in our services. Any damage or failure that interrupts or
delays our operations could have a material adverse effect on our business.
We will increasingly rely upon online and traditional advertising to
generate sales
We expect to increasingly rely on online and traditional advertising and
strategic alliances to attract users to our Web sites. We intend to commit
substantial resources to promoting our Web sites and our brand name through
online advertising and advertising in our parent's catalogs. Our inability to
develop and maintain effective advertising campaigns may have a material
adverse effect on our business. Pursuant to the intercompany services
agreement, we will commit to purchase substantial amounts of advertising in our
parent's print catalogs. These amounts of advertising are materially greater
than we have used in the past. We cannot assure you that this advertising will
effectively attract users to our Web sites or lead to a substantial amount of
sales.
To date, we have not done a substantial amount of advertising other than
in our parent's catalogs. We intend to use a substantial portion of the
proceeds of this offering for online and traditional advertising. Our online
advertising may include strategic alliances that require large, long-term
commitments. We cannot assure you that we will be able to identify and secure
sufficient online and offline advertising opportunities or that such spending
will effectively attract users to our Web sites or lead to a substantial amount
of sales.
We currently lack advertising sales personnel
We intend to develop a sales team for advertising on our Internet
community sites, which advertising has not generated substantial revenues to
date. Establishing our sales team involves a number of risks, including:
o we have not previously employed dedicated advertising sales personnel;
o we may be unable to hire, retain, integrate and motivate sales and sales
support personnel; and
o new sales personnel may require a substantial period of time to become
productive.
Failure to develop and maintain an effective sales force would have a material
adverse effect on our business.
We depend on third party shippers, communications providers and vendors to
operate our business
iTurf depends upon a number of third parties to deliver goods and services
to it and its customers. For example, iTurf relies on third-party shippers
including the United States Postal Service, United Parcel Service and Federal
Express to ship merchandise to its customers. Strikes or other service
interruptions affecting our shippers would have a material adverse effect on
our ability to deliver merchandise on a timely basis. Our Web sites could
experience disruptions or interruptions in service due to failures by these
providers. We also depend on communications providers including Cable &
Wireless plc and AT&T to provide our Internet users with access to our Web
sites. In addition, our users depend on Internet service providers and Web site
operators for access to our Web sites. Each of these groups has experienced
significant outages in the past and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. These types of
occurrences could cause users to perceive our Web sites as not functioning
properly and therefore cause them to stop using our services.
A third party hosts and manages two of our community Web sites,
gURLpages.com and gURLmAIL.com, and also sells advertisements on such sites.
System failures by this third party have in the past and could in the future
lead to disruption in service on these sites. Such system disruptions or the
failure by this third party to successfully sell advertisements on these Web
sites could have a material adverse effect on our business.
10
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Our business depends on the ability of third-party vendors to provide us
and our parent with current-season brand-name apparel and merchandise at
competitive prices in sufficient quantities and of acceptable quality. No
vendor accounted for more than 9% of sales generated by the dELiA*s catalog in
fiscal 1997. However, two vendors accounted for approximately 56% of retail and
catalog sales of TSI Soccer Corporation in fiscal 1997. One of those vendors,
adidas, accounted for approximately 13% of our parent's sales in fiscal 1997.
Our parent does not have long-term contracts with adidas or any other supplier.
In addition, many of the smaller vendors used by our parent have limited
resources, production capacities and operating histories. If any of the
following events occurred, our business could be materially adversely affected:
o if our key vendors failed to expand with us and our parent;
o if we lost one or more key vendors, including adidas;
o if our parent's current vendor terms were changed; or
o if our parent's ability to procure products were limited.
We may be unable to identify or successfully integrate potential
acquisitions and investments
We may acquire or make investments in complementary businesses, products,
services or technologies. However, we have no present understanding or agreement
relating to any such acquisition or investment. We cannot assure you that we
will be able to identify suitable acquisition or investment candidates. Even if
we do identify suitable candidates, we cannot assure you that we will be able to
make such acquisitions or investments on commercially acceptable terms. If we
buy a business, we could have difficulty in assimilating that company's
personnel, operations, products, services or technologies into our operations.
These difficulties could disrupt our ongoing business, distract our management
and employees, increase our expenses and adversely affect our results of
operations. Furthermore, we may incur debt or issue equity securities to pay for
any future acquisitions. The issuance of equity securities could be dilutive to
our existing stockholders.
We have limited protection of our intellectual property, and others could
infringe on or misappropriate our proprietary rights
We regard our service marks, trademarks, trade secrets and similar
intellectual property as critical to our success. The steps taken by us to
protect our intellectual property may not be adequate, and third parties may
infringe or misappropriate our copyrights, trademarks and similar proprietary
rights. We rely on trademark and copyright law, trade secret protection and
confidentiality, license and other agreements with employees, customers,
strategic partners and others to protect our proprietary rights. We have
pursued and applied for the registration of our trademarks and service marks in
the United States. Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our products
and services are made available online. We also use our parent's trademarks in
connection with the sale of many of our goods and services and rely on our
parent's ability to adequately protect its trademarks and proprietary rights.
We have licensed in the past, and expect that we may license in the
future, certain of our proprietary rights, such as trademarks or copyrighted
material, to third parties. We attempt to ensure that the quality of our brands
is maintained by such licensees. Such licensees may take or omit to take
actions that would materially adversely affect the value of our proprietary
rights or reputation, which actions would have a material adverse effect on our
business, financial condition and results of operations.
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We face intense competition from Internet- and retail-based businesses
Many Web sites compete for consumers' and advertisers' attention and
spending. We expect such competition to continue to increase because of the
relative ease with which new Web sites can be developed. We cannot assure you
that we will be able to compete successfully or that competitive pressures will
not materially and adversely affect our business. We believe that our ability
to compete depends upon many factors, including the following:
o the market acceptance of our Web sites and online services;
o the success of our brand building and sales and marketing efforts;
o the performance, price and reliability of services developed by us or
our competitors; and
o the effectiveness of our customer service and support efforts.
Our competitors may develop products or services that are equal or superior to
our solutions or achieve greater market acceptance than ours. In addition, our
competitors may have cooperative relationships among themselves or with third
parties that increase the ability of their products or services to address the
needs of our prospective advertisers. Increased competition could cause price
reductions, reduced gross margins and loss of market share.
Our e-commerce operations in the highly competitive apparel, accessories,
footwear and home furnishings industries and the athletic goods and soccer
specialty markets face competition from store-based retailers, direct marketers
and apparel manufacturers. Our dELiA*s, TSI Soccer, Contents, Droog and dot dot
dash online catalogs compete with traditional department store retailers, as
well as specialty and catalog apparel, accessory, and footwear retailers, for
Generation Y customers. Our TSI Soccer online catalog also competes with
several soccer specialty direct marketers, soccer specialty retailers and
general athletic merchandise retailers. Our discountdomain.com offerings
compete with traditional discount retailers and direct marketers. Many of our
competitors are larger than and have substantially greater financial,
distribution and marketing resources than us.
There are few barriers to entry in the teen apparel, accessories,
footwear, home furnishings and soccer specialty markets. We believe that our
and our parent's recent success in these markets has attracted the attention of
other direct marketers, catalogers, store-based retailers and apparel
manufacturers some of which have entered or are likely to enter these markets.
In addition, our competitors could enter into exclusive distribution
arrangements with our vendors and deny us access to the vendors' products. We
may experience pricing pressures, increased marketing expenditures and loss of
market share due to increased competition. These factors may materially
adversely affect our business.
Our online advertising business competes with television, radio, cable and
print for a share of advertisers' total advertising budgets. Advertisers may be
reluctant to devote a significant portion of their advertising budgets to
Internet advertising if they perceive the Internet to be a limited or
ineffective advertising medium. Moreover, advertisers may, over time, determine
that advertisements placed on our Web sites have not been effective.
Consequently our advertising revenues may decline.
We may expand our business internationally and become subject to currency,
political, tax and other uncertainties
Our international business is subject to a number of risks of doing
business abroad, including:
o fluctuations in currency exchange rates, the impact of recessions in
economies outside the United States and 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 developing customer lists and marketing channels.
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Although less than one percent of our sales is to customers who live outside
the United States, we intend to market our sites globally. In addition, certain
of our parent's vendors procure products from outside the United States.
Approximately 48% of our parent's sales in fiscal 1997 were of products we
believe were manufactured outside the United States. We purchase from our
parent merchandise manufactured outside the United States. 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.
Failure of our computer systems to recognize Year 2000 could negatively
affect our business
We depend upon complex computer software and systems for all phases of our
operations, including our parent's computer systems. 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
iTurf's material operating 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.
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.
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 purchases of merchandise from iTurf
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.
Risks Related to Our Relationship with Our Parent
Our parent and its principal stockholder may exert control over our
business
We are currently a wholly-owned subsidiary of our parent. After the
closing of this offering, our parent will own all of our Class B shares of
common stock, which will represent approximately 95% of the voting power of our
common stock. As a result of its share ownership and the other rights described
in this prospectus, our parent will be able to elect a majority of the members
of our board of directors. This concentration of ownership and other rights
could also delay or prevent a change of control. Also, Stephen I. Kahn, Chief
Executive Officer and Chairman of the board of directors of our parent and
iTurf, was, as of January 31, 1999, the beneficial owner of approximately 45%
of the outstanding common stock of our parent and, accordingly, may be deemed
to be the beneficial owner of all of the iTurf common stock owned by our
parent. As a result, Mr. Kahn will be able to control iTurf in the same manner
that our parent is able to control iTurf.
Our parent could elect to sell all or a substantial portion of its equity
interest in iTurf to a third party. In the event of a sale of our parent's
interest to a third party, that third party may be able to control iTurf in the
same manner that our parent is able to control iTurf. Such a sale may adversely
affect the market price of the Class A common stock and may adversely affect
iTurf's business, financial condition and results of operations.
Under our parent's credit agreement, all of our common stock owned by our
parent has been pledged as security for our parent's obligations. If our parent
were to default under this credit agreement, its lender could take ownership of
all the common stock of iTurf now owned by our parent. In that case, the lender
would be able to control iTurf in the same manner as our parent.
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Overlapping management and boards of directors could cause conflicts of
interest between us and our parent
Several of iTurf's officers and directors serve as officers and directors
of our parent. Service as both a director or officer of iTurf and a director or
officer of our parent could create or appear to create potential conflicts of
interest when those directors and officers are faced with decisions that could
have different implications for iTurf and our parent. Such decisions may relate
to potential acquisitions of businesses, the intercompany agreements,
competition, the issuance or disposition of securities, the election of new or
additional directors, the payment of dividends by iTurf and other matters.
Stephen I. Kahn, who is the President, Chief Executive Officer and
Chairman of the board of directors of iTurf, is the Chief Executive Officer and
Chairman of the board of directors of our parent. Alex S. Navarro is the Chief
Operating Officer and Secretary of iTurf and also the Secretary and Chief Legal
Officer of our parent. Christopher C. Edgar is a Vice President of iTurf and a
member of iTurf's board of directors and is the Chief Operating Officer and
Vice Chairman of the board of directors of our parent. Evan Guillemin is a Vice
President of iTurf and a member of iTurf's board of directors and is the
President and Chief Financial Officer of our parent.
Messrs. Kahn, Edgar, Guillemin and Navarro will be employed by both our
parent and iTurf and will spend a substantial part of their professional time
and effort on behalf of our parent. In many instances, such efforts for our
parent will involve activities that are unrelated, and in some circumstances
may be adverse, to the interests of iTurf. iTurf has not established any
minimum time that Messrs. Kahn, Edgar, Guillemin and Navarro will be required
to spend on iTurf matters.
Messrs. Kahn, Edgar, Guillemin and Navarro will continue to hold shares of
and/or options to purchase shares of common stock of our parent acquired or
granted prior to such employee's transfer to iTurf. Such employees may not yet
have received comparable interests under our stock incentive plan. In addition,
following the closing of this offering, employees of iTurf may be eligible to
participate in other benefit plans of our parent that provide opportunities to
receive additional shares of common stock of our parent. These substantial
equity interests in our parent may present these officers and employees with
incentives potentially adverse to iTurf's stockholders.
We depend on our parent's brands, goods and services
Prior to the closing of this offering, we will enter into a series of
intercompany agreements with our parent. Under these agreements, we will depend
on our parent to provide us with trademark rights, goods and services that are
key to the success of our business. The termination of the intercompany
agreements on the failure of our parent to satisfactorily perform its
obligations under these agreements would have a material adverse effect on our
business. In addition, we anticipate making material payments to our parent
each year for the foreseeable future under the intercompany agreements. See
"Transactions with Our Parent--Intercompany Agreements."
We depend on our parent as a trademark licensor. Pursuant to the trademark
license and customer list agreement, we license the dELiA*s logo and name,
other valuable trademarks, and online content from our parent and its other
subsidiaries on an exclusive basis for Internet use. If our trademark license
and customer list agreement with our parent were terminated, we would need to
change the domain names of most of our Web sites and devote substantial
resources towards building new brand names. Our parent may terminate the
trademark license and customer list agreement if any person other than our
parent, its affiliates or strategic partners acquire 20% or more of the voting
power of iTurf and under other circumstances.
In addition, the trademark license and customer list agreement contains
restrictions that may prevent us from marketing our products and services in
the same way we would if we owned these trademarks ourself. Our parent can:
o demand that we remove from our Web sites any online content that bears
one of our parent's trademarks that our parent determines conflicts
with, interferes with or is detrimental to its reputation or business or
for certain other reasons;
o require us to conform to our parent's guidelines for the use of its
trademarks;
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o approve all materials, such as marketing materials, that include any of
our parent's trademarks; and
o control the visual and editorial presentation of content on our Web
sites that use our parent's trademarks.
We depend on our parent for advertising. Pursuant to the intercompany
services agreement, our parent has agreed to provide us with advertising and
promotional space in its catalogs and retail stores. In addition, we are
required to purchase from our parent minimum amounts of advertising space in at
least 50% of all of our parent's catalogs distributed each year. However, our
parent controls the timing and placement of these advertisements and
promotions. Our parent could discontinue promoting iTurf in its current manner.
Our parent also makes no guarantee to us as to the demographic composition of
the target audience. This advertising and promotion is an important element of
our strategy to increase awareness of our brands and increase sales. If we were
not able to advertise in our parent's catalog and retail stores, we would make
substantially fewer sales on our Web sites. The advertising obligations can be
terminated by our parent under the same circumstances as the trademark license
and customer list agreement.
We depend on our parent for services. Pursuant to the intercompany
services agreement, our parent will provide us with services, such as
merchandising, inventory management, creative, marketing, technical, human
resources, finance, accounting, administrative, legal and other services. If
our parent fails to provide these services satisfactorily, we would be required
to perform these services or obtain these services from another provider. In
such case, we may incur additional costs in order to obtain these services and
we may be unable to obtain these services on commercially reasonable terms. If
we choose to perform these services ourself, we may not be able to perform them
adequately, and, as a result, we could lose a substantial number of customers.
The service obligations can be terminated by our parent under the same
circumstances as the trademark license and customer list agreement.
Substantially all of our sales orders are currently processed and
fulfilled through our parent's systems. Our parent is generally obligated to
provide fulfillment services to us at a level at least equal to the quality of
services being provided by our parent prior to the date of this prospectus. As
a result, our future revenue depends on our parent's ability to fulfill our
e-commerce sales in an accurate and timely manner.
We depend on our parent as a supplier. Pursuant to the intercompany
services agreement, we may purchase products from our parent for resale on the
Internet. We anticipate that, for the foreseeable future, a majority of our
revenue will be derived from the online sale of merchandise under our parent's
trademarks. Accordingly, iTurf's future revenues and business success depend on
our parent's ability to maintain and renew relationships with its existing
vendors and to establish relationships with additional vendors. We do not have
direct contractual relationships with our parent's suppliers relating to our
parent's merchandise sold on our Web sites. As such, we cannot obtain the same
merchandise directly and are restricted pursuant to the trademark license and
customer list agreement from having such relationships without our parent's
consent. Furthermore, our parent does not have long-term contracts with any of
its suppliers. In addition, many of the smaller vendors used by our parent have
limited resources, production capacities and operating histories. The supply
obligations can be terminated by our parent under the same circumstances as the
trademark license and customer list agreement.
We may be contingently liable for our parent's tax and pension obligations
For so long as our parent continues to own 80% of the vote and value of
our capital stock, we will be included in our parent's consolidated group for
federal income tax purposes. If our parent or other members of its consolidated
group fail to make any federal income tax payments required by law, we would be
liable for the shortfall. Similar principles apply for state income tax
purposes in many states.
Under the tax allocation agreement, for so long as iTurf is included in
our parent's consolidated group, we will pay our parent our proportionate share
of our parent's income tax liability computed as if we were a separate
taxpayer. By virtue of its controlling ownership and the tax allocation
agreement, our parent will effectively control all of our tax decisions. Under
the tax allocation agreement, for so long as iTurf is included in our parent's
consolidated group, our parent will have sole authority to respond to and
conduct all tax proceedings, including tax audits, relating to us, to file all
income tax
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returns on our behalf and to determine the amount of our liability to, or
entitlement to payment from, our parent under the tax allocation agreement.
Notwithstanding the tax allocation agreement, federal law provides that each
member of a consolidated group is liable for the group's entire tax obligation.
For so long as our parent continues to own at least 80% of the voting and
economic power or value of iTurf's capital stock, we will also be jointly and
severally liable, together with all other members of our parent's "control
group", for pension funding, termination and excise taxes and for other
pension-related matters in the event our parent fails to fully satisfy its
legally required pension obligations. Because the Class B common stock held by
our parent is entitled to six votes per share, we expect that our parent will
retain its 80% voting interest for the foreseeable future. We believe there
were no such liabilities outstanding as of January 31, 1999.
The intercompany indemnification agreement provides that our parent will
indemnify iTurf for certain tax and pension liabilities resulting from our
relationship with our parent, including the costs of defending against any
assertion of claims against iTurf. We cannot assure you that our parent will be
able to fulfill its obligations under such agreement. Therefore, we may be
liable for payments in such instance.
We face potential competition from our parent
Any of the following events could have a material adverse effect on our
business or our stockholders:
o any competition from our parent that results in a loss of a corporate
opportunity by iTurf to our parent;
o any engagement by our parent in any activity that is similar to the
businesses of iTurf; or
o the early termination of the trademark license and customer list
agreement.
However, our parent has agreed in the trademark license and customer list
agreement to refrain from competing with us in the Generation Y Internet
business. Our parent is under no other obligation to refrain from competing
with us or to share with us any future business opportunities available to it.
iTurf's Restated Certificate of Incorporation will include provisions that may
permit our parent to compete with us in areas unrelated to the Generation Y
Internet business.
The fluctuation in the price of our parent's common stock could adversely
affect the price of our Class A common stock and our business
We intend to use a portion of the proceeds of this offering to purchase
shares of our parent's common stock from our parent. These securities will
constitute a substantial portion of our assets. Our parent's common stock has
fluctuated significantly in the past and may fluctuate significantly in the
future. A decline in the price of our common stock could reduce the value of
our investment in our parent's common stock and could adversely affect the
price of our Class A common stock and our business. If the price of our Class A
common stock declines, the price of our parent's common stock could decline,
which could cause the price of our Class A common stock to decline further. We
believe it is likely that we will have to sell shares of our parent's common
stock within 12 months of the closing of this offering. The price of our
parent's common stock may be lower than we paid. We, therefore, may not fully
realize our investment in such stock. See "Use of Proceeds."
In addition, there are limits on our ability to sell shares of our
parent's common stock. As a result, our parent's common stock price could
decline for a considerable period after we have decided to sell such
securities. The shares of our parent's common stock are "restricted securities"
under Rule 144 under the Securities Act. These shares may be sold in the public
market only if registered or qualified for an exemption from registration.
Although we have registration rights on the shares of our parent's common
stock, we may not be able to demand registration of such shares for 180 days
following this offering. In addition, our parent's ability to block
registration may impede our ability to sell these shares in a timely manner. In
addition, through its control of our board of directors, our parent may be able
to control our ability to sell such securities.
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Risks Related to the Internet Industry
We depend on continued growth in use of the Web
Our industry is new and rapidly evolving. A decrease in the growth of Web
usage would adversely affect our business. The following factors may inhibit
growth in Web usage:
o inadequate Internet infrastructure;
o security and privacy concerns;
o inconsistent quality of service; and
o unavailability of cost-effective, high-speed service.
Our success depends upon the ability of the Internet infrastructure to
support increased use. The performance and reliability of the Web may decline
as the number of users increases or the bandwidth requirements of users
increase. The Web has experienced a variety of outages due to damage to
portions of its infrastructure. If outages or delays frequently occur in the
future, Web usage, including usage of our Web sites, could grow slowly or
decline. Even if the necessary infrastructure or technologies are developed, we
may have to spend considerable amounts to adapt our solutions accordingly.
We depend on continued growth of online commerce
Our future revenue and profits depend upon the widespread acceptance and
use of the Web as an effective medium of commerce. Rapid growth in the use of
the Web and commercial online services is a recent phenomenon. We cannot assure
you that a large base of consumers will adopt and continue to use the Web as a
medium of commerce. Demand for recently introduced services and products over
the Web and online services is subject to a high level of uncertainty. The
successful development of the Web and online services is subject to a number of
factors, including:
o continued growth in the number of users of such services;
o concerns about transaction security;
o continued development of the necessary technological infrastructure; and
o the development of complementary services and products.
Failure of the Web and online services to become a viable commercial
marketplace would materially adversely affect our business.
We depend on an unproven Internet community business model
The Internet community business model is an unproven business model. Our
ability to generate significant revenues from advertisers and sponsors will
depend, in part, on our ability to generate sufficient user traffic with
demographic characteristics attractive to our advertisers. The intense
competition among Web sites that sell online advertising has led to the
creation of a number of pricing alternatives for online advertising. It is
difficult for us to project future levels of advertising revenue and applicable
gross margin that can be sustained by us or the online advertising industry in
general. Although we do not currently derive a substantial portion of our
revenue from advertising, our business model depends in part on increasing the
amount of such revenue. No standards have been widely accepted for measuring
the effectiveness of online advertising. Failure of the market for online
advertising to develop or slower development than expected would materially
adversely affect our business.
We depend on the storage of personal information about our users
Web sites typically place identifying data, or cookies, on a user's hard
drive without the user's knowledge or consent. iTurf and other Web sites use
cookies for a variety of reasons, including the collection of data derived from
the user's Internet activity. Any reduction or limitation in the use of cookies
could limit the effectiveness of our sales and marketing efforts. Most
currently available Web browsers allow users to remove cookies at any time or
to prevent cookies from being stored on their hard drive. In addition, some
commentators, privacy advocates and governmental bodies have suggested limiting
or eliminating the use of cookies. Furthermore, the European Union recently
adopted a directive
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addressing data privacy that may limit the collection and use of information
regarding Internet users. This directive may limit our ability to target
advertising or collect and use information in European countries.
We may be sued regarding privacy concerns
Despite the display of our privacy policy on our Web sites, any
penetration of our network security or misappropriation of our users' personal
or credit card information could subject us to liability. We may be liable for
claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Claims could also be based on
other misuses of personal information, such as for unauthorized marketing
purposes. These claims could result in litigation. In addition, the Federal
Trade Commission and several states have investigated the use by Internet
companies of personal information. In 1998, the U.S. Congress enacted the
Children's Online Privacy Protection Act of 1998. The Federal Trade Commission
has not yet promulgated regulations interpreting this act. We depend upon
collecting personal information from our customers and we believe that the
promulgation of regulations under this act will make it more difficult for us
to collect personal information from some of our customers. We could incur
expenses if new regulations regarding the use of personal information are
introduced or if our privacy practices were investigated. See
"Business--Legal."
Government regulation and legal uncertainties could add additional burdens to
doing business on the Internet
Laws and regulations applicable to Internet communications, commerce and
advertising are becoming more prevalent. The most recent session of the U.S.
Congress passed laws regarding online children's privacy, copyrights and
taxation. The law governing the Internet, however, remains largely unsettled.
New laws may impose burdens on companies conducting business over the Internet.
The adoption or modification of laws or regulations applicable to the Internet
could adversely affect our business.
Although our online transmissions generally originate in New York, the
governments of other states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities. It may
take years to determine whether and how existing laws governing intellectual
property, privacy, libel and taxation apply to the Internet and online
advertising. In addition, the growth and development of e-commerce may prompt
calls for more stringent consumer protection laws, both in the United States
and abroad. We also may be subject to regulation not specifically related to
the Internet, including laws affecting direct marketers and advertisers.
Web security concerns could hinder e-commerce and online advertising
The need to securely transmit confidential information such as credit card
and other personal information over the Internet has been a significant barrier
to e-commerce and online communications. Any publicized compromise of security
could deter people from accessing the Web or from using it to transmit
confidential information. Furthermore, decreased online traffic and e-commerce
sales as a result of general security concerns could cause advertisers to
reduce their amount of online spending. Such security concerns could reduce our
market for e-commerce and indirectly influence our ability to sell online
advertising. We may also incur significant costs to protect iTurf against the
threat of problems caused by such security breaches.
We may be liable for information displayed on and communication through
our Web sites
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement or other theories relating to the information we publish
on our Web sites. These claims have been brought against Internet companies as
well as print publications in the past. Based on links we provide to other Web
sites, we could also be subjected to claims based upon the online content we do
not control that is accessible from our Web sites. Claims may also be based on
statements made and actions taken as a result of participation in our chat
rooms.
Changes in registration of domain names may adversely affect our business
The regulation of domain names in the United States and in foreign
countries is expected to change in the near future. As a result, we cannot
assure you that we will be able to acquire or maintain relevant domain names in
all countries in which iTurf conducts business. iTurf holds various Web domain
names
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relating to its brands, including the iTurf.com, dELiAs.cOm and gURL.com domain
names. The acquisition and maintenance of domain names generally is regulated
by governmental agencies and their designees. In the United States, the
National Science Foundation has appointed Network Solutions, Inc. as the
current exclusive registrar for the ".com," ".net" and ".org" generic top-level
domains. We expect future changes in the United States to include a transition
from the current system to a system controlled by a non-profit corporation and
the creation of additional top-level domains. Requirements for holding domain
names also are expected to be affected. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of its trademarks and other proprietary rights.
Any such inability could have a material adverse effect on our business,
results of operations and financial condition.
We may be unable to respond to rapid technological change in our industry
The Internet, e-commerce and online advertising markets are characterized
by rapidly changing technologies, evolving industry standards, frequent new
product and service introductions, and changing customer preferences. Our
success will depend on our ability to adapt to rapidly changing technologies
and address our customers' changing preferences. We may experience difficulties
that delay or prevent our being able to do so. Material delays in introducing
new technologies and enhancements to our services may cause customers and
advertisers to make purchases from or visit the Web sites of our competitors.
Risks Related to This Offering
Our shares eligible for public sale after this offering may adversely
affect our stock price
Any sale by our parent of our common stock could cause our stock price to
fall because it will increase the number of shares traded in the market. After
the closing of this offering, our parent will own all of the outstanding shares
of Class B common stock. Our parent will not have any restrictions on selling
any of our securities held by it in the public market, other than as provided
in an agreement with BT Alex. Brown Incorporated and Hambrecht & Quist LLC and
under applicable securities laws. The shares held by our parent will be
"restricted securities" and will become eligible for sale subject to the
limitations of Rule 144 under the Securities Act. In addition, our parent can
require us to register the shares of Class B common stock it owns for public
sale pursuant to the dELiA*s common stock registration rights agreement.
After the closing of this offering, there will be 3,702,273 shares of
Class A common stock outstanding. Of the outstanding shares, the shares sold in
this offering will be freely tradeable, except for any shares purchased by our
"affiliates" as defined in Rule 144. Several of our officers intend to purchase
up to an aggregate 130,000 shares of our Class A common stock from the
underwriters in this offering. These shares will be restricted securities and
will become eligible for sale subject to the limitations of Rule 144.
Additionally, 2,273 shares of Class A common stock, valued at the assumed
initial offering price of $11.00, will be issued to TSI Soccer as consideration
in connection with the transfer to iTurf of the TSISoccer.com domain name.
Sales of a large number of shares held by affiliates could have an adverse
effect on the market price for our Class A common stock.
As of January 1, 1999, 4,050,000 shares of Class A common stock were
reserved for issuance under our stock incentive plan, of which options to
purchase 1,419,688 shares were then outstanding and of which no options were
then exercisable. iTurf intends to file, within 180 days after the date of this
prospectus, a Form S-8 registration statement under the Securities Act to
register shares issued and reserved for issuance under the stock incentive
plan. Beginning 180 days after the date of this prospectus, approximately
186,775 shares of Class A common stock issuable upon the exercise of vested
options will become eligible for sale. Shares of Class A common stock issued
under our stock incentive plan or upon exercise of options after the effective
date of the Form S-8 will be available for sale in the public market, subject
to Rule 144 volume limitations and certain lock-up agreements with the
representatives of the underwriters. The possible sale of a significant number
of these shares may cause the price of our Class A common stock to fall.
Our Class A common stock price could be extremely volatile
We cannot assure you that a trading market in our Class A common stock
will develop or how liquid that market might become. The initial public
offering price for our shares to be sold in this offering will be determined
solely by negotiations between iTurf and the representatives of the
19
<PAGE>
underwriters and may not be indicative of prices in the trading market. The
stock market has experienced significant price and volume fluctuations, and the
market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. Investors in our stock
may not be able to resell their shares of Class A common stock at or above the
initial public offering price due to the possible volatility of our Class A
common stock after this offering.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. The institution of such litigation against
us could result in substantial costs to us and a diversion of our management's
attention and resources.
Our management has broad discretion in use of proceeds of this offering
Our management can spend most of the proceeds from this offering in ways
with which our stockholders may not agree. iTurf intends to use a portion of
the net proceeds from the offering for marketing, capital expenditures and to
purchase shares of our parent's common stock. The remaining net proceeds will
be available for general corporate purposes, including working capital. See
"Use of Proceeds."
Our charter documents and Delaware law may inhibit a takeover
Provisions of Delaware law, our Restated Certificate of Incorporation, or
our bylaws could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders. See "Description of
Capital Stock--Anti-Takeover Effects of Provisions of Delaware Law and Our
Restated Certificate of Incorporation and Bylaws."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about iTurf and our
industry. These forward-looking statements involve risks and uncertainties.
iTurf's actual results could differ materially from those anticipated in such
forward-looking statements as a result of certain factors, as more fully
described in "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus. iTurf undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
20
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 3,700,000 shares of
Class A common stock will be approximately $36.9 million, at an assumed initial
public offering price of $11.00 per share and after deducting the estimated
underwriting discounts and offering expenses. If the underwriters exercise
their over-allotment option in full, we estimate that such net proceeds will be
approximately $42.5 million.
We intend to use the net proceeds of this offering as follows:
o at least $6.0 million for marketing activities during fiscal 1999;
o approximately $4.0 million for capital expenditures, including
investments in technology and physical infrastructure, and the
acquisition of online content and distribution relationships; and
o to repay an amount due to our parent ($573,000 at January 31, 1999).
Additionally, we intend to use $10.0 million of the net proceeds of this
offering to purchase shares of common stock of our parent from our parent. In
addition, if the underwriters exercise their over-allotment option, we intend
to use 60% of the net proceeds therefrom to purchase additional shares of our
parent's common stock from our parent. We will purchase such shares from our
parent at a price equal to the average closing price of our parent's common
stock on the five preceding trading days. While providing financing to our
parent, this mechanism returns an asset of tangible value to iTurf--
shares of our parent's common stock. See "Risk Factors--The fluctuation in the
price of our parent's common stock could adversely affect the price of our
Class A common stock and our business."
We expect to use the remainder of the net proceeds for other general
corporate purposes, including working capital. The amounts actually expended
for such working capital purposes may vary significantly and will depend on a
number of factors, including the amount of our future revenues and the other
factors described under "Risk Factors." Accordingly, we will retain broad
discretion in the allocation of the net proceeds of this offering. A portion of
the net proceeds may also be used to acquire or invest in complementary
businesses, technologies, product lines or products. We have no current plans,
agreements or commitments with respect to any such acquisition. Pending such
uses, we will invest the net proceeds of this offering in interest-bearing,
investment grade securities through a wholly-owned subsidiary.
DIVIDEND POLICY
We currently intend to retain all of our earnings to finance our
operations and we do not anticipate paying any cash dividends on our capital
stock in the foreseeable future. We may incur indebtedness in the future which
may prohibit or effectively restrict the payment of dividends, although we have
no current plans to do so.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of iTurf as of January
31, 1999 on an actual basis based on our audited financial statements, and as
adjusted to give effect to:
o the reclassification of 100 shares of common stock outstanding at
January 31, 1999 into 12,500,000 shares of Class B common stock;
o the authorization of 67,500,000 shares of Class A common stock;
o the authorization of 1,000,000 shares of preferred stock;
o the sale of 3,700,000 shares of Class A common stock in this offering at
an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and
estimated offering expenses;
o the purchase of parent company stock for $10,000,000;
o repayment of an amount due to our parent ($573,000 at January 31, 1999);
and
o the acquisition of the TSISoccer.com domain name from TSI Soccer
Corporation for $25,000 of Class A common stock valued at the initial
public offering price, assumed to be $11.00 per share.
<TABLE>
<CAPTION>
January 31, 1999
---------------------------
Actual As Adjusted
------------ ------------
(in thousands)
<S> <C> <C>
Due to parent. .................................................... $ 573 $ --
------ ---------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
no shares issued and outstanding actual and as adjusted ......... -- --
Class A common stock, $.01 par value; 67,500,000 shares
authorized; no shares issued and outstanding actual;
3,702,273 shares issued and outstanding as adjusted(1) ......... -- 37
Class B common stock, $.01 par value; 12,500,000 shares
authorized; 12,500,000 shares issued and outstanding actual
and as adjusted ................................................ 125 125
Additional paid-in capital ....................................... -- 36,714
Investment in common stock of parent ............................. -- (10,000)
Retained earnings ................................................ 294 419
------ ---------
Total stockholders' equity ...................................... 419 27,295
------ ---------
Total capitalization ........................................... $ 992 $ 27,295
====== =========
</TABLE>
- ----------
(1) Excludes (a) 1,419,688 shares of Class A common stock issuable upon the
exercise of options outstanding with a weighted average exercise price of
$9.36 per share, and (b) an aggregate of 2,630,312 additional shares
reserved for issuance under our stock incentive plan. See
"Management--1999 Stock Incentive Plan" and Note 9 of Notes to iTurf
Financial Statements.
22
<PAGE>
DILUTION
The net tangible book value of iTurf as of January 31, 1999 was
approximately $63,000, or $.01 per share of common stock. Net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the shares of common stock outstanding as of January
31, 1999. The pro forma net tangible book value of iTurf as of January 31,
1999, after giving effect to:
o the issuance and sale of the 3,700,000 shares of Class A common stock
offered hereby at an assumed initial public offering price of $11.00 per
share after deducting estimated underwriting discounts and commissions
and estimated offering expenses;
o the purchase of the common stock of our parent for $10.0 million,
accounted for as a reduction of stockholders' equity; and
o the acquisition of the TSISoccer.com domain name from TSI Soccer
Corporation for $25,000 of Class A common stock valued at the initial
public offering price, assumed to be $11.00 per share;
would have been $26.9 million, or $1.66 per share.
This represents an immediate increase in pro forma net tangible book value
per share of $1.65 to existing stockholders and an immediate dilution per share
of $9.34 to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ........................... $ 11.00
Net tangible book value per share before this offering ................. $ .01
Increase in pro forma net tangible book value per share attributable to
new investors ......................................................... 1.65
------
Pro forma net tangible book value per share after offering ................ 1.66
--------
Dilution per share to new investors ....................................... $ 9.34
========
</TABLE>
The following table summarizes, on a pro forma basis, as of January 31,
1999, the number of shares of Class A common stock purchased in this offering,
the aggregate cash consideration paid and the average price per share paid by
existing stockholders for Class B common stock and by new investors purchasing
shares of Class A common stock in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ ------------------------- Average Price
Number Percent Amount Percent Per Share
------------ --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing Stockholder ......... 12,500,000 77.2% $ -- --% $ --
New investors ................ 3,700,000 22.8 40,700,000 100.0 11.00
---------- ----- ----------- -----
Total ..................... 16,200,000 100.0% $40,700,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock
options. As of January 31, 1999, there were options outstanding to purchase a
total of 1,419,688 shares of Class A common stock with a weighted average
exercise price of $9.36 per share. To the extent that any of these options are
exercised, there may be further dilution to new investors.
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read in conjunction with, the Financial Statements of iTurf, the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this prospectus. The selected
statement of operations data of iTurf presented below for the years ended
January 31, 1997, 1998 and 1999, and the balance sheet data as of January 31,
1998 and 1999 are derived from financial statements of iTurf that have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this prospectus. The selected statement of operations data presented below
for the period from March 14, 1995, date of inception, through January 31, 1996
and the balance sheet data as of January 31, 1996 and 1997 are derived from
audited financial statements not included in this prospectus. The historical
financial statements include allocations for administrative, distribution and
other expenses incurred by our parent for services rendered to iTurf. While we
believe such allocations to be reasonable, they are not necessarily indicative
of, and it is not practical for us to estimate, the levels of expenses that
would have resulted had iTurf been operating as an independent company.
The accompanying financial data include the Internet operations of TSI
Soccer Corporation, which was acquired by our parent in a transaction accounted
for as a pooling of interests, from March 14, 1995, its date of inception, the
operations of gURL Interactive from December 17, 1997, the date of its
acquisition, and additional Internet operations of iTurf developed since
December 17, 1997, including the dELiAs.cOm Web site which was launched in May
1998.
<TABLE>
<CAPTION>
Period from
March 14, 1995
(date of inception) Year Ended January 31
through January 31 -----------------------------------------
1996 1997 1998 1999
-------------------- ------------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................................ $ 6 $ 13 $ 134 $ 4,014
Cost of product sales ................................... 2 6 69 1,687
------- ------- ------- -------
Gross profit ............................................ 4 7 65 2,327
Selling, general and administrative expenses ............ 6 14 114 1,467
------- ------- ------- -------
Income (loss) from operations ........................... (2) (7) (49) 860
Interest expense ........................................ -- -- 20 41
------- ------- ------- -------
Income (loss) before income tax (benefit) provision ..... (2) (7) (69) 819
------- ------- ------- -------
Income tax (benefit) provision .......................... (1) (3) (29) 355
------- ------- ------- -------
Net income (loss) ....................................... $ (1) $ (4) $ (40) $ 464
======= ======= ======= =======
Basic and diluted net income (loss) per share(1) ........ $ (0.00) $ (0.00) $ (0.00) $ 0.04
======= ======= ======= =======
Shares used to compute basic net income (loss) per
share(1) ............................................... 12,500 12,500 12,500 12,500
======= ======= ======= =======
Shares used to compute diluted net income (loss) per
share .................................................. 12,500 12,500 12,500 12,518
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
January 31
-----------------------------------------------
1996 1997 1998 1999
---------- ---------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents .................... $ -- $ -- $ 31 $ 375
Working capital (deficiency) ................. (1) (5) (481) (461)
Total assets ................................. -- -- 467 1,255
Due to parent ................................ 1 5 512 573
Total stockholder's (deficit) equity ......... (1) (5) (45) 419
</TABLE>
- ----------
(1) Based on the number of shares actually outstanding as of January 31, 1999
after giving effect to the reclassification of 100 shares of common stock
outstanding at January 31, 1999 into 12,500,000 shares of Class B common
stock. See Notes to iTurf Financial Statements for information concerning
the computation of net income (loss) per share.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Investors should read the following discussion in conjunction with the
financial statements and related notes thereto of iTurf which appear elsewhere
in this prospectus. The following discussion contains forward-looking
statements that reflect iTurf's plans, estimates and beliefs. Our actual
results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below and elsewhere in this prospectus,
particularly in "Risk Factors."
Overview
iTurf is a leading provider of Internet community and e-commerce services
focused primarily on Generation Y, based on sales and traffic on our Web sites.
We provide Generation Y with an online destination that encompasses a network
of Web sites that addresses this demographic group's concerns, interests,
tastes and needs. Our sites offer interactive web/zines with proprietary
content, chat rooms, posting boards, personal homepages and e-mail, as well as
online shopping opportunities.
iTurf is a subsidiary of dELiA*s Inc. and was incorporated on August 7,
1997. Prior to the closing of this offering, our parent has owned all of the
outstanding capital stock of iTurf. iTurf's results of operations include the
following:
o the Internet operations of TSI Soccer Corporation, a wholly-owned
subsidiary of our parent, which was acquired by our parent in December
1997. The acquisition was accounted for as a pooling of interests.
Concurrently with the closing of this offering, iTurf will acquire the
TSISoccer.com domain name from TSI Soccer for $25,000 of Class A common
stock, valued at the initial public offering price per share. Therefore,
the financial statements of iTurf reflect the Internet operations of TSI
from March 14, 1995, when TSI began Internet operations;
o the operations of gURL Interactive, which was acquired by iTurf on
December 17, 1997; and
o the Internet operations of iTurf, which were developed since December
17, 1997, including the dELiAs.cOm Web site which was launched in May
1998.
Following the acquisition of gURL Interactive, we launched the dELiAs.cOm
and discountdomain.com sites in May 1998, the contentsonline.com and droog.com
sites in November 1998 and, most recently, the dotdotdash.com site in March
1999. We sell products from these sites, each of which shares merchandise and
branding with catalog offerings of our parent. In addition, we expanded our Web
community features during the same periods. We launched gURLmAIL.com in
February 1998 and gURLpages.com in June 1998. In December 1998, we also began
to add additional third party content to our gURL.com Web site, such as music
news and film trailers. See "Business--The iTurf Network" and "Business--iTurf
E-Commerce."
We generate revenue from four primary sources:
o sales of apparel, accessories, footwear, athletic gear, home furnishings
and other merchandise through our e-commerce sites;
o fees paid for advertising on our sites;
o fees from licensing the gURL brand and content; and
o subscription fees paid by members of our discount shopping service,
discountdomain.com.
Sales of apparel, accessories and footwear for Generation Y girls and young
women on our dELiAs.cOm site accounted for a substantial majority of our
revenue in the year ended January 31, 1999 and is expected to account for the
majority of our revenue for at least the next twelve months. Sales of athletic
gear on our TSISoccer.com site, primarily soccer merchandise sold to Generation
Y boys and young men, was our second largest source of product revenue in that
period. We expect this trend to continue and for sales of apparel, accessories,
footwear and other products to grow more rapidly than revenue from advertising
over the next twelve months. Because advertising sales are generally
higher-margin than merchandise sales, we expect our gross margin to decline in
the near future.
25
<PAGE>
The historical financial statements contained elsewhere in this prospectus
include allocations for administrative, distribution and other expenses
incurred by our parent for services rendered to iTurf. While we believe such
allocations to be reasonable, they are not necessarily indicative of, and it is
not practical for us to estimate, the levels of expenses that would have
resulted had iTurf been operating as an independent company.
Following the closing of this offering, the provision of services and
other matters between the two companies, including use of our parent's
trademarks, will be governed by the intercompany agreements. We believe that
the intercompany agreements, had they been in effect during the historical
periods presented, would not have had a material effect on our net income
(loss), given the level of benefits received from our parent. Expenses would
have increased marginally in connection with fees to be paid to our parent
pursuant to the trademark license and customer list agreement. However, the
effect of the trademark license and customer list agreement would have been
substantially offset by iTurf's ability under the supply arrangements of the
intercompany services agreement to purchase clearance inventory from our parent
at lower costs. We do not expect this offset to continue to the same degree
following the closing of this offering. We expect selling, general and
administrative expenses to increase as a percentage of sales due to fees
associated with higher levels of advertising provided by our parent and with
increased sales made under trademarks licensed from our parent. See
"Transactions with Our Parent--Intercompany Agreements."
iTurf has also relied on our parent to provide financing for our
operations. Therefore, our cash flows to date are not necessarily indicative of
the cash flows that would have resulted had iTurf been operating as an
independent company during the periods presented.
Since the inception of iTurf's business in 1995 through the fiscal year
ended January 31, 1998, iTurf incurred net losses of approximately $45,000. For
the year ended January 31, 1999, iTurf's operations resulted in net income of
approximately $464,000. We believe that our continued growth will depend in
large part on our ability to increase our brand awareness, provide our
customers with superior Internet community and e-commerce experiences and
continue to enhance our systems and technology to support increased traffic to
our Web sites. We intend to invest heavily in marketing and promotion,
including advertising in our parent's print catalogs, and to further develop
our Web sites, technology and operating infrastructure. As a result, we expect
to record substantial net losses for the foreseeable future.
In view of the rapidly changing nature of iTurf's business and its limited
operating history, as well as the expected seasonality, iTurf believes that
period-to-period comparisons of its operating results, including iTurf's gross
profit margin and operating expenses as a percentage of sales, are not
necessarily meaningful. You should not rely on this information as an
indication of future performance.
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
Ended January 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ............................................. 100.0% 100.0% 100.0%
Cost of product sales ................................ 46.2 51.5 42.0
----- ----- -----
Gross profit ......................................... 53.8 48.5 58.0
Selling, general and administrative expenses ......... 107.7 85.1 36.6
Interest expense, net ................................ -- 14.9 1.0
----- ----- -----
Income (loss) before income tax
(benefit) provision ................................. (53.9) (51.5) 20.4
Income tax (benefit) provision ....................... (23.1) (21.6) 8.8
----- ----- -----
Net income (loss) .................................... (30.8)% (29.9)% 11.6%
===== ===== =====
</TABLE>
26
<PAGE>
Comparison of Fiscal Years 1997 and 1998
Revenues. Revenues increased from $134,000 in fiscal 1997 to $4,014,000 in
fiscal 1998. The increase was primarily due to the launch of the dELiAs.cOm Web
site in May 1998 and advertising revenue of approximately $444,000 during
fiscal 1998. iTurf did not sell any advertising in fiscal 1997. Subscription
fees and licensing revenue was approximately $218,000 for fiscal 1998; we did
not have any such revenue for fiscal 1997.
Gross Profit. Gross profit increased from $65,000 in fiscal 1997 to
$2,327,000 in fiscal 1998 as a result of both increased sales and a higher
gross margin. Gross margin increased from 48.5% in fiscal 1997 to 58.0% in
fiscal 1998. This increase was due to both the increased sales of higher-margin
apparel and accessories on the dELiAs.cOm Web site, which was launched in May
1998, as well as revenue from advertising, licensing and subscriptions during
the second, third and fourth quarters of fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses are comprised of sales and marketing expense, which
includes advertising costs, credit card fees and distribution costs, product
development and operations expense, which includes site development, editorial
content and systems costs, and general and administrative expenses. Total
selling, general and administrative expenses, including direct expenses and
expenses allocated from our parent, increased from $114,000, or 85.1% of
revenues, in fiscal 1997 to $1,467,000, or 36.6% of revenues, in fiscal 1998
due to a substantial increase in advertising, product development and overhead
costs to support the continued expansion of the company.
In 1998, selling, general and administrative expenses were comprised of
selling and marketing expense of $633,000, product development expense of
$341,000 and general and administrative cost of $493,000. In 1997 selling,
general and administrative expenses were comprised substantially of general and
administrative expenses. A significant portion of these expenses, $45,000 in
fiscal 1997 and $219,000 in fiscal 1998, were allocated from our parent.
Comparison of Fiscal Years 1996 and 1997
Revenues. Revenues in fiscal 1996 and fiscal 1997 were substantially from
soccer merchandise. Revenues increased from $13,000 in fiscal 1996 to $134,000
in fiscal 1997. This increase was primarily due to an enhancement of
TSISoccer.com and additional customer awareness of the site, as well as a
general increase in the use of the Web for electronic commerce.
Gross Profit. Gross profit increased from $7,000 in fiscal 1996 to $65,000
in fiscal 1997, primarily due to an increase in net sales. Gross margin
decreased from 53.8% in fiscal 1996 to 48.5% in fiscal 1997, primarily due to a
change in the mix of TSI Soccer merchandise sold from year to year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $14,000 for the year ended January 31,
1997 to $114,000 in fiscal 1997. Of these totals, $13,000 and $49,000 for
fiscal 1996 and fiscal 1997, respectively, were allocations from our parent.
The increases in total selling, general and administrative expenses and parent
allocations correspond with our growth in revenues. As a percentage of
revenues, however, such expenses decreased from 107.7% to 85.1%, primarily due
to the leveraging of fixed costs over a larger revenue base.
27
<PAGE>
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly statement of
operations data for the eight quarters ended January 31, 1999. This unaudited
quarterly information has been derived from unaudited financial statements of
iTurf and, in the opinion of management, includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information for the periods covered. The quarterly data should be read in
conjunction with the iTurf Financial Statements and the notes thereto. The
operating results for the quarters are not necessarily indicative of the
operating results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------
Apr. 30, July 31, Oct. 31, Jan. 31, Apr. 30, July 31, Oct. 31, Jan. 31,
1997 1997 1997 1998 1998 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
(in thousands)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ............................... $ 9 $ 24 $53 $ 48 $ 69 $ 760 $1,064 $2,121
Cost of product sales .................. 5 13 27 24 35 339 359 954
---- ------ --- ------ ------ ------ ------ ------
Gross profit ........................... 4 11 26 24 34 421 705 1,167
Selling, general and
administrative expenses ............... 6 18 18 72 100 436 505 426
Interest expense, net .................. -- -- -- 20 11 11 9 10
---- ------ --- ------ ------ ------ ------ ------
Income (loss) before income tax
(benefit) provision ................... (2) (7) 8 (68) (77) (26) 191 731
Income tax (benefit) provision ......... (1) (3) 3 (28) (33) (11) 83 316
---- ------ --- ------ ------ ------ ------ ------
Net income (loss) ...................... $ (1) $ (4) $ 5 $ (40) $ (44) $ (15) $ 108 $ 415
==== ====== === ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Percentage of Revenues
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ........................... 100.0% 100.0% 100.0% 100.0%
Cost of product sales .............. 55.6 54.2 50.9 50.0
----- ----- ----- ------
Gross profit ....................... 44.4 45.8 49.1 50.0
Selling, general and
administrative expenses ........... 66.6 75.0 34.0 150.0
Interest expense, net .............. -- -- -- 41.7
----- ----- ----- ------
Income (loss) before income tax
(benefit) provision ............... (22.2) (29.2) 15.1 (141.7)
Income tax (benefit) provision ..... (11.1) (12.5) 5.7 ( 58.4)
----- ----- ----- ------
Net income (loss) .................. (11.1)% (16.7)% 9.4% ( 83.3)%
===== ===== ===== ======
<CAPTION>
Percentage of Revenues
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ........................... 100.0% 100.0% 100.0% 100.0%
Cost of product sales .............. 50.7 44.6 33.7 45.0
----- ----- ----- -----
Gross profit ....................... 49.3 55.4 66.3 55.0
Selling, general and
administrative expenses ........... 144.9 57.4 47.4 20.0
Interest expense, net .............. 16.0 1.5 0.9 0.5
----- ----- ----- -----
Income (loss) before income tax
(benefit) provision ............... (111.6) (3.5) 18.0 34.5
Income tax (benefit) provision ..... (47.8) (1.5) 7.8 14.9
----- ----- ----- -----
Net income (loss) .................. (63.8)% (2.0)% 10.2% 19.6%
===== ===== ===== =====
</TABLE>
Revenues. Revenues have generally increased from quarter to quarter due to
the launch of new Web sites, notably dELiAs.cOm in the second quarter of fiscal
1998, as well as enhanced design elements, broader product offerings and
increases in the customer awareness of our sites and in consumer use of the web
for electronic commerce. In the second and third quarters of fiscal 1998,
revenues also increased due to the sale of advertising by iTurf.
Gross Profit. Gross profit has generally increased quarter over quarter
since the first quarter of fiscal 1998 due to the sale of higher-margin apparel
and accessories following the launch of the dELiAs.cOm Web site and the sale of
advertising in the second and third quarters of fiscal 1998. In the fourth
quarter of 1998, gross profit decreased as advertising represented a smaller
percentage of revenues than in the prior two quarters.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses have increased from quarter to quarter due to higher
allocation of expenses from our parent and higher direct expenses. Selling,
general and administrative expenses as a percentage of revenues have decreased
from quarter to quarter over the five most recent quarters primarily because
iTurf has been able to leverage our fixed costs over a larger revenue base. The
significant increase in selling, general and administrative expenses from the
third quarter to the fourth quarter of fiscal 1997 reflects the costs
associated with the development of our Web sites and the purchase and
integration of gURL.com, while the increase from
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the first quarter to the second quarter of fiscal 1998 reflects the startup of
dELiAs.cOm and related marketing costs.
Seasonality
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control.
These factors include:
o seasonal fluctuations in consumer purchasing patterns and advertising
spending;
o timing of, response to and quantity of our parent's catalog mailings;
o changes in the growth rate of Internet usage;
o actions of competitors;
o the timing and amount of costs relating to the expansion of our
operations and acquisitions of technology or businesses; and
o general economic and market conditions.
Our limited operating history and rapid growth make it difficult to
ascertain the effects of seasonality on our business. We believe that
period-to-period comparisons of our historical results are not necessarily
meaningful and should not be relied upon as an indication of future results.
Income Taxes
Pursuant to the tax allocation agreement, if our parent continues to file
a consolidated tax return including iTurf, we will pay our proportionate share
of such tax liability computed as if iTurf were filing a separate return.
So long as iTurf is consolidated with our parent's taxpayer group, any tax
loss benefits attributable to iTurf that we are unable to use at that time will
be used by our parent. To the extent that our parent uses our tax benefits, it
will establish a receivable for our benefit. Our parent will be required to
repay us for the use of any such benefit. Repayment is due in cash at the time
and to the extent we are required to pay income taxes and we are no longer
consolidated in our parent's tax group, or at the close of the fifth calendar
year following the creation of the benefit. Such repayment by our parent will
be offset by any amount that we are required to pay our parent under the tax
allocation agreement.
If iTurf is no longer consolidated with our parent's taxpayer group, we
may not be able to realize the tax benefit of future losses. Losses generated
subsequent to deconsolidation will be available to us to offset any future
taxable income for twenty years. Deferred tax assets normally recorded to
reflect such future benefit may or may not be recorded depending on our ability
to demonstrate the likelihood of future profitability. See "Transactions with
Our Parent--Income Taxes."
Liquidity and Capital Resources
Net cash flows provided by operating activities of $646,000 for fiscal
1998 were primarily due to a $104,000 increase in accounts payable and other
current liabilities and $464,000 of net income. Net cash flows used in
operating activities for fiscal 1997 of $34,000 relate primarily to a net loss
of $40,000. The net cash flow effect of operating activities was insignificant
for fiscal 1996.
Net cash used in investing activities of $265,000 for fiscal 1998 related
to purchases of property and equipment. Investing activities in fiscal 1997
used $224,000, which relates to cash paid for the gURL acquisition and
purchases of property and equipment. The net cash flow effect of investing
activities was insignificant for fiscal 1996. We expect to make capital
expenditures of at least $4.0 million in fiscal 1999, including investments in
technology and physical infrastructure and the acquisition of content and
distribution relationships.
Financing activities used net cash of $37,000 for fiscal 1998 and provided
net cash of $289,000 for fiscal 1997. The net cash flow effect of financing
activities was insignificant for fiscal 1996. Financing activities primarily
relate to loans from our parent.
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iTurf has historically relied on its parent for financing capital
expenditures. iTurf's capital requirements depend on numerous factors,
including:
o the rate of market acceptance of iTurf's online presence;
o the ability to expand iTurf's customer base;
o the cost of upgrades to its online presence; and
o the level of expenditures for sales and marketing.
The timing and amount of such capital requirements cannot accurately be
predicted. Additionally, iTurf will continue to evaluate possible investments
in businesses, products and system technologies and plans to expand its sales
and marketing programs and conduct more aggressive brand promotions. iTurf
believes that the net proceeds from this offering, together with iTurf's
operating revenue, will be sufficient to meet anticipated cash needs for at
least the next 24 months.
iTurf is currently a borrower under our parent's bank credit facility,
which prohibits dividends other than to our parent. We expect to terminate our
participation in the bank credit facility concurrent with the closing of this
offering.
Concurrent with the closing of this offering, iTurf intends to use $10
million of the gross proceeds of this offering to purchase shares of our
parent's common stock. We will purchase such shares, through a wholly-owned
subsidiary, at a price equal to the average closing price of our parent's
common stock on the five preceding trading days. iTurf will record this
transaction as a reduction to stockholders' equity. In addition, we have
registration rights on such shares of our parent's common stock. See
"Transactions with Our Parent--Intercompany Agreements--dELiA*s Common Stock
Registration Rights Agreement."
Year 2000 Compliance
iTurf is heavily dependent upon complex computer software and systems for
our operations, including, to a significant extent, our parent's computer
systems. 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 iTurf's material operating software and its information technology
systems 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 iTurf's mission-critical operating software have provided
written warranties or assurances to iTurf or our parent that such software will
not be affected by the change in the century. The majority of the third party
vendors of iTurf's other material operating software and systems have also
provided warranties or assurances that such software and systems would be
compliant by December 31, 1998. iTurf has prepared a Year 2000 compliance
program, which involves:
o identifying the material operating software and systems on which iTurf
depends, whether used by iTurf or by iTurf's service providers;
o obtaining written warranties or assurances from third party software and
systems vendors and service providers;
o monitoring the compliance efforts of such vendors and service providers;
and
o testing its material operating software and systems.
We expect to begin performing tests in the first quarter of fiscal 1999 of
all of iTurf's material operating software and systems to verify the assurances
given by these third party vendors and ensure Year 2000 compliance. To date, we
have not identified any material software or systems as requiring remediation
or replacement. However, we cannot assure you that all of iTurf's material
operating software and systems will be Year 2000 compliant.
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In addition to the operating systems and software iTurf uses directly,
iTurf's operations are also dependent upon the performance of operating
software and systems used by our significant service providers, including our
parent and providers of financial, telecommunications and parcel delivery
services. Our parent has provided us with assurance that its Year 2000
compliance programs is consistent with ours and the status of its efforts is
the same as ours. We have contacted each of iTurf's other significant service
providers and have obtained written assurances from the majority of such
providers that the providers' relevant operating software and systems are in
Year 2000 compliance or would be by December 31, 1998. We are monitoring the
status of all iTurf's significant service providers' Year 2000 compliance
efforts to minimize the risk of any material adverse effect on iTurf's
operations resulting from compliance failures. However, there can be no
assurance that iTurf's service providers have, or will have, operating software
and systems that are Year 2000 compliant.
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,
could cause users of our Web sites to consider alternative Web community and
content providers, 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 iTurf. Therefore, we are developing
contingency plans with respect to such 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 purchases of merchandise from iTurf
are made with credit cards, and iTurf's 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.
iTurf has not identified significant exposure to Year 2000 problems
outside of the information technology issues identified above.
Costs
To date, iTurf has spent an immaterial amount on Year 2000 compliance.
iTurf does not expect its costs of addressing Year 2000 issues in fiscal 1999
or beyond to be significant. We believe that proceeds of this offering budgeted
for investment in technology infrastructure and maintenance will be sufficient
to fund our Year 2000 compliance program and contingency plan. However, given
iTurf's dependence on third party software and system vendors and service
providers and on its 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 Standard 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 the
iTurf's financial statements or disclosure as iTurf has no reconciling items.
Therefore net income (loss) and comprehensive income (loss) are the same.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 requires that public companies
report certain information about operating segments in their annual financial
statements and in subsequent condensed financial statements of interim periods
issued to shareholders. This statement also requires that public companies
report certain information about their products and services, the geographic
areas in which they operate and their major customers. iTurf has determined
that the adoption of this new standard did not have a material effect on its
disclosure for all periods presented because iTurf currently operates in one
segment.
In June 1998, the FASB 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 iTurf to recognize all
derivatives on the balance sheet at fair value. iTurf has determined that the
adoption of this new standard will not have a material effect on its financial
statements or disclosure for all periods presented.
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BUSINESS
Our Business
iTurf is a leading provider of Internet community and e-commerce services
focused primarily on Generation Y, based on sales and traffic on our Web sites.
Generation Y is comprised of 56 million people between the ages of 10 and 24
and accounts for over $278 billion of disposable income. iTurf is an online
destination, or "home turf," that addresses Generation Y's concerns, interests,
tastes and needs. iTurf combines the style and editorial flair of Generation
Y-focused media with core direct marketing and e-commerce competencies. Our
network of sites offers interactive web/zines with proprietary content, chat
rooms, posting boards, personal homepages and e-mail, as well as online
shopping opportunities. Our network is currently comprised of our gURL
community sites and the following e-commerce sites that offer a wide range of
apparel, accessories, footwear, athletic gear and home furnishings:
o dELiA*s.cOm o discountdomain.com
o TSISoccer.com o droog.com
o contentsonline.com o dotdotdash.com
We are a subsidiary of dELiA*s Inc., a leading catalog marketer targeting
the Generation Y market. Our relationship with our parent provides the
following advantages:
o exclusive online use of leading brand names including dELiA*s and TSI
Soccer;
o a proprietary ten million-name database and access to six million
individuals who have made catalog purchases;
o advertising space in our parent's catalog publications that collectively
have circulation in excess of 60 million;
o substantial merchandising expertise and strong relationships with
hundreds of vendors; and
o sophisticated services from our parent's distribution center to fill our
product orders.
Our Internet traffic and sales have grown rapidly over the last year. We
estimate that the number of page views per month on our Web sites has grown
from approximately 800,000 in February 1998 to approximately 35 million in
January 1999. Our revenues have increased from $48,000 in the quarter ended
January 31, 1998 to $2.1 million in the quarter ended January 31, 1999. By
selling a selection of branded and proprietary products, we achieved higher
gross profits per order on merchandise sales than many other e-commerce
companies. In the quarter ended January 31, 1999, our gross margin on
merchandise sales was approximately 50%.
Industry Background
Growth of the Internet and E-Commerce
The Internet has emerged as a global medium, enabling millions of people
to share information, communicate and conduct business electronically.
International Data Corporation, a market research firm, estimates that the
number of Web users will grow from approximately 69 million worldwide in 1997
to approximately 320 million worldwide by the end of 2002. This rapid adoption
represents a significant opportunity for businesses to advertise and sell
products. According to IDC, e-commerce transactions to the home are expected to
increase from approximately $5 million in 1997 to approximately $94 billion in
2002. At the same time, Jupiter Communications projects that Internet
advertising will increase from approximately $1.9 billion in 1998 to $7.7
billion in 2002.
Growth of Online Communities
As the Internet grows, we believe that users seek the same opportunity for
compelling content, information, expression, interaction, support and
recognition that they seek in the everyday world. The major navigational sites
typically provide general information and search services. These sites are not
dedicated to publishing proprietary content and aggregating user-generated
content. Often, the most relevant content for a user is generated by others who
share an interest in what is published. Multi-faceted online communities
linking related Web sites provide users with the ability to access unique,
proprietary content and to interact directly with the authors of personalized
content.
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Generation Y's Increasing Importance to the Internet
The United States Census Bureau projects that Generation Y will grow from
56.3 million in 1998 to 63.1 million in 2010. This growth rate is estimated to
outpace growth of the general popuation by 19.5%. Generation Y also possesses
substantial disposable income. Based upon Census Bureau estimates, we believe
that 10-24 year olds generated disposable income in excess of $278 billion in
1997.
At the same time, Generation Y is becoming increasingly involved in the
Internet. E-marketer estimates that the number of teens and college students
who regularly access the Internet will rise from 12 million in 1998 to over 22
million by 2000. Their increased activity creates a significant opportunity for
both selling products and advertising to Generation Y online. Jupiter
Communications projects that e-commerce sales to teens and college students
will increase from $600 million in 1998 to $3.8 billion in 2002 and advertising
to Generation Y will increase from $500 million in 1998 to $2.1 billion in
2002.
We may not enjoy the same growth rates as the recent rates of growth of
Generation Y or Web users, e-commerce growth or spending by Generation Y.
The Need for a Generation Y Online Destination
We believe Generation Y is a large and underserved audience that desires
entertainment, communication, content and advice in an environment focused on
their particular needs. Members of Generation Y are influenced by new media and
information sources and demand fresh and engaging content that speaks to them
without speaking down to them. The major Internet navigational sites are
generally:
o designed to appeal to a broad audience and therefore have not created an
environment focused on the specific programming needs and buying habits
of Generation Y;
o do not exclusively address the issues that are relevant to teens, such
as peer, parental and school-related pressures, and issues revolving
around friendship, sexuality and competition; and
o do not provide the kind of interactivity and services that this group
seeks, such as communication with their peers through chat and e-mail,
away from the adults in their lives, as well as news, online games and
personal home page building.
We believe that creating an online destination that caters exclusively to
Generation Y is essential to marketing to this group. From a marketing
perspective, Generation Y is difficult to reach and has demonstrated a
resistance to traditional marketing techniques. We believe marketing products
and services indirectly in the context of demographically appropriate editorial
information, rather than traditional advertising methods, is a more effective
way to reach this audience. Accordingly, we believe there is a need for a
Generation Y online destination consisting of an integrated network of
community and commerce in a trusted environment.
The iTurf Solution
iTurf is an online destination where this group can congregate in an
environment that caters exclusively to its interests and promotes its
participation and personal growth. iTurf integrates community and commerce
through a network of sites focused primarily on Generation Y, providing
compelling and topical content as well as forums for interactive communication.
Our network is currently comprised of our gURL branded community sites and
multiple e-commerce sites. The gURL sites provide a place where girls and young
women can find peer support and advice from like-minded users through community
resources such as chat rooms, posting boards, home-page hosting services and
Web-based e-mail services. Our gURL sites provide interactive features and
regularly updated articles on topics of interest to Generation Y girls and
young women, such as shopping, fashion and beauty, peer pressure,
entertainment, music, relationships, emotions, gossip and news. iTurf's
gURL.com site has received various awards including a 1998 Webby award for best
site in the "living" category.
Our commerce sites include a wide range of apparel, accessories, footwear,
athletic gear and home furnishing products for both teen girls and boys. Our
most prominent online store, dELiA.cOm, offers
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apparel, cosmetics, accessories, footwear and other products for Generation Y
girls and young women. Our other commerce sites include:
o TSISoccer.com, offering soccer and other sports related products;
o contentsonline.com, offering home furnishings, light furniture and
household articles;
o discountdomain.com, a membership-based discount shopping service;
o droog.com, a site that offers apparel, accessories and footwear for
Generation Y boys and young men; and
o dotdotdash.com, a site that offers similar products to girls under age
13.
We intend to leverage the traffic and brand name recognition generated from
these sites to develop and expand existing and additional sites on our network.
Our commerce and community sites are linked by iTurf.com. We intend to
develop iTurf.com as the online meeting place and community for young men and
women of Generation Y. We will promote and drive traffic to this site through
all of the properties in our network. We will promote iTurf.com to Generation Y
girls and young women through gURL.com, dELiAs.cOm and other female-targeted
offerings. We will promote iTurf to Generation Y boys and young men through our
male-focused offerings as well as the prospect of interaction with the members
of the gURL community. In addition to our e-commerce efforts, we believe we may
be able to generate significant advertising and sponsorship revenue from
advertisers and retailers seeking targeted access to Generation Y.
The iTurf Advantage
We believe we are one of the few online networks to focus primarily on the
Generation Y market, and that our relationship with our parent, the leading
direct marketer to Generation Y, provides us with the following advantages:
Ability to Attract Customers and Users to Web Sites.
o Access to Proprietary Database of Over Ten Million Names. We have the
exclusive online right to our parent's database of catalog buyers and
requesters. This database has grown rapidly from 198,000 names as of
January 31, 1996 to over ten million names today and is growing by over
100,000 names each month. In excess of 500,000 customer records in the
database have e-mail addresses. This database includes six million
buyers of direct mail products and contains extensive individual
purchasing histories. We believe this proprietary database would be
difficult for competitors to replicate and creates a significant
competitive advantage in targeting Generation Y.
o Compelling, Topical Content. Compelling, topical and regularly-updated
online content is critical to driving repeat customers and users to our
Web sites. We obtain content from both our internal staff and our
parent. This content consists of engaging editorial copy from direct
marketing products, and content from the gURL web/zine and community,
which presents regularly-updated articles, series and games as well as
thousands of pages of user-generated content. Accordingly, we believe we
have the editorial assets necessary to keep our content fresh and
updated and to continue to attract and retain new customers and users.
o iTurf Trade Names. We have the exclusive online right to our parent's
licensed trade names, including dELiA*s, contentsonline, TSI Soccer,
discountdomain and Droog, and our gURL trade name. We believe these
trade names have been a strong motivating factor in attracting
customers, especially with regard to consumers who have not yet made a
purchase online. We believe that a significant portion of our success
has been attributable to the goodwill and trust earned by our brands
among Generation Y consumers and their parents. Very few online
marketers have successfully penetrated the teen market in this manner.
o Exclusive Advertising and Promotional Space in the Largest Publication
Directed at Our Target Market. To date, we have advertised our Web sites
primarily through our parent's catalogs,
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which have an annual circulation in excess of 60 million. The dELiA*s
catalog has the largest domestic circulation of any publication directed
at Generation Y. Following this offering, we will have certain exclusive
rights to purchase promotional and advertising space in our parent's
catalog titles, including dELiA*s, Contents, TSI Soccer and Droog. We
intend to increase the amount of advertising we place in these titles.
Ability to Deliver Superior E-Commerce Solutions.
o Sophisticated Fulfillment Capability. We are able to fill orders through
our parent's 354,000 square foot distribution center. This access
enables us to retain significantly greater control over the quality,
timeliness and cost of fulfilling our product orders than other online
marketers who outsource fulfillment services to unrelated contractors
that serve several direct marketers. In addition, the scale of our
parent's operation enables us to deliver a large number of products over
a range of categories. Customers generally have access to real-time
product availability information prior to ordering and are shipped
products within 48 hours of credit approval. We also supplement our
customer service staff with support from our parent's three call centers
with a total of 400 stations, two of which call centers are staffed 24
hours per day, 7 days per week.
o Superior Inventory Management and Merchandising Opportunities. Our
relationship with our parent enables us to offer a large selection of
merchandise without the investment in inventory and the ongoing expense
related to the management of such inventory. In addition, we do not take
ownership of the inventory until the customer order is taken,
eliminating the risk of inventory obsolescence and mark-downs. We also
take advantage of our parent's relationships with a diverse group of
hundreds of vendors as well as the purchasing economies enjoyed by our
parent as a result of both its scale and proprietary private label
products. As a result, we believe we are well positioned to continue to
enjoy gross profit margins that are superior to many other online
retailers while being able to provide our customers with a compelling
selection of recognized merchandise.
o Direct Marketing Knowledge and Expertise. We expect to benefit from the
direct marketing knowledge and expertise of our management team and of
our parent. We are transferring to the Web the contextual selling model
as well as the use of editorial and graphical elements pioneered by our
parent and various members of our management. We believe that this
strategy is directly transferable to the Web and can be enhanced by
including interactive capabilities such as chat and personal home pages.
In addition, our parent possesses considerable experience in gathering
and mining data on Generation Y that we believe is key to our success.
Accordingly, we believe that we will be able to effectively target and
satisfy the needs of the Generation Y community.
Strategy
Our goal is to build iTurf into the most heavily-trafficked Generation Y
online destination. We intend to realize superior revenue growth opportunities
based upon expanded e-commerce offerings and, eventually, advertising
opportunities including sponsorship, promotion and distribution agreements with
leading brand marketers and media companies. We expect to fund our future
expansion with the proceeds from this offering. We intend to reach the above
goal by implementing the following interconnected strategies:
Strengthen Brand Recognition. We believe that building brand recognition
for our sites is critical to attracting and expanding our global user base and
customer loyalty. Our strategy is to enhance the recognition of the iTurf brand
name as well as to independently build each brand in the iTurf network,
including dELiA*s, gURL, TSI Soccer, discountdomain, contentsonline, Droog and
dot dot dash, each of which is designed to appeal to a specific customer
segment within Generation Y. By building each brand individually, we expect to
reach specific customer groups with product offerings and formats designed to
cater to their tastes and purchasing patterns. In doing so, we believe we can
avoid relying on one brand or segment within Generation Y and instead can
maximize our reach to all segments of Generation Y. In the near term, we will
devote substantial resources to building the leadership positions of gURL and
dELiAs.cOm.
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We seek to build brand recognition and traffic through multiple methods,
such as:
o Promotion in our Parent's Marketing Channels. To date, we have marketed
our sites and products and services in our parent's catalogs, which have
a combined circulation of more than 60 million. We intend to continue to
advertise in our parent's family of catalogs and our parent's retail
stores. To date, these marketing channels have been the principal
marketing mechanism to reach our target audience.
o Traditional and Internet Advertising. We intend to use traditional
advertising, which may include print, radio and event-based promotions.
Our sites have been advertised in such teen and fashion magazines as
Seventeen and YM. We believe that promotion in such publications is
particularly effective in reaching our target audience. We also intend
to use targeted online advertising to promote our brand name and
specific merchandising opportunities. We have purchased banner
advertising on the AngelfireMail, ChickClick and HotBot Web sites.
o Direct Marketing. The Internet allows rapid and effective marketing
experimentation and analysis, instant user feedback and personalization.
We intend to use direct marketing techniques to effectively target and
retain customers. Currently we send regular broadcast e-mails to our
users promoting special discounts and offers. We intend to include more
targeted personalized electronic messages based on prior purchasing
behavior and online activity. We also send out regular electronic
newsletters to gURLmAIL registered users regarding events affecting the
Generation Y community. We may also use traditional direct mail channels
to target our customers and individuals on our parent's database.
o Strategic Alliances. We believe iTurf can enhance its brand names and
increase its customer base through alliances with community, content and
e-commerce providers. We have created satellite dELiAs.cOm stores on
Yahoo! Shopping and CatalogCity.com and have tenancy positions in the
shopping area on AOL.com and Fashionmall.com. We are the exclusive
provider of soccer merchandise on Fogdog.com. We intend to enter into
additional alliances with other sites to build traffic and gain
customers.
o Affiliate Network. We recently created the dELiA*s Affiliate Network, a
marketing tool that increases exposure on the Internet and directly
generates sales. We offer affiliates 5% of net sales on purchases by
customers referred to our network of sites.
Enhance Online Offerings. We will aggressively seek to develop our
content, community and e-commerce product offerings to drive traffic to our Web
sites and increase revenue.
o Continue to Increase Community Functionality. We believe our success to
date has been, in part, a result of building customer loyalty by
coupling community with commerce. We believe our target audience places
great value on opportunities to interact with their peers through
interactive services that we currently offer, including e-mail, chat
rooms, home pages and other services. In the near term, we intend to add
services such as buddy lists, instant messaging, shared calendars and
organizers to further increase the community functionality of our sites.
We are continually looking for innovative and exciting interactive
services and new technologies to offer our users and customers.
o Enhance Content to Deepen Penetration of Markets. We intend to provide
new content offerings targeted at additional customer groups within
Generation Y, such as offerings directed at young men and content
designed to facilitate interaction between male and female members of
Generation Y. Our offerings for males may include online games and
sports news, among other things. We plan to drive traffic to these
offerings through our droog.com and TSISoccer.com sites. We also intend
to develop iTurf.com as the online meeting place and community for young
men and women of Generation Y.
o Expand Range of E-Commerce Products and Services. We believe that we can
further expand our product offerings to include additional products and
services targeted at and particularly attractive to Generation Y
consumers. Our product offerings have consisted principally of apparel,
accessories, footwear, and cosmetics for Generation Y females and
athletic gear for Generation Y males. We have recently expanded our
offerings to include home furnishings for Generation Y
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females and apparel and accessories for Generation Y males. In the
future, we may offer magazines, software, a full array of music and
videos, as well as other apparel and athletic gear.
Expand Site Infrastructure to Support Growth. We intend to continue to
invest in technologies and site infrastructure and to enhance the functionality
of our sites. This will enable us to better serve existing users and to provide
robust platforms to support growth. In the near term, we expect to make
substantial investments in the integration of Web and database technologies to:
o allow increased customization and personalization of the online shopping
and community experience;
o employ basket analysis and other cross-selling strategies; and
o enable broadcast e-mails to customers based on purchasing histories and
demographic characteristics and other valuable database-driven
techniques for increasing revenue per customer.
The iTurf Network
The iTurf network is currently composed of the iTurf.com home page and the
ten sites described below:
Community Sites
[gURL logo] gURL.com offers Web/zines and community features targeting
teen girls and featuring chat, posting boards and other
interactive functionality.
[gURLnet logo] gURLnet.com is a network of third-party Web sites featuring
content designed for Generation Y females.
[gURLpages logo] gURLpages.com is a free home-page hosting service that
offers users disk space and publishing tools to create their
own sites quickly and easily in one of 23 topically
organized sub-communities.
[gURLmail logo] gURLmAIL.com is a free Web-based e-mail service that is open
to users who register and provide certain demographic
information.
E-commerce Sites
[dELias*cOm logo] dELiAs.cOm is an e-commerce site based on the dELiA*s print
catalog selling apparel, accessories, footwear and cosmetics
to Generation Y girls and young women.
[TSI Soccer logo] TSISoccer.com is an e-commerce site based on the TSI Soccer
print catalog selling soccer merchandise, including
footwear, apparel and equipment.
[DiscountDomain discountdomain.com is an e-commerce site selling discounted
logo] merchandise (primarily apparel) to Generation Y girls and
young women who pay a monthly subscription fee.
[ContentsOnline contentsonline.com is an e-commerce site based on the
logo] Contents print catalog selling home furnishings, light
furniture and household articles for a Generation Y female's
bedroom or dorm room.
[Droog logo] droog.com is an e-commerce site based on the Droog print
catalog selling apparel, accessories and footwear to
Generation Y boys and young men.
[dot dot dash dotdotdash.com is an e-commerce site based on the dot dot
logo] dash print catalog selling apparel, accessories and footwear
to girls under age 13.
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iTurf Community
Our current community offerings are built around the gURL brand. Our gURL
sites serve hundreds of thousands of registered Generation Y users. We believe
that we have built a cultural environment in which our users feel comfortable,
safe and secure. These traits are critical for attracting and retaining
visitors. Our gURL sites collectively accounted for less than five percent of
our revenues in fiscal 1998.
[gURL logo]
gURL Web/zine. The gURL web/zine is our flagship editorial product. gURL
presents a different approach to the experience of being a teen girl. It is
committed to discussing issues that affect the lives of Generation Y females in
a non-judgmental, personal way. Through honest writing, visuals and liberal
sense of humor, gURL seeks to provide its audience a new way of looking at
subjects that are crucial to their lives. gURL chooses the subjects it covers
carefully and deals frankly with issues such as sexuality, emotions and body
image.
The gURL web/zine presents regularly-updated articles, series and games in
five principal departments:
o Looks Aren't Everything--a love/hate look at beauty culture, including
signature feature series such as "On Being Hairy," "The Boob Files," and
"Virtual Makeover;"
o Deal With It--getting through the day, the date and the rest of the hard
stuff...a whole new take on your body, brain and life as a teen gURL;
o Where Do I Go From Here?--decisions, directions and different ways of
getting a life;
o Ha!--real girl comics...the sad but true funny pages; and
o Exhibitionist--where we show off art, poetry and prose by girls, for
girls and stuff that matters to girls and see what they have to say
about it.
The gURL site offers content from three resources:
o proprietary content developed by our staff writers and designers as well
as free-lancers operating under work-for-hire or exclusive license
arrangements;
o user-generated content, such as postings and poetry submissions; and
o licensed third party content, such as music news from SonicNet and film
trailers from Film.Com.
We attract traffic to our sites by offering compelling, topical and
regularly-updated content. The gURL site has received a number of awards for
its content and community services, including a 1998 Webby award for best site
in the "living" category and a 1997 I.D. Magazine Interactive Media Design
award. The quality and increasing recognition of content from the gURL Web site
and of the gURL brand have created ancillary licensing opportunities for iTurf.
We have reached an agreement with Scholastic Inc. to publish a book for teen
girls based upon editorial content drawn from and inspired by the gURL.com
site. The book, expected to be titled "DEAL WITH IT: A whole new approach to
your body, brain and life as a teenage gURL," is scheduled to be published in
the fall of 1999. In addition, Andrews McMeel, the leading publisher of
calendars in the U.S., will publish gURL-branded engagement and wall calendars
in the fall of 1999.
gURL Connection Chat and Posting Boards. gURL Connection is the
password-protected members-only area of gURL.Com that offers a safe environment
for teen girls to interact freely with their peers. Our Web sites provide both
text-based and graphical-based Palace[TM] chat services to a membership base of
well over 140,000 members. Chat is a critical part of establishing a place for
gURL's users to "hang out" and transforming gURL into a premier destination for
Generation Y.
gURL's signature "Shout Out" posting boards provide intensely personal and
compelling media for members of the gURL community to share ideas, express
themselves and learn about others. The
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posting boards provide the gURL community with a continual source of
user-generated content. Most recently, we have begun to leverage that content
into another web/zine, "Mouthpiece," consisting of user-generated content drawn
from the "Shout Out" boards.
[gURLnet logo]
gURLnet is a gURL-branded network of third-party sites featuring content
designed for, and, in many cases, created by Generation Y females. gURLnet
offers the gURL community a selection of engaging content from diverse sources
across the Internet. gURLnet is the product of an alliance between iTurf and
ChickClick, a network of third party sites featuring content primarily for
women in their 20's and 30's. gURLnet is featured as the "teen channel" of
ChickClick.com. Each site links to and from the gURLnet home page and
identifies itself as a member of the gURLnet. In addition, each gURLnet member
site promotes the gURL Connection as the community of gURLnet.
[gURLpages logo]
gURLpages is one of the world's largest communities of personal teen
sites. We provide users with free disk space and publishing tools to create
their own sites quickly and easily. The sites are organized into 23 topically
organized sub-communities. These communities include entertainment-oriented
topical groupings such as "Movies," "Music" and "TV;" more expressionist areas
such as "Activism," "Comix" and "Ranting and Raving;" and for the users for
whom community means anarchy, "I Am Uncategorizable." Users are encouraged to
become and remain active participants in the gURL community by updating their
sites and communicating with others through the free e-mail, chat and
bulletin-board services we provide. We offer links from the gURL web/zine to
particularly compelling gURLpages for users seeking greater involvement and
recognition within the community. With hundreds of new gURLpages being created
each day, gURLpages has grown quickly since its launch in June 1998, and had
approximately 135,000 registered page owners as of March 1, 1999. gURLpages is
hosted by Lycos, Inc.
[gURLmAIL logo]
gURLmAIL offers free Web-based e-mail accounts to users who register by
providing certain demographic information. Participants can register for and
receive e-mail addresses at gURLmAIL.com that enable them to send and check
their e-mail from anywhere in the world via the Internet. gURLmAIL has grown
quickly since its launch in February 1998, and had approximately 343,000
registered users as of March 1, 1999. gURLmAIL is hosted by Lycos, Inc.
iTurf E-commerce
Each of our e-commerce sites, other than discountdomain.com, is based on a
print catalog published by our Parent. These sites translate the distinctive
look and editorial voice of the corresponding print catalog onto the Internet,
adding interactive functionality to make shopping an entertaining experience.
Each site is designed to be intuitive and easy to use, enabling the ordering
process to be completed with a minimum of customer effort. All of these sites
offer real-time product availability information, with the exception of
TSISoccer.com, which we expect will offer real-time availability information in
the future.
[dELiAs*cOm logo]
We have generated a substantial majority of our revenue from the sale of
apparel, accessories and footwear on the dELiAs.cOm site, which was launched in
May 1998. Product sales and advertising on dELiAs.cOm accounted for
approximately 74% of our revenues in fiscal 1998. Apparel ranges from basics,
such as jeans, shorts and t-shirts to more fashion-oriented apparel, such as
woven and knit junior dresses and swimwear. Our footwear selections include
sneakers, sandals, boots, flats and platforms.
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Accessories include sunglasses, watches, costume jewelry and cosmetics. In
August 1998, we also began selling a limited selection of music compact discs.
dELiAs.cOm features branded merchandise from a diverse group of more than
90 vendors, at any one time, complemented by our parent's private label
products. We believe the strong customer acceptance of the dELiA*s brand helps
make the dELiA*s catalog and, by extension, our dELiAs.cOm site, preferred
outlets for certain vendors, some of which occasionally provide merchandise on
an exclusive basis. Brands currently offered through dELiAs.cOm include
nationally recognized names such as Vans, Paris Blues and Roxy (Quicksilver),
as well as brands focused on the Generation Y market, including Dawls, Free
People (Urban Outfitters), Greed Girl (kikwear), Tag Rag, 26 Red Sugar and Yak
Pak. We also offer brands from emerging designers that differentiate dELiAs.cOm
from other retailers and help to establish dELiAs.cOm as a fashion resource for
girls and young women. Emerging brands currently featured on dELiAs.cOm include
Buggirl, Girl Star, Itsus, Malibu, New Breed, Paul Frank, Starlette, TO2 and
Tractor.
We organize products into 11 categories, each divided into styles. For
example, the "Dresses" category is divided into "Casual" and "Fancy" styles.
Most products are shown both in a still photograph and on teen models, whose
expressions and poses convey the dELiA*s attitude. At any one time, the site
presents graphical depictions of 180 to 300 product styles offered in more than
1,000 stock keeping units. In addition, customers can purchase products from an
older dELiA*s catalog by entering an item number from the catalog.
dELiAs.cOm also offers a gift registry, an e-mail mailing list and links
to content on gURL.com. We believe these features increase the frequency with
which customers return to our site and make purchases. Additionally, we will
continue to explore other technology-based aids that enhance the shopping
experience such as basket analysis, other cross-selling strategies and
high-resolution graphics systems.
[TSI Soccer logo]
TSISoccer.com is our second largest source of merchandise sales,
accounting for approximately 11% of our revenues in fiscal 1998. The site
offers 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, including adidas, Nike, Reebok and Puma, as
well as manufacturers of well-known specialty brands, such as Umbro and Mitre.
Our parent's relationships with these suppliers enable us to offer an
exceptionally broad and deep product selection, including premier branded
products, which typically have limited distribution.
TSISoccer.com offers over 7,000 stock keeping units, including men's,
women's and children's styles, as well as difficult-to-find sizes, special team
colors and product color combinations. We believe that few other direct
marketers currently offer as complete a line of soccer footwear, apparel and
equipment as that offered by TSISoccer.com.
TSISoccer.com, like the TSI Soccer catalog, positions itself as more than
an online store; it is also an online soccer resource with links to
soccer-related sites on the Web.
[DiscountDomain logo]
discountdomain.com is a subscription site that offers access to close-out
merchandise at discount prices from the dELiA*s catalog and vendor closeouts of
other products. discountdomain.com accounted for approximately 8% of our
revenues in fiscal 1998. In exchange for a $5.00 fee charged automatically each
month, members can access a password-protected area where discounted
merchandise can be purchased online.
discountdomain.com organizes merchandise into "closets" of four characters
with wardrobes that fit their distinctive personalities:
o cORdELiA--"She's into shooting stars in more ways than one. When she is
not starting on the court, she's staring into space, outer space. She's
torn between basketball and astrophysics, but
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she's set on her sport-infused look. She's been wearing track pants to
school before it was cool. Luckily her fashion persona is versatile
enough to span both worlds (who has time to make major fashion changes
with two major life ambitions to fulfill?)."
o CeciLiA--"More of a boy magnet than a priss. She dresses girly cuz she
knows the boys dig it. Maybe she's the good seed in the evil Heathers
clique - la Winona. Other girls may want to hate her for her popularity,
but she is so gosh-darn nice, they just can't. Her charms extend beyond
the social, too. She can turn a public speaking assignment into a comedy
monologue and the cafeteria into a one-woman cabaret."
o oPheLiA--"She's all about individuality and wears whatever she wants.
She even kinda likes freakin people out a little bit. 'Funky' girl, can
dip into the hippy thing but in a glammy non-granola way. She's one of
those 'old soul' types (like, deep), but she's also the kinda girl who
would wear pj's to school just because she felt like it. Eventually, she
intends to make her own clothes."
o aMeLiA--"She's the tomboy, best friend of all boys who will later in
life lament not making the moves on her when they had the chance. She's
of the vaguely but unthreateningly tough wallet-on-a-chain breed. She
could either be a totally grounded psychological extension of her
wardrobe or just prefer to cloak her insane self in 'classic' styles in
order to provide some kind of anchor."
Each closet holds 12 to 24 products that are available in 200 to 400 stock
keeping units. The closets are updated weekly and a majority of the inventory
turns over monthly.
[ContentsOnline logo]
contentsonline.com offers home furnishings, light furniture and household
articles targeted at Generation Y females. The merchandise is drawn from the
Contents print catalog. Such items include sheets and other bedding, lamps,
organizers and other products designed with a Generation Y girl's bedroom or
dorm room in mind. We believe that few, if any, retailers, online or off-line,
target this market.
contentsonline.com presents products in a variety of ways, including
"design-your-room" editorial features, presentations of stylized, decorated
rooms, still shots of individual products, and a "Gizmos and Gifts" area that
suggests gift products in particular price ranges. contentsonline.com typically
presents approximately 60 products and allows customers to order additional
products if they have a Contents catalog and enter an item number.
[Droog logo]
droog.com offers apparel, footwear and accessories for Generation Y males
from our parent's new Droog print catalog. The site captures the stylized
character of the Droog catalog through a distinctive font and a terse editorial
voice that speaks to its target market. Users can order from approximately 125
products comprising over 450 stock keeping units. Our parent mailed the first
issue of the catalog in October 1998 and we launched the droog.com site in
November 1998.
[dot dot dash logo]
dotdotdash.com offers apparel, footwear and accessories for girls under
age 13 from our parent's new dot dot dash catalog. The site's playful graphics
and icons are designed to appeal the sense of fun of its young target market.
Users can order approximately 125 products, comprising over 500 stock keeping
units. Currently, users need a dot dot dash print catalog to place an order.
Our parent mailed the first issue of dot dot dash in March 1999 and we launched
the dotdotdash.com Web site that month.
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Marketing and Promotion
To date we have done little advertising and marketing apart from
advertising in our parent's print catalogs. We intend to expand our advertising
and marketing efforts following the closing of this offering. Our marketing
strategy will be to promote, advertise and increase the visibility of our
brands and acquire new customers through multiple channels, including:
o traditional and Internet advertising;
o direct marketing to existing and potential customers;
o expanding and strengthening strategic alliances with our Web sites; and
o expanding our affiliate network and linking programs.
We believe that the use of multiple marketing channels reduces reliance on
any one source of customers, lowers customer acquisition costs and maximizes
brand awareness.
Traditional and Internet Advertising. We advertise our sites in our
parent's retail and catalog properties. Our Web site addresses can now be found
on the cover and on nearly every page of our parent's catalogs, as well as on
point-of-sale displays at our parent's retail stores. In addition, we have
found bind-in cards inserted in our parent's catalog to be a significant driver
of traffic to the dELiAs.cOm and gURL.com sites. iTurf will be the exclusive
e-commerce and community based Internet advertiser in our parent's catalogs
following this offering. We may also pursue a targeted, traditional media-based
advertising campaign that may include television, radio, print and event-based
advertising. We may pursue advertising in the teen fashion and lifestyle
magazines in which our parent has advertised successfully. Following the
closing of this offering, we intend to expand our activities to include
targeted online advertising to promote both our brand names and specific
merchandising opportunities. We also intend to test online banner advertising
and sponsorship opportunities on sites specifically targeted to Generation Y.
Direct Marketing. We use direct marketing techniques to attract and retain
customers. Our parent's proprietary database of catalog requesters contains in
excess of 500,000 e-mail addresses. We send regular broadcast e-mails to these
addresses as well as to our own customers. We intend to expand our use of
broadcast e-mail to include more targeted messages and promotions to specific
segments of our list and to include embedded graphic images within e-mail to
customers who have the ability to view them. We also offer special discounts
and promotional offers from time to time on our sites to drive sales. We
promote these offers through print catalog advertising and e-mails. We may also
use direct mail to access individuals from our parent's proprietary database.
Strategic Alliances. We have entered into a variety of relationships with
several sites to build traffic and attract customers. We have created satellite
dELiAs.cOm stores on Yahoo! Shopping and CatalogCity.Com and have tenancy
positions in the shopping area on AOL.com and Fashionmall.com. In addition, we
are the exclusive provider of soccer merchandise on Sportsite.Com. We intend to
expand our use of these kinds of alliances in the future. We will carefully
evaluate each potential alliance and strive to ensure that any fees associated
with it are cost-effective in terms of the potential customers to be acquired,
potential revenue to be generated, level of exclusivity and brand exposure.
Affiliate Program. We recently created the dELiA*s Affiliate Network, a
grass-roots marketing tool designed to increase our exposure on the Internet
and generate sales. In order to join the dELiA*s Affiliate Network, prospective
affiliates complete an automated application form online that is generally
approved within 48 hours by a member of our staff. Registered affiliates are
paid a referral fee, in most cases 5% of the net invoice value for any sale
generated via the affiliate's link to our e-commerce sites, less any returns.
We promote the program via links on dELiAs.cOm and through LinkShare, our
affiliate marketing partner. These agreements are terminable at will by either
party.
Advertising and Sponsorship Sales
We believe our Web properties provide unique access to the Generation Y
market, an audience that is not easily available through other media. As a
result, a variety of marketers are interested in using our Internet properties.
Typical agreements relating to banner advertising provide for placement of
small
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advertisements on a specified number of Web pages, have a short duration and
are measured only by page views. We intend to explore sponsorship, promotional
and distribution arrangements that generally have longer terms and higher
dollar values than typical banner advertising deals to support broad marketing
objectives, including branding, awareness, product introductions, online
research and editorial integration.
We currently participate in revenue sharing arrangements for banner
advertisements placed on our sites with Lycos, Inc. for our gURLmAIL and
gURLpages sites, ChickClick.com for our gURLnet site, and SonicNet for the
co-branded music news area on gURL.com. In these arrangements, these parties
typically provide iTurf and its users with Web-based software applications or
content and sell the advertising inventory placed in or adjacent to the
content. These parties pay to iTurf a percentage of the ad sales revenue
generated by iTurf. We intend to develop a marketing and sales team to better
understand advertisers' needs and to better target the Generation Y community.
Advertising and sponsorship sales accounted for approximately 11% of our
revenues in fiscal 1998.
International Markets
We intend to market our goods and services to customers in foreign
countries. Historically, our parent has not extensively marketed its catalogs
in foreign countries due to prohibitive mailing costs. However, we believe we
can market outside the United States through the Internet at a fraction of the
cost of direct mail marketing. Both our Parent and we have extensive customer
and user files including individuals from more than 140 countries. For example,
approximately 19% of gURLmAIL users reside outside of the United States.
Warehousing and Fulfillment
Our parent provides warehousing and order fulfillment services to iTurf
pursuant to the intercompany services agreement. Each of our e-commerce sites,
except for TSISoccer.com, is fully integrated into our parent's sophisticated
warehouse fulfillment system. Our parent processes and fulfills our customer
orders through its 354,000 square foot warehouse and fulfillment center in
Hanover, Pennsylvania. 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 ship a majority of our customer orders within 48 hours of credit
approval. If a customer places an order using a credit card owned by another
customer and the order exceeds a specified monetary threshold, the order is
shipped only after we have received verbal confirmation of the sale 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 parent's fulfillment systems automatically determine the most
cost effective method of shipping each order.
Technology and Systems
We have implemented a broad array of site management, customer service,
transaction-processing and fulfillment services and systems using a combination
of our own proprietary technologies and commercially available licensed
technologies.
Our product order processing is primarily handled by a mature, widely used
software application licensed by our parent, called MACS II, and by a software
application licensed by us called WebOrder that:
o accept and validate orders;
o organize and manage orders with suppliers;
o receive product and assign it to customer orders;
o manage shipments; and
o integrate inventory management, purchasing and accounting.
These systems handle multiple shipment methods, credit card transaction
processing and automated customer communication. They allow the customer to
choose whether to receive single or multiple shipments based on availability.
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Our community services, other than gURLmAIL and gURLpages, are primarily
run on internally-developed database applications. The gURLmAIL and gURLpages
operating technology and software were developed and are operated and supported
by Lycos, Inc. Our various Internet applications run on both the UNIX and
Windows NT operating systems, on computers located in our offices. AT&T and
Cable & Wireless plc currently provide our Internet connection. We have
contracted with Lycos, AT&T and Cable & Wireless plc for these services. These
contracts have 12 to 36 month terms.
In response to capacity concerns and site development needs, in fiscal
1998, we increased the number of computers that run our Web sites from three to
ten and installed a considerably more powerful system for online catalog
navigation functions. We intend to continue to invest in technologies that will
handle growth in traffic and e-commerce and Web site infrastructure to enhance
the functionality of our sites.
Customer Service
We employ Web-savvy customer service representatives who assist our
electronic commerce customers by e-mail and telephone seven days a week. We
support our community offerings principally by e-mail. We set internal goals of
returning customer e-mail within 24 hours of receipt. Lycos Inc. provides
customer service for both gURLmAIL and gURLpages.
In addition, our parent handles routine customer service issues, such as
order tracking. Our parent maintains three call centers, two of which are
staffed 24 hours a day, seven days a week, with more than 400 stations.
Following the closing of this offering, we expect to provide e-mail based
customer service for our parent's print catalogs.
Competition
E-Commerce. The apparel, footwear, accessories and home furnishings
industries and the athletic goods and soccer specialty markets are highly
competitive. We expect competition in these markets to increase. Our
dELiAs.cOm, contentsonline.com, discountdomain.com, droog.com and
dotdotdash.com sites compete with traditional department store retailers, as
well as specialty apparel and accessory retailers, for teen and young-adult
customers. We also compete with other catalog retailers and direct marketers,
some of which may specifically target our customers. TSISoccer.com competes
with several other soccer specialty direct marketers and soccer specialty
retailers, as well as general athletic merchandise retailers.
There are few barriers to entry in the Generation Y apparel and
accessories market and in the soccer specialty market. We believe that our
recent success in the Generation Y apparel market has attracted the attention
of other direct marketers, as well as store-based retailers and apparel
manufacturers, some of which have entered or are likely to enter this market.
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 could have a material adverse effect on iTurf.
Internet Community Services. The market for community services is highly
competitive, and we expect competition to continue to increase significantly.
There are no substantial barriers to entry in these markets. We compete with
many providers of community services, including companies that attempt, as we
do, to target Generation Y consumers. In addition, high-traffic, mass-market
Web sites, such as the Regional Bell Operating Companies or internet service
providers such as Microsoft and America Online, currently offer and could
further develop or license the products and services we offer. They could take
actions that make it more difficult for consumers to use our services. This may
provide those companies with significant competitive advantages that could have
a material adverse effect on our business, results of operations and financial
condition.
A large number of sites and online services offer informational and
community features, such as news, stock quotes, sports coverage, Yellow Pages,
e-mail listings, chat services and bulletin board listings that are competitive
with the services we offer. These sites include Microsoft, AOL and other Web
navigation companies such as Yahoo!, Excite, Lycos and Infoseek. A number of
companies,
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including HotMail, which was recently acquired by Microsoft, offer Web-based
e-mail services similar to those we offer in tandem with larger navigational
sites and online services.
We also compete with traditional offline media such as television, radio
and print for a share of advertisers' total advertising budgets. We believe the
number of companies selling Web-based advertising and the available inventory
of advertising space have increased substantially during recent periods.
We believe that the principal competitive factors in our markets are:
o brand recognition;
o ease of use;
o comprehensiveness;
o quality of content and products;
o access to end users; and
o with respect to advertisers and sponsors, the number of users, duration
and frequency of visits and user demographics.
Competition among Internet navigational and informational services,
high-traffic Web sites and other media for advertising placements could result
in significant price competition and reductions in advertising revenue.
Many of our competitors, have significantly greater financial, technical,
marketing and distribution resources. In addition, providers of Internet tools
and services may be acquired by, receive investments from, or enter into other
commercial relationships with larger, well-established and well-financed
companies, such as Microsoft or AOL. Greater competition resulting from such
relationships could have a material adverse effect on our business, operating
results and financial condition.
Employees
We currently employ 30 persons who devote all or substantially all of
their time to our business. In addition, approximately 1,080 of our parent's
employees provide services to us pursuant to the intercompany agreements. None
of our employees are represented by unions, and we consider relations with our
employees to be good.
Legal
iTurf is not involved in any legal proceeding that management believes
would have a material adverse effect on our business, results of operations or
financial condition.
On October 8, 1998, the Federal Trade Commission notified our parent that
the dELiA*s print catalog and dELiAs.cOm were in violation of federal
regulations under the Wool Products Labeling Act and the Textile Fiber Products
Identification Act. Under the regulations, when a wool product or textile fiber
product is advertised in a mail-order or online catalog, the description of
that product must contain a clear and conspicuous statement that the product
was either made in the U.S.A., imported, or both. In November 1998, our parent
agreed to enter into a Consent Order with the FTC, under which it would not
have to pay any fine or incur any other type of sanction. We believe that the
Consent Order will be finalized early in 1999, and that it will provide that
our parent in the future will not violate the regulations described above
directly or through any subsidiary, including iTurf. We believe that our parent
has updated the dELiA*s print catalog and dELiAs.cOm to make them comply with
the regulations. Under the Consent Order, iTurf will be required to comply with
record-keeping requirements and make its employees aware of the Consent Order.
Failure to comply with the Consent Order could subject our parent and iTurf to
substantial civil penalties. The Consent Order will terminate after 20 years.
The U.S. Congress recently enacted the Children's Online Privacy
Protection Act of 1998. The principal provisions of the law become effective on
the later of (1) April 21, 2000 and (2) the date on which the Federal Trade
Commission issues a first ruling on applications for safe harbor treatment
under the Act if the Commission does not rule on the first such application by
October 21, 1999, but in no case later than April 21, 2001. This act generally:
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o makes it unlawful for an operator of a Web site or online service
directed to children under 13, and any operator that has actual
knowledge that it is collecting personal information from such a child,
to collect personal information from the child without having obtained
verifiable parental consent; and
o prohibits conditioning the participation of a child under 13 in a game,
the offering of a prize, or another activity on the child disclosing
more personal information than is reasonably necessary to participate in
such activity.
The Federal Trade Commission has not yet promulgated regulations
interpreting this act. iTurf depends on collecting personal information from
its customers in its businesses. We believe that the promulgation of
regulations under this act will make it more difficult for us to collect
personal information from our customers. iTurf is extremely respectful of the
privacy of its customers, members, users and subscribers. It does not currently
rent or otherwise provide its customer lists to third parties, except to our
parent.
Facilities
Our principal offices are located at 435 Hudson Street, New York, New York
10014. We have historically shared them with our parent, which leases the
property under a lease that expires in 2007. Following this offering, we expect
to continue to use a portion of this property pursuant to a space-sharing
arrangement with our parent. As we expand, we expect that suitable additional
space will be available on commercially reasonable terms, although no assurance
can be made in this regard. We do not own any real estate.
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MANAGEMENT
Executive Officers, Directors and Key Employees
The executive officers, directors and key employees of iTurf, their ages
as of March 1, 1999, and their respective positions with iTurf are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---------------------------------- ----- ---------------------------------------
<S> <C> <C>
Executive Officers and Directors
Stephen I. Kahn ............... 33 President, Chief Executive Officer and
Chairman of the Board of Directors
Dennis Goldstein .............. 33 Chief Financial Officer and Treasurer
Alex S. Navarro ............... 30 Chief Operating Officer and Secretary
Oliver Sharp, Ph.D. ........... 32 Chief Technology Officer
Renny Gleeson ................. 30 Senior Vice President--Marketing
Christopher C. Edgar .......... 33 Vice President and Director
Evan Guillemin ................ 33 Vice President and Director
Beth Vanderslice .............. 35 Director Designee
Key Employees
Esther Drill .................. 30 Executive Editor--gURL
Heather McDonald .............. 28 Senior Producer--gURL
Catherine Mouttet ............. 28 Art Director--E-Commerce
Rebecca Odes .................. 30 Creative Director--gURL
</TABLE>
Stephen I. Kahn has served as Chairman of the board of directors,
President and Chief Executive Officer of iTurf since its incorporation in 1997.
He has served as Chairman of the board of directors and Chief Executive Officer
of our parent since October 1996, and until recently served as its President.
He was the President and Chief Executive Officer of dELiA*s LLC (the
predecessor of our parent) and a member of the board of managers of dELiA*s LLC
from the time he co-founded our parent's business in 1993 until October 1996.
Mr. Kahn is a director of Happy Kids Inc., a publicly-traded designer and
marketer of custom-designed, licensed and branded children's apparel, and
Danier Leather Inc., a publicly-traded integrated designer, manufacturer and
retailer of high-quality, high-fashion leather and suede clothing.
Dennis Goldstein has served as Chief Financial Officer and Treasurer of
iTurf since January 1999. Prior to joining iTurf, Mr. Goldstein was the Vice
President for Corporate Development of Paulaur Corporation, a manufacturing
firm. From 1992 to 1997, he worked in a variety of capacities for Boston
Consulting Group, Inc., a management consulting firm. From 1990 to 1992, Mr.
Goldstein attended the Stanford University Graduate School of Business,
receiving an MBA. From 1987 to 1990, he was a financial analyst with Morgan
Stanley & Co., Incorporated, an investment banking firm.
Alex S. Navarro has served as Chief Operating Officer and Secretary of
iTurf since December 1998. He previously served as Senior Vice President in
charge of iTurf's operations from December 1997 to December 1998. Mr. Navarro
has served as Senior Vice President--Development and Legal Affairs, General
Counsel and Secretary of our parent since April 1997. Prior to joining our
parent, Mr. Navarro was associated with the law firm of Proskauer Rose LLP from
1994 until 1997. From 1993 to 1994, Mr. Navarro was a law clerk to the Hon.
Robert J. Wilentz, Chief Justice of the Supreme Court of New Jersey.
Oliver Sharp, Ph.D. has served as Chief Technology Officer of iTurf since
February 1999. He previously worked for Microsoft Corporation, a computer
software company. He held a variety of positions with Microsoft, and most
recently was the assistant to the chief executive officer's technical
assistant. From 1995 to 1996, he was a principal in Colusa Software, a software
developer, which was subsequently acquired by Microsoft. From 1989 to 1995, he
was a researcher in the physics department of Lawrence Livermore National
Laboratory.
Renny Gleeson has served as Senior Vice President--Marketing of iTurf
since January 1999. Prior to joining iTurf, Mr. Gleeson served as Creative
Director of Darwin Digital, the interactive advertising unit
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of Saatchi and Saatchi Advertising from 1997 until 1999. From 1996 to 1997, he
was the Art Director for CyberSites, Inc., a developer of CD-ROMs and on-line
games. From 1994 to 1996, he was the studio manager for the Robert Gober
Company, a contemporary sculpture firm. Prior to that, he worked in the high
yield trading department of Bear Stearns Inc., an investment banking firm.
Christopher C. Edgar has served as a Vice President and as a member of the
board of directors of iTurf since iTurf's incorporation in 1997. Mr. Edgar has
served as Executive Vice President, Chief Operating Officer and a Director of
our parent since October 1996, and was recently elected Vice Chairman of its
board of directors. He was Executive Vice President of dELiA*s LLC and a member
of the board of managers of dELiA*s LLC from the time he co-founded our
parent's business in 1993 until October 1996. Mr. Edgar oversees catalog
publishing, marketing, merchandising and inventory management at our parent.
Evan Guillemin has served as a Vice President of iTurf since January 1999
and joined the board of directors of iTurf in January 1999. Mr. Guillemin
previously served as Chief Financial Officer of iTurf from 1997 to 1999. Mr.
Guillemin has served as Chief Financial Officer and Treasurer of our parent
since July 1996 and was recently elected President of our parent. Prior to
joining our parent he was employed by K-III Communications Corporation, a media
investment company, first as an associate with and later as a director of
acquisitions. From 1992 to 1994, he was executive vice president of Observer
Publications of The New York Observer Co., with responsibility for the sales,
marketing and finance for that company's regional newspaper group.
Beth Vanderslice has been elected, and has agreed, to serve as a director
of iTurf effective upon the commencement of this offering. Ms. Vanderslice has
served as President of Wired Digital, Inc., a provider of Web-based products
and services, including Hot Bot, Hot Wired and Wired News, since her promotion
from Vice President of Marketing in April 1997. Wired Digital is in the process
of being acquired by Lycos, Inc., a provider of Web navigational, community and
commerce services. Prior to joining Wired Digital in March 1995, Ms.
Vanderslice was a Vice President from 1994 to 1995 at H.W. Jesse & Co., an
investment banking and business strategy consulting firm in San Francisco. From
1992 to 1994, she was a Principal at the investment banking firm of Sterling
Payet Company. Ms. Vanderslice has also served as a director of Wired Ventures,
the privately held parent company of Wired Digital, since October 1998.
Esther Drill, a co-founder of gURL Interactive, served as Executive
Editor of gURL, for gURL Interactive from 1996 to 1997, and then for iTurf
since we acquired gURL Interactive in December 1997. From 1995 to 1997, she was
enrolled in the Interactive Telecommunications Program at New York University.
From 1993 to 1995, she worked as an assistant to faculty members of the Kennedy
School of Government at Harvard University.
Heather McDonald, a co-founder of gURL Interactive, served as Senior
Producer of gURL, for gURL Interactive from 1996 to 1997, and then for iTurf
since our acquisition of gURL Interactive in December 1997. From 1995 to 1997,
she was enrolled in the Interactive Telecommunications Program at New York
University. From 1993 to 1995, she worked as an assistant producer for 3D0
Company, a developer of CD-ROM games.
Catherine Mouttet has served as iTurf's art director for e-commerce,
including dELiAs.cOm, since 1998. She worked as an independent art designer
from 1997 to 1998. From 1996 to 1997, she worked as a senior web designer for
Concrete Media, a Web design firm, and from 1994 to 1995, she was the art
director of FashionInternet.com, a Web site devoted to fashion.
Rebecca Odes, a co-founder of gURL Interactive, has served as Creative
Director of gURL, for gURL Interactive from 1996 to 1997, and then for iTurf
since our acquisition of gURL Interactive in December 1997. From 1995 to 1997,
she was enrolled in the Interactive Telecommunications Program at New York
University. From 1993 to 1995, she worked for or was engaged in a freelance
capacity as a designer and illustrator for SonicNet, Razorfish, PBS,
Kinderactive and X-Girl.
Additional Directors
As soon as practicable but not later than 180 days after the commencement
of this offering, we plan to add one additional independent director to our
board of directors who is not affiliated with iTurf or our parent.
Board Committees
Prior to or immediately following the closing of this offering, our board
of directors expects to establish an audit committee and a compensation
committee of our board of directors. The audit committee and the compensation
committee will each be comprised of two independent directors who are not
affiliated with
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iTurf or our parent. The audit committee will be responsible for reviewing our
audited financial statements and accounting practices, and considering and
recommending the employment of, and approving the fee arrangements with,
independent accountants for both audit functions and for advisory and other
consulting services. The compensation committee will review and approve the
compensation and benefits for our key executive officers, administer our
employee benefit plans and make recommendations to the board of directors
regarding such matters. See "--1999 Stock Incentive Plan."
Director Compensation
Non-employee directors are paid $2,000 for each board of directors meeting
attended and are entitled to reimbursement of all reasonable out-of-pocket
expenses incurred in connection with their attendance at full board and board
committee meetings.
Under our stock incentive plan, each non-employee director will be granted
an option to purchase 50,000 shares of Class A common stock. Directors elected
prior to the date of this prospectus shall receive options with an exercise
price equal to the offering price of the Class A common stock to the public in
this offering. Directors elected after the date of this prospectus shall
receive options with an exercise price equal to the fair market value of the
Class A common stock on the date of grant. All options granted to non-employee
directors will become exercisable with respect to 12.5% of the covered shares
on each of the first eight six-month anniversaries of the date of grant,
assuming the non-employee director is a director on those dates. Those options
generally will cease to be exercisable 10 years from the date of grant. Upon a
"change of control" of iTurf, all options that have not yet expired will
automatically become exercisable. Directors who are affiliates of our parent
are not compensated for service as directors of iTurf, so long as our parent
beneficially owns at least 20% of our outstanding voting securities.
Compensation Committee Interlocks and Insider Participation
Prior to this offering, our board of directors has not had a compensation
committee, and all compensation decisions relating to our executive officers
have been made by the full board of directors. Upon the closing of this
offering, the compensation committee will make all compensation decisions
regarding our executive officers. No interlocking relationship exists between
the compensation committee and the board of directors or compensation committee
of any other company, nor has any such interlocking relationships existed in
the past. Currently, Stephen I. Kahn serves on the compensation commitee of our
parent's board of directors. In fiscal 1998, Christopher C. Edgar was a member
of our parent's board of directors.
Executive Compensation
No officer or employee of iTurf received total compensation, whether paid,
deferred or accrued, in excess of $100,000 in the year ended January 31, 1999
for services rendered to iTurf. During the year ended January 31, 1999, our
Chief Executive Officer, Stephen I. Kahn, received a salary of $100,000 from
our parent in his capacity as President, Chief Executive Officer and Chairman
of the board of directors of that company and options to purchase 376,000
shares of our parent's common stock. During the year ended January 31, 1998,
Mr. Kahn received a salary of $100,000 from our parent and an option to
purchase 80,000 shares of our parent's common stock. He did not receive any
other compensation from our parent during such periods except for perquisites
and other personal benefits, securities or property, which, in the aggregate,
did not exceed 10% of his total of annual salary and bonus during any
applicable year. In fiscal 1998, iTurf granted Mr. Kahn an option to purchase
503,125 shares of our Class A common stock at an exercise price of $9.36 per
share. This option constituted 35.4% of the options granted to iTurf employees
in fiscal 1998. The option expires on January 1, 2009. The potential realizable
value of this option, assuming the market price of iTurf common stock
appreciates in value from the date of grant to the end of the option term at 5%
or 10% annually, is $2,962,000 or $7,505,000, respectively. Mr. Kahn did not
exercise any options in fiscal 1998.
Kahn Employment Agreement and Change of Control Arrangements
Mr. Kahn will enter into a three-year agreement with iTurf providing for
the continuation of his employment as President and Chief Executive Officer at
a minimum salary of $100,000 a year plus increases in salary and bonuses as the
board of directors may from time to time approve. If Mr. Kahn
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dies, or, as a result of disability, is unable to perform substantially all his
duties for a period of nine consecutive months, iTurf may terminate his
employment not earlier than 30 days and not later than 90 days after the
expiration of the nine-month period, in which event Mr. Kahn or his heirs or
estate will be entitled to his salary for the remainder of the term of the
agreement.
Under our stock incentive plan, the vesting of all employee stock options
will be accelerated in some circumstances upon changes of control of iTurf. See
"--1999 Stock Incentive Plan--Change of Control."
1999 Stock Incentive Plan
The following description of our stock incentive plan is a summary of the
material terms of the plan. The stock incentive plan is filed as an exhibit to
the registration statement of which this prospectus is a part. As of March 1,
1999, we have granted options to purchase an aggregate 1,419,688 shares of
Class A common stock.
Purpose. The purpose of the stock incentive plan is to increase the
profitability and value of iTurf by enabling it to offer stock-based and other
equity interests in iTurf to employees, consultants and non-employee directors
to raise the level of stock ownership by such persons, thereby:
o enhancing iTurf's ability to attract, retain and reward such
individuals; and
o strengthening the mutuality of interest between such individuals and
iTurf's stockholders.
Administration. The stock incentive plan is administered by the
compensation committee of our board of directors. This committee is intended to
be comprised solely of two or more directors who qualify as "outside directors"
under Section 162(m) of the Internal Revenue Code of 1986 and "non-employee
directors" under Rule 16b-3 of the Securities Exchange Act of 1934. The
compensation committee has authority and discretion to determine those
employees and consultants of iTurf and its subsidiaries eligible to receive
awards and the amount and type of awards.
Available Shares and Other Units.
o Maximum number of shares available under the plan. A maximum of
4,050,000 shares of Class A common stock, subject to adjustment, may be
issued or used for reference purposes with respect to stock appreciation
rights under the plan.
o Individual limits under the plan. The maximum number of shares of Class
A common stock subject to each stock option or stock appreciation right
that may be granted to any individual under the plan is 750,000 for each
of our fiscal years during the term of the plan. If a stock appreciation
right is granted in tandem with a stock option, it will 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 plan.
o Termination, cancellation or expiration of an award. The unissued shares
of Class A common stock subject to terminated, cancelled or expired
awards will again be available for awards under the plan, but will count
against the individual specified limits for the applicable fiscal year.
o Change in iTurf's business or capital structure. The compensation
committee may make appropriate adjustments to the number and kind of
shares available for awards and the terms of outstanding awards under
the plan to reflect any change affecting our capital structure or
business.
Types of Awards. The stock incentive plan provides for the grant of any or
all of the types of awards listed below to eligible employees and consultants
of iTurf and its subsidiaries. In addition, the plan provides for one-time,
non-discretionary awards of stock options to non-employee directors of iTurf.
Awards may be granted singly, in combination, or in tandem, as determined by
the compensation committee.
Stock Options. The compensation committee may grant awards in the form of
options to purchase shares of iTurf's Class A common stock. In general, the
following apply to all options granted:
o options may be in the form of incentive stock options or non-qualified
stock options;
o consultants are not eligible to receive incentive stock options;
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o the compensation committee will determine the number of shares subject
to each option, the term of the option, the exercise price per share of
stock covered by the option, the vesting schedule and the other material
terms of the option;
o the term of an incentive stock option may not exceed ten years, but the
term of an incentive stock option granted to a ten percent stockholder
of iTurf may not exceed five years;
o no option may be granted to a ten percent stockholder of iTurf at less
than 110% of fair market value, except for modifications of the option
deemed a new issuance under the Internal Revenue Code;
o the option price may be paid by a participant in cash, in shares of
Class A common stock owned by the participant free and clear of any
liens and encumbrances, in shares of restricted stock valued at the fair
market value on the payment date as determined by the compensation
committee, by a reduction in the number of shares of Class A common
stock issuable upon exercise of the option with approval of the
compensation committee; and
o options under the stock incentive plan are subject to acceleration of
vesting or immediate termination upon termination of employment in
limited circumstances.
In addition, if shares of Class A common stock are exchanged by a
participant as full or partial payment to iTurf, or for payment of withholding
taxes, in connection with the exercise of a stock option or the number of
shares of Class A common stock otherwise deliverable is reduced for payment of
withholding taxes, such exchanged or reduced shares will again be available
under the Stock Incentive Plan.
Restricted Stock. The stock incentive plan authorizes the compensation
committee to award shares of restricted stock to employees and consultants of
iTurf and its subsidiaries. Upon the award of restricted stock, the recipient
has all the rights of a stockholder with respect to the shares, unless
otherwise specified by the compensation committee at the time of grant.
Restricted stock is subject to the conditions and restrictions generally
applicable to restricted stock, and those specifically provided in the
recipient's restricted stock award agreement. In general:
o unless otherwise determined by the compensation committee at grant,
payment of dividends, if any, will be deferred until the date that the
relevant share of restricted stock vests; and
o recipients of restricted stock are required to enter into a restricted
stock award agreement with iTurf that states the restrictions on the
shares and the date or criteria on which the restrictions will lapse.
The compensation committee may provide for the lapse of the restrictions
in installments, or may accelerate or waive the restrictions.
Stock Appreciation Rights (SARs). The stock incentive plan authorizes the
compensation committee to grant SARs either with a stock option (called tandem
SARs) or independent of a stock option (referred to as non-tandem SARs) to
employees and consultants of iTurf. An SAR is a right to receive a payment
either in cash or Class A common stock. In general:
o Payments on SARs shall be equal in value to the excess of the fair
market value of a share of Class A common stock on the date of exercise,
over the reference price per share of Class A common stock established
in connection with the grant of the SAR. The reference price per share
covered by an SAR will be the per share exercise price of the related
option in the case of a tandem SAR and will be the per share fair market
value of the Class A common stock on the date of grant in the case of a
non-tandem SAR.
o SARs are subject to the same exceptions that apply to stock options.
Tandem SARs generally:
o may be granted at the time of the grant of the related stock option or,
if the related stock option is a non-qualified stock option, at any time
thereafter during the term of the stock option;
o may be exercised at and only at the times and to the extent the related
stock option is exercisable;
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o are exercised by surrendering the same portion of the related option;
o expire upon the termination of the related stock option; and
o will not be granted to consultants in connection with all or part of an
incentive stock option.
Non-tandem SARs generally:
o will be exercisable as provided by the compensation committee;
o will have terms and conditions as the compensation committee may
determine;
o may have a term no longer than ten years from their date of grant; and
o are subject to acceleration of vesting or immediate termination upon
termination of employment.
Awards to Non-Employee Directors. In the future, our non-employee
directors will be eligible for option grants in some circumstances. See
"--Director Compensation."
Change of Control. Unless determined otherwise by the compensation
committee at the time of grant, generally upon a change of control of iTurf,
all vesting and forfeiture conditions, restrictions and limitations in effect
with respect to any outstanding award made under the stock incentive plan will
immediately lapse, and any unvested awards will automatically become 100%
vested. However, stock options will not be accelerated upon a change of control
of iTurf if the compensation committee deems it reasonable. In that case,
options may be assumed by the controlling entity or new rights substituted
therefor by the controlling entity. The compensation committee may also provide
for accelerated vesting of an award, other than a grant to non-employee
directors, upon a termination of employment during the 180-day period prior to
a change of control of iTurf.
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TRANSACTIONS WITH OUR PARENT
Income Taxes
Our parent is a common parent of an affiliated group of companies within
the meaning of Section 1504(a) of the Internal Revenue Code of 1986. That
affiliated group includes us. The Internal Revenue Code requires that our
parent own at least an 80% voting and economic ownership interest in iTurf in
order to continue to include iTurf in its U.S. consolidated income tax returns.
Following the closing of this offering, in accordance with the terms of
the tax allocation agreement between us and our parent, for so long as iTurf
remains a member of our parent's affiliated group:
o we will pay our proportionate share of our parent's tax liability
computed as if iTurf were filing a separate return;
o any tax loss benefits attributable to iTurf will be used by our parent
to the extent that we are unable to use any of those benefits at that
time;
o to the extent that our parent uses our tax benefits, it will be required
to establish a receivable for our benefit; and
o our parent will be required to repay us for the use of any tax loss
benefit in cash at the time and to the extent we are required to pay
income taxes and we are no longer consolidated in our parent's tax
group, or at the close of the fifth calendar year following the creation
of the benefit, and that repayment by our parent will be offset by any
amount that we are required to pay our parent under the tax allocation
agreement.
The tax allocation agreement also provides for the payment of taxes and
entitlement to tax refunds for periods prior to the closing this offering.
Certain Historical Relationships
As a subsidiary of our parent, we receive various services from our
parent, including fulfillment, warehousing, merchandising, inventory
management, customer service, creative, marketing, technical, human resources,
finance, accounting, administrative and legal services. Prior to the closing of
this offering, our financial statements have reflected allocations for these
services rendered by our parent to us. We believe those allocations have been
made on a reasonable and consistent basis. However, they are not necessarily
indicative of, nor is it practicable for us to estimate, the level of expenses
we would have otherwise incurred had we operated as a separate, stand-alone
company.
Through its distribution facilities, our parent and its other subsidiaries
accounted for just under 100% of iTurf's purchases of inventory during fiscal
1998. We have also relied on our parent to provide us with financing for our
cash flows. Our cash flows to date are therefore not necessarily indicative of
the cash flows that would have resulted had we been operating as an independent
company. We are currently a borrower under our parent's bank credit facility
and expect to terminate our participation in the facility concurrent with the
closing of this offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Purchase of Parent Common Stock
We intend to use $10.0 million of the gross proceeds of this offering to
purchase shares of our parent's common stock from our parent at a price equal
to the average closing price of that stock on the five trading days preceding
the date of this prospectus. If the underwriters fully exercise their
over-allotment option, we will also use 60% of the resulting net proceeds to
purchase additional shares of our parent's common stock. See "Use of Proceeds."
Purchase of TSISoccer.com Domain Name
Concurrently with the closing of this offering, iTurf will acquire the
TSISoccer.com domain name from TSI Soccer Corporation, a subsidiary of our
parent, for $25,000 of Class A common stock, valued at the initial public
offering price per share.
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Intercompany Agreements
We intend to enter into several intercompany agreements with our parent
prior to the closing of this offering. We have summarized below the anticipated
material terms of all of these agreements. These agreements will not have been
negotiated on an arms'-length basis, however, we believe the terms of these
agreements are no less favorable to us than those that could have been obtained
from an unaffiliated third party. We believe that had the intercompany
agreements been in effect during the historical periods presented in the iTurf
financial statements, they would not have had a material effect on our results
of operations. The material terms of the intercompany agreements cannot be
amended or waived without the approval of a majority of our disinterested
directors. Our bylaws also provide that we will not enter into new material
agreements with our parent unless those agreements are approved by a majority
of our directors who are not affiliated with our parent. This provision can
only be amended by a majority of our directors who are not affiliated with our
parent. The intercompany agreements do not have fixed terms, but our parent can
terminate each agreement if any person, other than our parent or an affiliate
or strategic partner of our parent, acquires 20% or more of the voting control
of iTurf, or upon defaults by iTurf.
Trademark License and Customer List Agreement, including Noncompetition
Agreements
We will have the exclusive right to use our parent's trademarks in
connection with the sale of goods and services on the Internet. iTurf will pay
our parent a royalty equal to 5% of our net sales from iTurf Web sites bearing
a trademark licensed from our parent. Net sales by sites in the iTurf network
not bearing a trademark licensed from our parent will not generate a royalty
payable to our parent unless sales of dELiA*s-sourced goods on the site exceed
50% of its total net sales. On non-licensed sites where sales of
dELiA*s-sourced goods exceed 50% of total net sales, iTurf will pay to our
parent the 5% royalty based on the percentage of such site's net sales that are
dELiA*s-sourced. On a royalty-free basis, we will share our customer lists with
our parent, and our parent will share its customer lists with us.
Our parent has agreed not to enter into an Internet business that targets
Generation Y without first offering to sell that business to iTurf. In
addition, if our parent makes an acquisition that includes an Internet business
that targets Generation Y, it must offer to sell that business to iTurf. These
obligations will terminate:
o six months after the trademark license terminates if our parent
terminates the license after the acquisition by a third party of 35% or
more of the voting control of iTurf with no other person owning a
greater percentage,
o one year after the trademark license terminates if our parent terminates
the license after a tax-free spin-off or other public sale or
distribution of our voting securities,
o two years after the trademark license terminates if our parent
terminates the license after the acquisition by a third party of less
than 35% but more than 20% of the voting control of iTurf, or
o when the trademark license terminates for any other reason.
We have agreed not to enter into a print catalog or retail store business
without first offering to sell that business to our parent. In addition, if we
make an acquisition that includes a paper catalog or retail store business, we
will offer to sell that business to our parent. These obligations will
terminate two years after termination of the trademark license if our parent
terminates the trademark license due to our material breach, and otherwise will
terminate upon termination of the trademark license.
Intercompany Services Agreement
Following the closing of this offering, our parent will continue to
provide some services to us, including corporate services, fulfillment
services, inventory supply services, advertising services and space-sharing.
Our parent's obligations to deliver those services will terminate if and when
the trademark license and customer list agreement is terminated.
Corporate Services. Our parent will continue to provide all of the
services it currently provides to iTurf, other than warehouse and fulfillment
services, such as merchandising, inventory management, customer service,
creative, marketing, technical, human resources, finance, accounting,
administrative,
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legal and other services, as well as those services iTurf requires by virtue of
its status as an independent public company. Our parent will provide these
services to us at 105% of its cost.
Fulfillment Services. Our parent will continue to provide warehousing and
fulfillment services, including receiving, quality control, storage, picking,
packing and shipping of inventory and processing of customer returns. We will
pay our parent an amount equal to its average cost per package shipped
multiplied by the product of the number of packages shipped by us and 105%,
taking into account all of our parent's warehousing and fulfillment costs,
including rent, depreciation and operating expenses.
Inventory Supply. Our parent will continue to supply inventory to iTurf.
We will pay our parent an amount equal to the lesser of
o 105% of our parent's cost for the inventory, including cost of freight
and all direct costs charged to our parent by its suppliers, and
o the best price at which our parent could resell those products to a
third party.
In addition, our parent will purchase from us products returned by our
customers at the price that we paid for such products from our parent,
decreased by the amount of any reserves taken by our parent in connection with
those products.
We also have the right to purchase from our parent up to $300,000 annually
of closeout inventory, generally at prices discounted from our parent's price.
Advertising. Our parent will provide us with advertising space in its
print catalogs at a cost to us of $40 per 1,000 catalogs distributed. We are
required to purchase from our parent minimum amounts of advertising space in at
least 50% of all of our parent's catalogs distributed each year. The amount of
advertising guaranteed in each catalog is materially greater than the amount of
advertising included in our parent's catalogs over the historical periods
presented in this prospectus. If our parent provides less advertising space
than the amount guaranteed, then iTurf will have no obligation to pay for the
amount of advertising actually provided.
Space-Sharing. Our parent will continue to permit us to use a portion of
its offices that we mutually agree upon. Our cost for this space will be the
lesser of
o the prevailing market rate for such space and
o the highest rate then being paid by our parent for comparable space in
the metropolitan area in which such space is located.
Customer Service Agreement
We will provide to our parent e-mail-based customer service in respect of
those of our parent's catalogs corresponding to trademarks we license from our
parent.
Intercompany Indemnification Agreement
We will agree to indemnify our parent for liabilities in respect of our
businesses, and our parent will agree to indemnify us for liabilities in
respect of our parent's businesses and tax and pension-related liabilities
resulting from our inclusion in our parent's consolidated tax group. Our parent
will also indemnify us for certain tax liabilities arising out of our purchase
of its common stock. See "Risk Factors--We may be contingently liable for our
parent's obligations."
iTurf Common Stock Registration Rights Agreement
We will enter into a registration rights agreement with our parent prior
to the closing of this offering that will cover the iTurf common stock owned by
dELiA*s. Under that agreement, at any time after 180 days following the date of
this prospectus, our parent may demand that we file a registration statement
under the Securities Act covering all or a portion of our securities held by
our parent, its affiliates and their permitted transferees. However, the
securities to be registered must have a reasonably anticipated aggregate public
offering price of at least $3.0 million. Our parent can effect no more than one
demand registration per year.
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If and when we become eligible to utilize a Form S-3 registration
statement to register an offering of our securities, our parent may request
that we file a registration statement on Form S-3 covering all or a portion of
our securities held by our parent, its affiliates and their permitted
transferees, provided that the aggregate public offering price is at least $1.0
million. Our parent can request one S-3 registration per year.
These registration rights will be limited by iTurf's right to delay the
filing of a registration statement in some circumstances. iTurf can only cause
a delay, not more than once in any 12-month period and for not more than 120
days.
In addition, our parent will have registration rights that apply if we
propose to register any Class A common stock under the Securities Act, other
than pursuant to the registration rights noted above. In that case, our parent
may require us to include all or a portion of our securities it owns in such
registration. However, the managing underwriter, if any, of any offering will
have limited rights to restrict the number of registrable securities proposed
to be included in the registration.
We would bear all registration expenses incurred in connection with these
registrations. Our parent would pay all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of iTurf securities
owned by it.
The registration rights of our parent under the registration rights
agreement will terminate when our parent may sell all its shares in a
three-month period under Rule 144 under the Securities Act.
dELiA*s Common Stock Registration Rights Agreement
We will enter into another registration rights agreement with our parent
at the closing of this offering relating to the shares of our parent's common
stock that we intend to purchase with the net proceeds of this offering. Under
that agreement, at any time after 180 days following the date of this
prospectus, we may demand that our parent file a registration statement under
the Securities Act covering all or a portion of the securities of our parent
held by us, our affiliates and our permitted transferees. However, the
securities to be registered must have a reasonably anticipated aggregate public
offering price of at least $3.0 million. We can effect no more than one demand
registration per year.
If our parent is eligible to utilize a Form S-3 registration statement to
register an offering of its securities, we may request that our parent file a
registration statement on Form S-3 covering all or a portion of the securities
of our parent held by us, our affiliates and our permitted transferees,
provided that the aggregate public offering price is at least $1.0 million. We
can request one S-3 Registration per year.
These registration rights will be subject to our parent's right to delay
the filing of a registration statement in some circumstances. Our parent can
cause a delay not more than once in any 12-month period and for not more than
120 days.
In addition, we will have registration rights that apply if our parent
proposes to register any of its common stock under the Securities Act, other
than pursuant to the registration rights noted above. In that case, we may
require our parent to include all or a portion of its securities that we own in
the registration. However, the managing underwriter, if any, of any such
offering will have limited rights to restrict the number of registrable
securities proposed to be included in the registration.
We would bear our pro-rata share of all registration expenses incurred in
connection with these registrations, including all underwriting discounts,
selling commissions and stock transfer taxes applicable to the sale of our
parent's securities owned by us.
Our registration rights under the dELiA*s common stock registration rights
agreement will terminate when we may sell all our shares in a three-month
period under Rule 144 under the Securities Act.
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PRINCIPAL STOCKHOLDERS
dELiA*s Inc. beneficially owns all of the shares of our Class B common
stock outstanding as of the date of this prospectus. Following the closing of
this offering, dELiA*s Inc. will continue to beneficially own 100% of the Class
B common stock and, accordingly, will hold approximately 77% of the economic
interest in iTurf. Such ownership also gives our parent approximately 95% of
the combined voting power of our outstanding common stock. If the underwriters
were to fully exercise their option to purchase up to 555,000 additional shares
of our Class A common stock, our parent would hold approximately 75% of the
economic interest in iTurf and 95% of the combined voting power of our
outstanding common stock.
The following table sets forth information as of March 15, 1999 with
respect to the outstanding securities of iTurf and our parent beneficially
owned by
o each person known by iTurf to be the beneficial owner of more than 5% of
the shares of any class of such securities,
o each of our directors and director designees individually,
o each of our named executive officers individually and
o all of our executive officers, directors and director designees as a
group.
<TABLE>
<CAPTION>
Shares of dELiA*s Inc.
Shares of iTurf Common Stock Common Stock Beneficially
Beneficially Owned(1)(2) Owned(2)
-------------------------------------------------------- -------------------------
Voting Power
--------------------------
Percentage Before After Percentage
Number Owned Offering Offering(3) Number Owned
------------ ------------ ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Five Percent Holders:
dELiA*s Inc.(4) .................... 12,500,000 100.0% 100.0% 95.3%
435 Hudson Street
New York, New York 10014
Gilder Gagnon Howe & Co. LLC(5)..... -- -- -- -- 1,612,597 11.4%
1775 Broadway
New York, New York 10019
Geraldine Karetsky(6) .............. -- -- -- -- 1,028,098 7.2%
1660 Silver King Drive
Aspen, Colorado 81611
Sidney S. Kahn(6) .................. -- -- -- -- 855,440 6.0%
14 East 60th Street
New York, New York 10022
Directors, Director Designees
and Executive Officers:
Stephen I. Kahn(4)(7) .............. 12,500,000 100.0% 100.0% 95.3% 6,408,170 44.7%
Christopher C. Edgar(8) ............ -- -- -- -- 708,163 4.9%
Evan Guillemin(9) .................. -- -- -- -- 128,942 *
Beth Vanderslice ................... -- -- -- -- -- --
All directors, director designees
and executive officers as a group
(8 persons)(10) ................... 12,500,000 100.0% 100.0% 95.3% 7,326,775 49.7%
</TABLE>
- ----------
* Less than 1%.
(1) Our authorized and outstanding common stock has been comprised of a single
class. Prior to the closing of this offering, we will amend our Restated
Certificate of Incorporation to authorize 67,500,000 shares of Class A
common stock, 12,500,000 shares of Class B common stock and 1,000,000
shares of preferred stock. See "Description of Capital Stock."
(2) Shares that an individual or group has the right to acquire within 60 days
of March 15, 1999 pursuant to the exercise of options, warrants or
conversion privileges are deemed to be
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outstanding for the purpose of computing the percentage ownership of such
person or group, but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person listed in this
table. Except as indicated in the footnotes to this table, iTurf believes
that the listed stockholders have sole voting and investment power with
respect to all of the shares shown to be beneficially owned by them, based
on information provided to us by the stockholders.
(3) Voting power after the closing of this offering reflects (i) the fact that
each share of Class B common stock is entitled to six votes, while Class A
common stock is entitled to one vote per share, and (ii) the issuance,
concurrent with the closing of this offering, of 2,273 shares of Class A
common stock, valued at an assumed initial public offering price of $11.00
per share, to TSI Soccer Corporation as consideration in connection with
the transfer to iTurf of the TSISoccer.com domain name. It also assumes no
conversion of any Class B common stock into Class A common stock. See
"Description of Capital Stock--Common Stock."
(4) The 12,500,000 shares of our Class B common stock owned by our parent have
been pledged as security under our parent's credit agreement.
(5) Based on an amendment to a Schedule 13G filing made on February 16, 1999.
According to the filing, the shares of our parent's common stock are held
in customer accounts over which members and/or employees of Gilder Gagnon
Howe & Co. LLC have discretionary authority to dispose of and/or direct
the disposition of shares.
(6) Includes 7,356 shares of our parent's common stock owned by Sidney Kahn
and Ms. Karetsky, as trustees, of which shares Mr. Kahn and Ms. Karetsky
have the shared power of disposition. Sidney Kahn and Geraldine Karetsky
are siblings. Sidney Kahn is the father of Stephen I. Kahn. Geraldine
Karetsky is the aunt of Stephen I. Kahn.
(7) All shares of iTurf common stock outstanding prior to this offering are
owned by our parent. Mr. Kahn is the President, Chief Executive Officer
and Chairman of the Board of our parent. As such, he may be deemed to
share voting power with respect to all the shares outstanding prior to the
offering and to the shares of iTurf common stock to be issued to TSI
Soccer Corporation concurrently with the closing of this offering. Mr.
Kahn expressly disclaims beneficial ownership of these shares, except to
the extent of his pecuniary interest therein. Shares of dELiA*s Inc.
common stock beneficially owned by Mr. Kahn includes 216,000 shares
issuable upon the exercise of options. Sidney Kahn is the father of
Stephen I. Kahn. Geraldine Karetsky is the aunt of Stephen I. Kahn.
(8) Shares of dELiA*s Inc. common stock benefically owned includes 162,000
shares issuable upon the exercise of options.
(9) Shares of dELiA*s Inc. common stock beneficially owned includes 120,000
shares issuable upon the exercise of options.
(10) All directors, director designees and executive officers as a group
includes four executive officers who are not listed individually in the
table. The address for all directors and executive officers is c/o iTurf
Inc., 435 Hudson Street, New York, New York 10014.
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DESCRIPTION OF CAPITAL STOCK
Immediately prior to the closing of this offering, our authorized capital
stock will consist of 67,500,000 shares of Class A common stock, par value $.01
per share, 12,500,000 shares of Class B common stock, par value $.01 per share
and 1,000,000 shares of preferred stock, par value $.01 per share.
The following descriptions of our capital stock and selected provisions of
our Restated Certificate of Incorporation and bylaws are summaries. Complete
copies of our Restated Certificate of Incorporation and bylaws as they will be
in effect at the closing of this offering have been filed with the Securities
and Exchange Commission as exhibits to the registration statement containing
this prospectus.
Common Stock
3,700,000 shares of Class A common stock are being offered by this
prospectus. 12,500,000 shares are reserved for issuance upon conversion of
Class B common stock into Class A common stock. Immediately prior to the
closing of this offering, 12,500,000 shares of Class B common stock will be
outstanding and held by our parent.
Voting Rights. The holders of our Class A and Class B common stock
generally have identical voting rights. However, holders of our Class A common
stock are entitled to one vote per share, while holders of our Class B common
stock are entitled to six votes per share on most matters to be voted on by
stockholders. Shares of Class B common stock also have conversion rights, which
are described below.
Generally, all matters to be voted on by stockholders must be approved by
a majority of the votes entitled to be cast by all shares of Class A and Class
B common stock present in person or represented by proxy, voting together as a
single class. Holders of our preferred stock might in the future be granted the
right to vote alongside holders of our common stock. When electing directors,
only a plurality vote is required. Holders of shares of Class A common stock
and Class B common stock are not entitled to cumulate their votes in the
election of directors.
Except as otherwise provided by law, and after honoring any voting rights
granted to holders of any outstanding preferred stock, amendments to our
Restated Certificate of Incorporation must be approved by a majority of the
combined voting power of all of the Class A and Class B common stock, voting
together as a single class. Any amendment to our Restated Certificate of
Incorporation to increase or decrease the authorized shares of any class will
be approved upon the affirmative vote of the holders of a majority of the
voting power of the common stock, voting together as a single class. However,
amendments to our Restated Certificate of Incorporation that would alter the
powers, preferences or special rights of either the Class A or Class B common
stock so as to affect them adversely also must be approved by a majority of the
votes entitled to be cast by the holders of the shares affected by the
amendment, voting as a separate class. For purposes of these provisions, any
provision for the voluntary, mandatory or other conversion or exchange of the
Class B common stock into or for Class A common stock on a one-for-one basis
will not be considered as adversely affecting the rights of holders of the
Class A common stock.
Dividends. Holders of Class A and Class B common stock will share equally
on a per-share basis in any dividend declared by the board of directors, after
honoring any preferential rights of outstanding preferred stock. Dividends
consisting of shares of Class A or Class B common stock may be paid only as
follows:
o dividend shares of Class A common stock may be paid only to holders of
shares of Class A common stock, and dividend shares of Class B common
stock may be paid only to holders of Class B common stock; and
o shares will be paid proportionally with respect to each outstanding
share of Class A and Class B common stock.
We may not subdivide or combine shares of either Class A or Class B common
stock without at the same time proportionally subdividing or combining shares
of the other class.
Conversion. Each share of Class B common stock is convertible into one
share of Class A common stock at any time prior to a tax-free spin-off of iTurf
from our parent, at the option of the holder.
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Following a tax-free spin-off, shares of Class B common stock will no longer be
convertible into shares of Class A common stock at the option of the holder.
Shares of Class B common stock transferred prior to a tax-free spin-off
will automatically be converted into Class A common stock on a one-to-one basis
at the time of the disposition upon their transfer to a person other than:
o our parent;
o any of our parent's subsidiaries or successors; or
o a strategic partner.
A "strategic partner" means any entity or group of affiliated entities
acquiring Class B common stock constituting at least 10% of the aggregate
number of outstanding shares of all classes of our common stock that a majority
of our disinterested directors determines in good faith, prior to such
acquisition, to be a strategic partner in the best interests of our business
and our stockholders.
Shares of Class B common stock transferred to stockholders of our parent
as a dividend intended to be a tax-free spin-off will not be converted into
shares of Class A common stock upon the occurrence of a tax-free spin-off.
Following a tax-free spin-off, shares of Class B common stock will
generally be transferable as Class B common stock to the extent allowed under
applicable laws. However, shares of Class B common stock will automatically
convert into shares of Class A common stock on the fifth anniversary of the
tax-free spin-off. This automatic conversion will not occur if prior to the
tax-free spin-off our parent delivers to us an opinion of counsel reasonably
satisfactory to us that this conversion could preclude the parent from
obtaining a favorable ruling from the Internal Revenue Service that the
distribution would be a tax-free spin-off. If we receive an opinion to that
effect, we will submit approval of the conversion to a vote of the holders of
our common stock as soon as practicable after the fifth anniversary of the
tax-free spin-off. This vote will not be taken, however, if our parent delivers
to us a similar opinion prior to such anniversary that the vote could adversely
affect the status of the tax-free spin-off. Approval of the conversion will
require the affirmative vote of the holders of a majority of the shares of both
the Class A and Class B common stock present and voting together as a single
class, with each share of Class B common stock entitled to one vote for such
purpose.
We cannot assure you that the conversion described above would be
consummated. The requirement to submit the conversion to a vote of the holders
of common stock is intended to ensure the desired tax treatment of the tax-free
spin-off is preserved if the Internal Revenue Service should challenge the
automatic conversion as violating the requirement that the parent maintain 80%
of the voting power of iTurf's common stock. We believe that our parent has no
current plans with respect to a tax-free spin-off of iTurf.
All shares of the Class B common stock will automatically convert into
Class A common stock if a tax-free spin-off has not occurred and the number of
outstanding shares of Class B common stock beneficially owned by our parent
falls below 10% of the aggregate number of outstanding shares of all classes of
our common stock. This mechanism will prevent our parent from decreasing its
economic interest in iTurf to less than 10% while still retaining control of
more than 40% of the voting power of our common stock. All conversions will be
effected on a share-for-share basis.
Other Rights. In the event of any merger or consolidation of iTurf with
or into another company in which shares of our common stock are converted into
or exchangeable for shares of stock, other securities or property, including
cash, of the other company, all holders of Class A and Class B common stock
will be entitled to receive the same kind and amount of interest in the other
company.
On liquidation, dissolution or winding-up of iTurf, all holders of Class A
and Class B common stock are entitled to share ratably in any of our assets
available for distribution to holders of shares of common stock, after payment
in full of the amounts required to be paid to holders of our preferred stock,
if any.
No shares of Class A or Class B common stock are subject to redemption or
have preemptive rights to purchase additional shares of common stock.
Upon the closing of this offering, all the outstanding shares of Class A
and Class B common stock will be legally issued, fully paid and nonassessable.
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Preferred Stock
Upon the closing of this offering, our board of directors will be
authorized, without further stockholder approval, to issue up to an aggregate
of 1,000,000 of preferred stock in one or more series. The board will also be
able to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series of
preferred stock. Upon the closing of this offering, there will be no shares of
preferred stock outstanding. We have no present plans to issue any shares of
preferred stock.
Sale of Control by Our Parent
Our parent has agreed that, if it decides to sell all or a part of our
stock representing at least 35% of our voting securities, it will require the
purchaser to offer to purchase the same percentage of stock held by our public
stockholders on the same terms.
Anti-Takeover Effects of Provisions of Delaware Law and Our Restated
Certificate of Incorporation and Bylaws
Upon the closing of this offering, iTurf will be subject to the provisions
of Section 203 of the Delaware General Corporation Law. Section 203 generally
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
o the transaction in which such stockholder became an "interested
stockholder" is approved by the board of directors prior to the date the
"interested stockholder" attained that status;
o upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding those shares owned by persons
who are directors and also officers; or
o on or subsequent to that date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
"Business combinations" include mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." Generally, an
"interested stockholder" is a person who, together with his affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation's voting stock. The restrictions in this statute would not apply to
a "business combination" with our parent or any of its subsidiaries, but they
could prohibit or delay the accomplishment of mergers or other takeover or
change-in-control attempts with respect to iTurf and therefore discourage
attempts to acquire iTurf.
In addition, our Restated Certificate of Incorporation and bylaws that
will be in effect prior to the closing of this offering and are summarized
below may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider to be in its best interest, including those attempts
that might result in a premium over the market price for the Class A common
stock.
Classified Board of Directors
Immediately prior to or following the closing of this offering, our board
of directors will be divided into three classes of directors serving staggered,
three-year terms. As a result, approximately one-third of the members of our
board of directors will be elected each year. When coupled with the provision
of our Restated Certificate of Incorporation authorizing the board of directors
to fill vacant directorships and increase the size of the board of directors,
these provisions may prevent stockholders from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies created by such removals with their own nominees.
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Special Meetings of Stockholders
Our Restated Certificate of Incorporation provides that special meetings
of the stockholders of iTurf can be called only by the Chairman of the board of
directors, a Vice Chairman, the President or a majority of the members of the
board of directors.
Written Consent
Under our Restated Certificate of Incorporation, the stockholders of iTurf
will no longer be allowed to take action by written consent after the date on
which our parent together with Stephen I. Kahn and any strategic partners no
longer beneficially owns at least 50% of the voting power all classes of
outstanding common stock.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws require that timely notice in writing be provided by
stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of iTurf not less than 120 days nor more than 150
days prior to the first anniversary of the date of iTurf's notice of annual
meeting provided with respect to the previous year's annual meeting of
stockholders.
If no annual meeting of stockholders was held in the previous year or the
date of the annual meeting of stockholders has been changed to be more than 30
days earlier than or 60 days after that anniversary, notice will be timely if
received not more than 90 days later than the later of
o 60 days prior to the annual meeting of stockholders or
o the close of business on the tenth day following the date on which
notice of the date of the meeting is given to stockholders or made
public, whichever first occurs.
Our bylaws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from timely
bringing matters before, or from making nominations for directors at, an annual
meeting of stockholders.
Limitations on Liability and Indemnification of Officers and Directors
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breaches of directors' fiduciary duty of
care. Our Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of iTurf's directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to iTurf or its
stockholders;
o for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
o for any transaction from which the director derived an improper personal
benefit.
Our bylaws generally provide that:
o we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
o we may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our Restated Certificate of Incorporation, our bylaws or other
agreements; and
o we must advance expenses, as incurred, to our directors and executive
officers in connection with legal proceedings to the fullest extent
permitted by Delaware law.
Prior to the closing of this offering, we intend to obtain directors' and
officers' insurance providing indemnification for our directors, officers and
some employees. We believe that these indemnification provisions and insurance
are necessary to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our Restated
Certificate of Incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
Such provisions may also reduce the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise benefit us and our stockholders.
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Furthermore, a stockholder's investment may be adversely affected to the extent
we pay the costs of settlement and damage awards against directors and officers
in connection with these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought. We
are unaware of any threatened litigation that may result in claims for
indemnification.
No Duty of Our Parent to Refrain from Competing with Us
Our Restated Certificate of Incorporation provides that, except as
otherwise agreed by us and our parent:
o our parent will have no duty to refrain from engaging in the same or
similar activities or lines of business of iTurf, thereby competing with
iTurf;
o our parent, its officers, directors and employees will not be liable to
iTurf or its stockholders for breach of any fiduciary duty by reason of
any activities of our parent in competition with iTurf;
o our parent will have no duty to communicate or offer corporate
opportunities to iTurf and will not be liable for breach of any
fiduciary duty as a stockholder of iTurf in connection with corporate
opportunities; and
o if a director or officer of iTurf who is also a director or officer of
our parent learns of a potential transaction or matter that may be a
corporate opportunity for iTurf or our parent, that director or officer
may offer the corporate opportunity to iTurf or our parent as such
director or officer deems appropriate under the circumstances.
A director or officer will not be liable to iTurf or its stockholders for
breach of any fiduciary duty or duty of loyalty for failure to act in the best
interests of iTurf if:
o the director or officer first offers the corporate opportunity to our
parent; or
o our parent pursues the corporate opportunity for itself or does not
communicate information regarding the corporate opportunity to iTurf.
These provisions of our Restated Certificate of Incorporation eliminate rights
that might have been available to shareholders under Delaware law had such
provisions not been included in our Restated Certificate of Incorporation.
However, the enforceability of these provisions under Delaware law has not been
established.
Authorized but Unissued Shares
The authorized but unissued shares of common and preferred stock are
available for future issuance without stockholder approval. We may use these
additional shares for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of these shares could discourage or make more
difficult an attempt to obtain control of iTurf by means of a proxy contest,
tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority in interest of the shares entitled to vote on
any matter is required to amend a corporation's certificate of incorporation or
bylaws, unless its certificate of incorporation or bylaws requires a greater
percentage. Following the offering, our parent, as the beneficial owner of
approximately 95% of the voting power of the outstanding common stock, will, on
its own, be able to cause iTurf to amend its Restated Certificate of
Incorporation and bylaws.
Listing
We have applied to list our Class A common stock on the Nasdaq National
Market under the trading symbol "TURF."
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is The Bank of New
York, located at 101 Barclay Street, New York, New York 10286. Its telephone
number is 1-800-524-4458.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for iTurf's Class A
common stock. We cannot predict the effect that sales of shares or the
availability of shares for sale will have on the market price of our Class A
common stock. Sales of substantial amounts of our Class A common stock in the
public market, or the perception that sales might occur, could adversely affect
the market price of our Class A common stock. Sales of substantial amounts of
Class A common stock in the public market after the restrictions on resale
described below lapse could adversely affect the prevailing market price and
our ability to raise equity capital in the future.
Upon the closing of this offering, we expect to have outstanding 3,702,273
shares of our Class A common stock, assuming no exercise of the underwriters'
option and no exercise of other outstanding options but including $25,000 of
Class A common stock, valued at the assumed initial public offering price per
share, assumed to be $11.00, issued to TSI Soccer Corporation, a subsidiary of
our parent, as consideration in connection with the transfer to iTurf of the
TSISoccer.com domain name. All of the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, except shares purchased by our "affiliates," as that term is defined in
Rule 144 under the Securities Act. Shares of Class A common stock purchased by
our affiliates will be "restricted securities" under Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144 or Rule 701
promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rule 144 and Rule 701, the shares of Class A common stock that
are restricted securities will be available for sale in the public market on
the first anniversary of the date of the closing of this offering, in
accordance with the volume limitations and other conditions of Rule 144.
Lock-Up Agreements
Prior to the closing of this offering, all of our officers, directors and
securityholders, including our parent, will have signed agreements under which
they may not, for a period of 180 days after the date of this prospectus,
directly or indirectly transfer or dispose of, any shares of Class A common
stock or any securities convertible into or exercisable or exchangeable for
shares of Class A common stock. These restrictions apply to shares of our Class
B common stock. The shares could be available for resale immediately upon the
expiration of the 180-day period if they are available for resale under Rule
144. Transfers or dispositions can be made sooner with the prior written
consent of both BT Alex. Brown Incorporated and Hambrecht & Quist LLC.
Rule 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our Class A common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
o 1% of the number of shares of Class A common stock then outstanding,
which will equal approximately 37,023 shares after the closing of this
offering; or
o the average weekly trading volume of the Class A common stock on the
Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner-of-sale provisions and notice
requirements and to the availability of current public information about us.
Rule 144(k)
Under paragraph (k) of Rule 144, persons who are not our affiliate at any
time during the 90 days preceding a sale and who have beneficially owned the
shares proposed to be sold for at least two years are entitled to sell such
shares without complying with the manner-of-sale, public information, volume
64
<PAGE>
limitation or notice provisions of Rule 144. The two-year holding period
includes the holding period of any prior owner not an affiliate of iTurf.
Therefore, unless otherwise restricted, shares covered by Rule 144(k) may be
sold immediately upon the closing of this offering.
Rule 701
In general, under Rule 701, any of our employees, consultants or advisors
who purchase shares from us in connection with a compensatory stock or option
plan or other written agreement is eligible to resell such shares 90 days after
the date of this prospectus in reliance on Rule 144, but without compliance
with other restrictions, including the holding period, contained in Rule 144.
Registration Rights
Prior to the closing of this offering, we will enter into an agreement
with our parent providing our parent with specific registration rights
applicable to shares of our common stock held by it. See "Certain
Transactions--Intercompany Agreements--iTurf Common Stock Registration Rights
Agreement.
Stock Options
Immediately after the closing of this offering, we intend to file a
registration statement under the Securities Act covering 4,050,000 shares of
Class A common stock reserved for issuance under our stock incentive plan. Upon
the expiration of the restrictive agreements entered into by our officers,
directors, and security holders as described above, at least 186,775 shares of
Class A common stock will be subject to vested options. Accordingly, shares
registered under that registration statement will, giving effect to vesting
provisions and in accordance with Rule 144 volume limitations applicable to our
affiliates, be available for sale in the public market immediately after the
180-day restrictive agreements expire.
65
<PAGE>
UNDERWRITING
BT Alex. Brown Incorporated and Hambrecht & Quist LLC are the
representatives of the underwriters and are acting as joint book-running
managers. Upon the terms and conditions of the underwriting agreement between
iTurf and the underwriters, the underwriters named below have severally agreed
through their representatives to purchase from iTurf the number of shares of
our Class A common stock set forth opposite the name of the underwriter below:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ---------------------------------------- ------------
<S> <C>
BT Alex. Brown Incorporated .........
Hambrecht & Quist LLC ...............
J.P. Morgan Securities Inc. .........
CIBC Oppenheimer Corp. ..............
Wit Capital Corporation .............
---------
Total ............................. 3,700,000
=========
</TABLE>
At our request, the underwriters have agreed to offer an aggregate 339,000
of the shares of Class A common stock in this offering to directors, officers,
employees and vendors of iTurf, as well as various other persons designated by
us. These 339,000 shares are being offered to those persons on the same terms
as the remaining 3,361,000 shares are being offered by the underwriters to the
public. Any shares not purchased by those persons designated by us will then be
offered by the underwriters to the public.
The underwriters will purchase all of the shares of Class A common stock
offered in this offering, other than those shares covered by the option
described below, if they purchase any shares.
The underwriters' representatives have advised iTurf that the underwriters
propose initially to offer the shares of Class A common stock to the public at
the offering price set forth on the cover page of this prospectus and through
the underwriters' representatives to certain dealers at that price less a
concession not in excess of $ per share. The underwriters may allow,
and those dealers may re-allow, a concession not in excess of $ per
share to certain other dealers. After commencement of this offering, the
offering price and other selling terms may be changed by the representatives of
the underwriters.
iTurf has granted to the underwriters an option, exercisable by the
underwriters' representatives not later than 30 days after the date of this
prospectus, to purchase up to 555,000 additional shares of Class A common stock
at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus. The underwriters
may exercise their option only to cover over-allotments made by them in
connection with the sale of the Class A common stock in this offering. To the
extent that the underwriters exercise their option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
additional shares of Class A common stock as the number of shares of Class A
common stock to be purchased by it in the above table bears to 3,700,000. iTurf
will be obligated to sell the shares to the underwriters. If any additional
shares of Class A common stock are purchased through exercise of the
underwriters' option, the underwriters will offer those additional shares on
the same terms as the shares not covered by the option are being offered.
A prospectus in electronic format is being made available on a Web site
maintained by Wit Capital. In addition, all dealers purchasing shares from Wit
Capital in this offering have agreed to make a prospectus in electronic format
available on Web sites maintained by each of these dealers. Other than the
prospectus in electronic format, the information on Wit Capital's Web site and
any information contained on any other Web site maintained by Wit Capital
Corporation is not part of this prospectus or
66
<PAGE>
the registration statement of which this prospectus forms a part, has not been
approved or endorsed by iTurf or any underwriter in such capacity and should
not be relied on by prospective investors.
We have asked the underwriters to allocate a limited number of shares of
Class A common stock to Wit Capital and selected dealers for sale to their
brokerage account holders. The sales of these shares will be made by Wit
Capital Corporation, acting as e-Manager[TM] in this offering. Any of these
allocated shares not purchased by Wit Capital's brokerage account customers
will be offered by the underwriters on the same basis as the shares not
allocated to Wit Capital.
iTurf and our parent have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act.
In order to facilitate the offering of the Class A common stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the market price of our Class A common stock. Specifically, the
underwriters may over-allot shares of the Class A common stock in connection
with this offering, creating a short position in the underwriters' syndicate
account. Additionally, to cover over-allotments or to stabilize the market
price of the Class A common stock, the underwriters may bid for and purchase
shares of the Class A common stock in the open market. Finally, the
underwriters' representatives may reclaim selling concessions allowed to an
underwriter or dealer if the underwriting syndicate repurchases shares
distributed by that underwriter or dealer. Any of these activities may maintain
the market price of our Class A common stock at a level above that which might
otherwise prevail in the open market. The underwriters are not required to
engage in these activities and, if commenced, may end any of these activities
at any time.
Each of iTurf's officers, directors and stockholders has agreed to
restrictions on its ability to dispose of any of our Class A common stock for a
period of 180 days after the effective date of the registration statement
including this prospectus. These restrictions prohibit them from offering,
selling, contracting to sell or otherwise disposing of any Class A common stock,
or entering into any transaction designed to, or which could be expected to,
result in the disposition of any portion of any Class A common stock without the
prior written consent of both BT Alex. Brown Incorporated and Hambrecht & Quist
LLC. The underwriters' representatives may give their consent at any time
without public notice. The restriction on disposition of Class A common stock
includes shares of Class A common stock converted from Class B common stock.
iTurf has entered into a similar agreement, except that we may issue and
grant options or warrants to purchase shares of Class A common stock or
securities convertible into, exercisable for or exchangeable for shares of
Class A common stock, upon the exercise of outstanding options and warrants and
under our stock incentive plan. We may also issue shares of Class A common
stock in connection with an acquisition, a merger, a consolidation or sale of
assets or in connection with a strategic investment, partnership or joint
venture, so long as the persons receiving shares enter into the same
restrictive agreement for the 180-day period noted above.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Pricing of This Offering
Prior to the closing of this offering, there has been no public market for
our Class A common stock. Consequently, the initial public offering price for
our Class A common stock will be determined by negotiation among iTurf and the
representatives of the underwriters. Among the factors to be considered in
determining the public offering price will be:
o prevailing market conditions;
o iTurf's results of operations in recent periods;
o the present stage of our development;
o the market capitalizations and stages of development of other companies
that iTurf and the representatives of the underwriters believe to be
comparable to us;
o estimates of iTurf's business potential; and
o other factors deemed relevant by iTurf and the representatives of the
underwriters.
67
<PAGE>
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be
passed upon for us by Proskauer Rose LLP. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Reboul,
MacMurray, Hewitt, Maynard & Kristol.
EXPERTS
The financial statements of iTurf Inc. at January 31, 1998 and 1999, and
for the years ended January 31, 1997, 1998 and 1999 and the balance sheet of
gURL, Interactive Inc. as of December 17, 1997, appearing in the registration
statement of which this prospectus is a part have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
For more information with respect to iTurf and the Class A common stock
offered by this prospectus, see the registration statement and the exhibits and
schedule filed by us with the Securities and Exchange Commission on Form S-1
under the Securities Act. This prospectus does not contain all of the
information set forth in the registration statement and the related exhibits
and schedules. Statements contained in this prospectus regarding the contents
of any contract or any other document to which reference is made are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement.
A copy of the registration statement and its exhibits and schedule may be
inspected without charge at the public facilities maintained by the Securities
and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Securities and Exchange Commission's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of all or any part of the registration statement may be
obtained from these offices upon the payment of the fees prescribed by the
Securities and Exchange Commission.
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
iTurf Inc.
Report of Independent Auditors ..................................... F - 2
Balance Sheets ..................................................... F - 3
Statements of Operations ........................................... F - 4
Statements of Stockholder's (Deficit) Equity ....................... F - 5
Statements of Cash Flows ........................................... F - 6
Notes to Financial Statements ...................................... F - 7
gURL, Interactive Inc.
Report of Independent Auditors ..................................... F - 14
Balance Sheet ...................................................... F - 15
Notes to Balance Sheet ............................................. F - 16
</TABLE>
F - 1
<PAGE>
Report of Independent Auditors
To the Board of Directors
of iTurf Inc.
We have audited the balance sheets of iTurf Inc. (the "Company") as of
January 31, 1998 and 1999 and the related statements of operations,
stockholder's (deficit) equity and cash flows for each of the three 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 these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at January 31,
1998 and 1999 and the results of its operations and its cash flows for each of
the three years in the period ended January 31, 1999 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 28, 1999, except
for the second paragraph
of Note 1--Business as
to which the date is
, 1999.
The foregoing report is in the form that will be signed upon the
completion of the restatement of capital accounts described in the second
paragraph of Note 1--Business to the financial statements.
ERNST & YOUNG LLP
New York, New York
March 12, 1999
F - 2
<PAGE>
iTurf Inc.
Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS
January 31
---------------------
1998 1999
---- ----
<S> <C> <C>
Current assets:
Cash .................................................................... $ 31 $ 375
------ ------
Total current assets ..................................................... 31 375
Deferred offering costs .................................................. -- 110
------ ------
Fixed assets, net of accumulated depreciation of $3 and $46 at January 31,
1998 and 1999, respectively ............................................. 95 414
Intangible assets, net ................................................... 341 356
------ ------
Total assets ............................................................. $ 467 $1,255
====== ======
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Accounts payable and other current liabilities .......................... $ -- $ 263
Due to dELiA*s .......................................................... 512 573
------ ------
Total current liabilities ............................................... 512 836
Stockholder's (deficit) equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares
issued or outstanding ................................................. -- --
Class A common stock, $.01 par value, 67,500,000 authorized, no shares
issued and outstanding ................................................. -- --
Class B common stock, $.01 par value, 12,500,000 shares
authorized, 12,500,000 shares issued and outstanding ................... 125 125
(Deficit) retained earnings ............................................. (170) 294
------ ------
Total stockholder's (deficit) equity .................................... (45) 419
------ ------
Total liabilities and stockholder's (deficit) equity ..................... $ 467 $1,255
====== ======
</TABLE>
See accompanying notes.
F - 3
<PAGE>
iTurf Inc.
Statements of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year ended January 31
1997 1998 1999
---------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Net product sales .......................................... $ 13 $ 134 $ 3,352
----------- ------------ -----------
Advertising and other ...................................... -- -- 662
----------- ------------ -----------
Total revenues .............................................. 13 134 4,014
Cost of product sales ....................................... 6 69 1,687
----------- ------------ -----------
Gross profit ................................................ 7 65 2,327
Selling, general and administrative expenses ................ 14 114 1,467
----------- ------------ -----------
Income (loss) from operations ............................... (7) (49) 860
Interest expense ............................................ -- 20 41
----------- ------------ -----------
Income (loss) before income tax (benefit) provision ......... (7) (69) 819
Income tax (benefit) provision .............................. (3) (29) 355
----------- ------------ -----------
Net income (loss) ........................................... $ (4) $ (40) $ 464
=========== ============ ===========
Basic and diluted net income (loss)
per share .................................................. $ (0.00) $ (0.00) $ 0.04
=========== ============ ===========
Shares used to compute basic
net income (loss) per share ................................ 12,500,000 12,500,000 12,500,000
=========== ============ ===========
Shares used to compute diluted
net income (loss) per share ................................ 12,500,000 12,500,000 12,518,000
=========== ============ ===========
</TABLE>
See accompanying notes.
F - 4
<PAGE>
iTurf Inc.
Statements of Stockholder's (Deficit) Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock (Deficit)
----------------------- Retained
Shares Amount Earnings Total
------------ -------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at January 31, 1996 ......... 12,500,000 $ 125 $(126) $ (1)
Net loss ........................... (4) (4)
---------- ----- ----- ----
Balance at January 31, 1997 ......... 12,500,000 125 (130) (5)
Net loss ........................... (40) (40)
---------- ----- ----- ----
Balance at January 31, 1998 ......... 12,500,000 125 (170) (45)
Net income ......................... 464 464
---------- ----- ----- ----
Balance at January 31, 1999 ......... 12,500,000 $ 125 $ 294 $419
========== ===== ===== ====
</TABLE>
See accompanying notes.
F - 5
<PAGE>
iTurf Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended January 31
------------------------------------
1997 1998 1999
---------- --------- -----------
<S> <C> <C> <C>
Operating activities
Net income (loss) ............................................. $ (4) $ (40) $ 464
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................... -- 6 78
Changes in operating assets and liabilities:
Accounts payable and other current liabilities ............ -- -- 104
---- ------ --------
Net cash provided by (used in) operating activities ........... (4) (34) 646
Investing activities
Acquisitions .................................................. -- (126) --
Purchase of fixed assets ...................................... -- (98) (265)
---- ------ --------
Net cash (used in) investing activities ....................... -- (224) (265)
Financing activities
Loan from dELiA*s ............................................. 17 372 3,286
---- ------ --------
Repayment to dELiA*s .......................................... (13) (83) (3,274)
Deferred offering costs ....................................... -- -- (49)
---- ------ --------
Net cash provided by (used in) financing activities ........... 4 289 (37)
Net increase in cash .......................................... -- 31 344
Cash at beginning of period ................................... -- -- 31
---- ------ --------
Cash at end of period ......................................... $ -- $ 31 $ 375
==== ====== ========
Supplemental disclosure of cash flow information:
Interest paid ................................................. $ -- $ -- $ --
==== ====== ========
Income taxes paid ............................................. $ -- $ -- $ --
==== ====== ========
</TABLE>
Supplemental disclosure of noncash financing and investing activity:
Issuance of dELiA*s Inc. common stock in connection with the gURL
acquisition--see Note 6.
See accompanying notes.
F - 6
<PAGE>
iTurf Inc.
Notes to Financial Statements
1. Business
iTurf Inc. (the "Company"), formerly known as dELiA*s Interactive Company,
a teen-focused Internet community and marketer of apparel, related accessories,
home furnishings and soccer merchandise, is a wholly-owned subsidiary of
dELiA*s Inc. ("dELiA*s"). The Company utilizes dELiA*s business relationships,
infrastructure and brand names and has relied on dELiA*s to provide financing
for its operations. The Company has filed a registration statement with the
Securities and Exchange Commission for a proposed initial public offering
("IPO") of common stock. If the proposed public offering is not consummated,
the Company will be dependent on the continued support of dELiA*s.
On 1999, the stockholders amended and restated the certificate of
incorporation such that the authorized capital stock of the Company consists of
67,500,000 shares of Class A common stock, par value $.01 per share, 12,500,000
shares of Class B common stock, par value $.01 per share and 1,000,000 shares
of Preferred Stock, par value $.01 per share. In addition, the stockholders
approved the exchange of the 100 shares of common stock previously outstanding
into 12,500,000 shares of Class B common stock. All share and option
information in the accompanying financial statements has been adjusted to
reflect these changes and, consequently, $125,000, the par value of the Class B
common stock, has been reclassified from (deficit) retained earnings.
In its proposed IPO, iTurf plans to issue shares of its Class A common
stock to the public. Holders of Class A common stock have voting rights
identical to holders of Class B common stock, except that holders of Class A
common stock are entitled to one vote per share and holders of Class B are
entitled to six votes per share. After the offering, dELiA*s is expected to own
all outstanding shares of iTurf's Class B common stock, which is expected to
represent approximately 95% of the voting power of iTurf common stock. Each
share of Class B common stock is convertible into one share of Class A common
stock at any time prior to a tax-free spin-off, as defined, of iTurf from
dELiA*s, at the option of the holder. Following a tax-free spin-off, shares of
Class B common stock will no longer be convertible into shares of Class A
common stock at the option of the holder, but shares that have not yet been
converted would automatically convert upon (i) the transfer of such shares by
dELiA*s to a third party other than a person determined by the iTurf board of
directors to be a "strategic partner" of iTurf, (ii) the decline of the number
of outstanding shares of Class B common stock beneficially owned by our Parent
to below 10% of the aggregate number of outstanding shares of all classes of
iTurf common stock or (iii) the fifth anniversary of the tax-free spin-off.
iTurf expects to use a portion of the IPO proceeds to purchase dELiA*s
stock from its parent. iTurf will record this purchase as a reduction to
iTurf's stockholders' equity.
The Company is subject to seasonal fluctuations in its merchandise sales
and results of operations. The Company expects its net sales and operating
results generally to be lower in the first half of each fiscal year.
The Company's fiscal year ends on January 31. All references herein to a
particular fiscal year refer to the year ended January 31 following the
calendar year (e.g., "fiscal 1998" refers to the fiscal year ending January 31,
1999).
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements of the Company include the Internet
operations of dELiA*s which include, for all periods presented, the Internet
operations of TSI Soccer Corporation ("TSI"). TSI was acquired by dELiA*s in
December 1997 in a transaction accounted for as a pooling of interests. See
Note 6. The financial statements also include the operations of gURL,
Interactive Inc. ("gURL"), from December 17, 1997, the date of acquisition by
iTurf.
The financial statements include expenses which have been allocated to the
Company by dELiA*s on a specific identification basis plus its allocated share
of the costs associated with resources it shares
F - 7
<PAGE>
iTurf Inc.
Notes to Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
with dELiA*s. Allocations from dELiA*s for such shared resources have been made
primarily on a proportional cost method based on related revenues. Management
believes these allocations are reasonable. The financial statements of the
Company do not necessarily reflect the results of operations or financial
position that would have existed had the Company been an independent company.
Fixed Assets
Fixed assets, comprised of property and equipment, are stated at cost and
depreciated using the straight-line method over 5 years, the estimated useful
lives of the assets.
Intangible Assets
Intangible assets relate primarily to goodwill resulting from the gURL
acquisition, which is being amortized by the straight-line method over 10
years.
Use of Estimates
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.
Revenue Recognition
Sales of the Company's products are recognized at the time the products
are shipped to customers. Advertising revenue is recognized on a straight-line
basis over the period during which the advertising is provided. Licensing
revenue is recognized upon fulfillment of all material contractual obligations.
Subscription revenue related to DiscountDomain.com, a membership based discount
shopping service, is billed monthly, subsequent to the earlier of a customer's
first purchase or one month from the date of initial subscription.
Subscriptions are cancelable at any time and revenue is recognized on a monthly
basis.
Advertising Costs
The Company expenses the cost of advertising as incurred. For the years
ended January 31, 1997, 1998 and 1999, advertising costs were approximately $0,
$1,000, and $443,000, respectively.
Income Taxes
Historically, the Company's results have been included in dELiA*s
consolidated federal and state income tax returns. The income tax provision is
calculated as if the Company had operated as an independent company. Deferred
tax assets and liabilities are recognized with respect to the tax consequences
attributable to the difference between the financial statement carrying values
and tax bases of assets and liabilities. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled. The Company is reimbursed for any tax benefits which dELiA*s receives
and is liable to dELiA*s for any tax liability recorded by the Company.
dELiA*s pays all taxes for the Company and, as such, income taxes payable
and deferred tax assets and liabilities have been included in amounts due to
dELiA*s.
Basic and Diluted Earnings (Loss) per Share
The Company computes net (loss) income per share in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). To
date, the Company has not had any issuances or grants for nominal
consideration.
F - 8
<PAGE>
iTurf Inc.
Notes to Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Financial Instruments
The fair value of financial instruments approximate their carrying value.
Due to dELiA*s
Due to dELiA*s includes amounts payable to dELiA*s primarily for
operations and working capital requirements, offset by cash collected by the
Company and remitted to dELiA*s. Other transactions reflected in the payable
balance include the Company's share of dELiA*s consolidated income tax
liability and other administrative expenses incurred by dELiA*s on behalf of
the Company. Such amounts payable do not have specific repayment terms.
Interest is charged at 8% per annum.
Stock-Based Compensation
The Company accounts for its stock-based employee compensation agreements
in accordance with the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation."
Long-Lived Assets
In accordance with the Statement of Financial Accounting Standards Board
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of," the Company periodically reviews
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows (on an undiscounted basis) expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized would be
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 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 the
iTurf's financial statements or disclosure as iTurf has no reconciling items.
Therefore net income (loss) and comprehensive income (loss) are the same.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 requires that public companies
report certain information about operating segments in their annual financial
statements and in subsequent condensed financial statements of interim periods
issued to shareholders. This statement also requires that public companies
report certain information about their products and services, the geographic
areas in which they operate and their major customers. Adoption of this new
standard did not have an effect on the Company's disclosures for all periods
presented because the Company currently operates as one segment.
In June 1998, the FASB 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 the Company to recognize
all derivatives on the balance sheet at fair value. The Company has determined
that the adoption of this new standard will not have a material effect on the
Company's financial statements or disclosure for all periods presented.
F - 9
<PAGE>
iTurf Inc.
Notes to Financial Statements (Continued)
3. Related Party Transactions
All merchandise sold from inception through January 31, 1999 was purchased
from dELiA*s or one of its subsidiaries at an amount equal to dELiA*s or the
subsidiary's cost. For the years ended January 31, 1997, 1998 and 1999, such
purchases totaled $6,000, $69,000 and $1,687,000. dELiA*s charges the Company
the costs associated with such purchases, including cost of freight, handling
and other costs, incurred by dELiA*s in connection with providing such
merchandise.
As a subsidiary of dELiA*s, the Company also receives, and is charged its
proportionate share of various services from dELiA*s including administrative,
distribution and other services. Such charges were $13,000, $45,000, and
$219,000 for the years ended January 31, 1997, 1998 and 1999, respectively. In
the opinion of management, all allocations of such costs have been made on a
reasonable and consistent basis; however; they are not necessarily indicative
of nor is it practical for management to estimate the level of expenses which
might have been incurred had the Company been operating as a separate,
stand-alone company.
Prior to the closing of the offering, iTurf and dELiA*s intend to enter
into several intercompany agreements. These agreements cover rights and
obligations regarding trademarks and customer lists, competition, intercompany
services, customer service and stock registration. Had the intercompany
agreements been in effect during the historical periods presented in the
financial statements, they would not have had a material effect on the results
of operations.
In addition, several of iTurf's officers and directors also serve as
officers and directors of dELiA*s.
4. Credit Facility
iTurf is currently a participant under dELiA*s $25 million bank credit
facility. Obligations under the credit agreement are subject to certain
conditions including the maintenance of financial ratios and covenants and are
secured by a lien on substantially all of dELiA*s assets, including iTurf. The
credit agreement also limits the payment of dividends by dELiA*s. There were no
outstanding borrowings under dELiA*s credit facility at January 31, 1998 and
1999. iTurf's participation in the credit facility is expected to be terminated
concurrent with the closing of the proposed IPO.
5. Leases
The Company utilizes equipment and space under lease to dELiA*s. Rental
expense from operating leases amounted to $0, $5,000 and $13,000 for the years
ended January 31, 1997, 1998 and 1999 respectively.
6. Acquisitions
gURL
On December 17, 1997, the Company acquired all the outstanding common
stock of gURL, Interactive Inc. ("gURL"), an interactive entertainment Web
site, for 5,000 shares of dELiA*s common stock valued at $108,000 based on the
fair market value of dELiA*s common stock on such date, cash of $120,000 and
rights to receive an aggregate of 10,000 additional shares of dELiA*s common
stock subject to the satisfaction of certain membership-level targets. Such
targets were subsequently met and 5,000 shares of dELiA*s common stock were
issued on December 31, 1998. The remaining 5,000 shares of dELiA*s common will
be issued in December 1999. The value of stock issued and to be issued by
dELiA*s in connection with the acquisition is included in iTurf's liability to
dELiA*s.
The acquisition has been accounted for by the purchase method of
accounting and the results of the operations of gURL have been included in the
financial statements of the Company from the date of acquisition. The excess
purchase price over the fair value of net assets acquired was approximately
$387,000. This amount includes $110,000 relating to the 5,000 shares of dELiA*s
common stock issued in
F - 10
<PAGE>
iTurf Inc.
Notes to Financial Statements (Continued)
6. Acquisitions (continued)
December 1998 and $49,000 relating to the 5,000 shares of dELiA*s stock to be
issued in December 1999, both calculated using the fair market value of dELiA*s
common stock on the date the related membership-level targets were achieved.
Accumulated amortization at January 31, 1998 and 1999 was approximately $3,000
and $38,000, respectively.
On a pro forma basis as if the acquisition had taken place on the first
day of each fiscal year, iTurf's net loss would have been ($27,000) and
($60,000), for the years ended January 31, 1997 and 1998, respectively. Net
sales and loss per share on a pro forma basis would not have been different
from the amounts reported.
Internet Operations of TSI
On December 10, 1997, dELiA*s acquired TSI in a purchase accounted for as
a pooling of interests. In connection with this transaction, dELiA*s issued an
aggregate of 308,687 shares of its common stock and made cash payments of
approximately $730,000 to former stockholders of TSI. The acquired operations
included an internet business. In accordance with pooling-of-interests
accounting, the accompanying financial statements, which include all of dELiA*s
internet operations, include such internet operations of TSI from the date of
their inception in March 1995.
During fiscal 1997 through the date of the combination, as well as in
prior years, the internet operations of TSI represented all of iTurf's
operations. For the nine months ended October 31, 1997, these operations
resulted in net sales of $86,000 and net loss of $1,000.
7. Income Taxes
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended January 31
----------------------------------
1997 1998 1999
---------- ----------- -------
(in thousands)
<S> <C> <C> <C>
Current:
Federal ......... $(2) $(23) $248
State ........... (1) (6) 97
------ ------- ----
(3) (29) 345
Deferred:
Federal ......... -- -- 8
State ........... -- -- 2
----- ------ ----
-- -- 10
----- ------ ----
Total ............ $(3) $(29) $355
===== ====== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company had no such
differences prior to fiscal 1998. Significant components of the Company's
deferred tax assets and liabilities as of January 31, 1999 are as follows:
<TABLE>
<CAPTION>
1999
(in thousands) --------
<S> <C>
Deferred tax liabilities -- property and equipment .......... (19)
Deferred tax assets -- reserves ............................. 9
---
Net deferred tax liability ................................ (10)
===
</TABLE>
F - 11
<PAGE>
iTurf Inc.
Notes to Financial Statements (Continued)
7. Income Taxes (continued)
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate:
<TABLE>
<CAPTION>
Year ended January 31
----------------------------------
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Statutory federal income tax expense (benefit) ......... (34)% (34)% 34%
State income tax expense (benefit) ..................... (8) (8) 7
Other .................................................. (1) -- 2
---- ---- --
(43)% (42)% 43%
==== ==== ==
</TABLE>
8. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended January 31
-------------------------------------------------
1997 1998 1999
-------------- -------------- ---------------
<S> <C> <C> <C>
Numerator: Net income (loss) ........................ $ (4,000) $ (40,000) $ 464,000
=========== =========== ============
Denominator for basic earnings per share--
weighted-average shares ........................... 12,500,000 12,500,000 12,500,000
Effect of dilutive stock options .................... -- -- 18,000
----------- ----------- ------------
Denominator for diluted earnings per
share--adjusted weighted-average and
assumed conversions ............................... 12,500,000 12,500,000 12,518,000
=========== =========== ============
Basic and diluted earnings (loss) per share ......... $ (0.00) $ (0.00) $ 0.04
=========== =========== ============
</TABLE>
All stock options outstanding at January 31, 1999 were included in the
computation of diluted earnings per share as all exercise prices were less than
the assumed market price of the Company's common stock.
9. Stock Incentive Plan
On January 1, 1999, the Company established the 1999 Stock Incentive Plan
(the "Incentive Plan") for officers, employees, consultants, contractors and
directors providing for the grant of stock options, including incentive stock
options and non-qualified stock options, stock appreciation rights and
restricted stock, and reserved 4,050,000 shares for grant. Either the Board of
Directors or the Compensation Committee of the Board of Directors may determine
the type of award, when and to whom awards are granted, the number of shares
and terms of the awards and the exercise prices. Stock options are exercisable
for a period not to exceed 10 years from the date of the grant and, to the
extent determined at the time of grant, may be paid for in cash, shares of
common stock, restricted stock or by a reduction in the number of shares
issuable upon exercise of the option.
On January 1, 1999, the Company issued employees options to purchase
1,419,688 shares of common stock at $9.36, the fair market value at the date of
grant. Of the options issued, 1,214,688 vest in eight six month intervals
generally beginning six months from the date of grant. The remaining 205,000
options issued vest 20% per year beginning one year from the date of grant.
These options represented all of the Company's outstanding options at January
31, 1999. At such date, none of the options 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. 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 Company's net income and earnings per share for the year ended
January 31, 1999 would have been $370,000 and $0.03, respectively.
F - 12
<PAGE>
iTurf Inc.
Notes to Financial Statements (Continued)
9. Stock Incentive Plan (continued)
The estimated fair market value of options granted during the year ended
January 31, 1999 was $3.17 per share. The fair value of options granted by the
Company during the year ended January 31, 1999 was estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions used: no dividend yield and no volatility; risk-free interest rate
of 4.5 percent; expected lives of four years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
F - 13
<PAGE>
Report of Independent Auditors
To the Shareholders
of gURL, Interactive Inc.
We have audited the accompanying balance sheet of gURL, Interactive Inc.
(the "Company") as of December 17, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Company at December 17,
1997 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
January 15, 1999
F - 14
<PAGE>
gURL, Interactive Inc.
Balance Sheet
<TABLE>
<CAPTION>
ASSETS
December 17
1997
------------
<S> <C>
Cash ................................................... $100
----
Total assets ........................................... $100
====
SHAREHOLDERS' EQUITY
Common stock, no par value, 200 shares
authorized; 100 shares issued and outstanding ......... $100
----
Shareholders' equity ................................... $100
====
</TABLE>
See accompanying notes.
F - 15
<PAGE>
gURL, Interactive Inc.
Notes to Balance Sheet
December 17, 1997
1. Description of Business
In September 1997, the Shareholders incorporated gURL, Interactive Inc.
("gURL") and contributed $100 in cash and the gURL Web site as consideration
for receiving 100 shares of common stock. The gURL Web site was developed by
three New York University graduate school students (the "Shareholders") as the
basis for their masters thesis. The contribution of the gURL Web site was
accounted for at the Shareholders' cost, which was zero because the costs
consisted of their own time and the Web site was developed at no cost to the
Shareholders. No other costs were incurred.
2. Other
On December 17, 1997, iTurf Inc. acquired all of the gURL outstanding
common stock.
F - 16
<PAGE>
================================================================================
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of Class A common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these shares of Class A common stock in any
circumstances under which the offer or solicitation is unlawful.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ........................... 3
Risk Factors ................................. 7
Forward-Looking Statements ................... 20
Use of Proceeds .............................. 21
Dividend Policy .............................. 21
Capitalization ............................... 22
Dilution ..................................... 23
Selected Financial Data ...................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 25
Business ..................................... 32
Management ................................... 47
Transactions with Our Parent ................. 53
Principal Stockholders ....................... 57
Description of Capital Stock ................. 59
Shares Eligible for Future Sale .............. 64
Underwriting ................................. 66
Legal Matters ................................ 68
Experts ...................................... 68
Where You Can Find More Information .......... 68
Index to Financial Statements ................ F-1
</TABLE>
----------------------------------
Dealer Prospectus Delivery Obligation:
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these shares of Class A common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
3,700,000 Shares
[iTurf logo]
Class A
Common Stock
--------------------------
PROSPECTUS
--------------------------
BT Alex. Brown
Hambrecht & Quist
J.P. Morgan & Co.
CIBC Oppenheimer
Wit Capital Corporation
as e-Manager[TM]
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the SEC registration fee and NASD filing
fee are estimates.
<TABLE>
<CAPTION>
Amount to be
Paid
-------------
<S> <C>
Securities and Exchange Commission registration fee ......... $ 14,195
NASD filing fee ............................................. 5,100
Nasdaq National Market listing fee .......................... 20,000
Printing fees ............................................... 150,000
Legal fees and expenses ..................................... 300,000
Accounting fees and expenses ................................ 300,000
Blue Sky fees and expenses .................................. 2,000
Transfer agent and registrar fees ........................... 10,000
Miscellaneous ............................................... 198,705
----------
Total ..................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the
Registrant may indemnify its other employees and agents as set forth in the
Delaware General Corporation Law, (iii) the Registrant is required to advance
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions and (iv) the rights
conferred in the Bylaws are not exclusive.
At present, there is no pending litigation or proceeding involving a
director, officer or employee of the Registrant regarding which indemnification
is sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification.
Reference is also made to Section 8 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provisions
in the Registrant's Restated Certificate of Incorporation and in its Bylaws may
be sufficiently broad to permit indemnification of the Registrant's directors
and executive officers for liabilities arising under the Securities Act.
The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance. Reference is
made to the following documents filed as exhibits to this
II-1
<PAGE>
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Document Exhibit Number
- ------------------------------------------------------------ ---------------
<S> <C>
Form of Underwriting Agreement ............................. 1.1
Form of Restated Certificate of Incorporation of Registrant 3.3
Form of Bylaws of Registrant ............................... 3.4
</TABLE>
Item 15. Recent Sales of Unregistered Securities
All shares issued prior to the completion of the offering described herein
were issued to dELiA*s Inc. on October 1, 1997 in connection with the formation
of the Company, a transaction exempt from Section 5 of the Securities Act
pursuant to Section 4(2) thereof.
Item 16. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- ---------- -------------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Lock Up Agreement
3.1 +Restated Certificate of Incorporation of iTurf
3.2 +By-laws of iTurf
3.3 *Form of Restated Certificate of Incorporation of iTurf to be
adopted prior to the closing of this offering
3.4 *Form of Bylaws of iTurf to be adopted prior to the closing of this
offering
4.1 *Form of Class A Common Stock Certificate
5.1 *Opinion of Proskauer Rose LLP
10.1 Form of Intercompany Services Agreement
10.2 Form of Trademark License and Customer List Agreement
10.3 Form of Intercompany Indemnification Agreement
10.4 Form of Tax Allocation Agreement
10.5 Form of iTurf Common Stock Registration Rights Agreement
10.6 Form of dELiA*s Common Stock Registration Rights Agreement
10.7 Form of Customer Service Agreement
10.8 *Form of Letter Agreement between dELiA*s and iTurf (regarding a
sale of control by dELiA*s)
10.9 *1999 Stock Incentive Plan
10.10 *Employment Agreement between iTurf and Stephen I. Kahn
10.11 *Employment Agreement between iTurf and Alex S. Navarro
10.12 *Employment Agreement between iTurf and Oliver Sharp
10.13 *Employment Agreement between iTurf and Dennis Goldstein
21.1 *Subsidiaries
23.1 Consents of Ernst & Young LLP
23.2 *Consent of Proskauer Rose LLP (included in Exhibit 5.1 above)
24.1 +Power of Attorney (included in signature page hereto)
27.1 Financial Data Schedule
99.1 Consent of Beth Vanderslice to be named as director
</TABLE>
- -----------
* To be filed by amendment
+ Previously filed
(b) Financial Statement Schedules
No financial statement schedules are provided, because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
II-2
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this Registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of New York, State of New York on March 17, 1999.
iTurf Inc.
By: /s/ Stephen I. Kahn
------------------------------------
Stephen I. Kahn
President and Chief Executive Officer
In accordance with the requirements of the Securities Act, this
Registration Statement has been signed on March 17, 1999 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
Name Title
- --------------------------- -------------------------------------------------
<S> <C>
/s/ Stephen I. Kahn President, Chief Executive Officer and Director
- -------------------------
Stephen I. Kahn
* Chief Financial Officer (principal financial and
- ------------------------- accounting officer)
Dennis Goldstein
* Director
- -------------------------
Christopher C. Edgar
* Director
- -------------------------
Evan Guillemin
*By: /s/ Alex S. Navarro
---------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
Exhibit Index.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- ---------- -------------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Lock Up Agreement
3.1 +Restated Certificate of Incorporation of iTurf
3.2 +By-laws of iTurf
3.3
*Form of Restated Certificate of Incorporation of iTurf to be
adopted prior to the closing of this offering
3.4 *Form of Bylaws of iTurf to be adopted prior to the closing of this
offering
4.1 *Form of Class A Common Stock Certificate
5.1 *Opinion of Proskauer Rose LLP
10.1 Form of Intercompany Services Agreement
10.2 Form of Trademark License and Customer List Agreement
10.3 Form of Intercompany Indemnification Agreement
10.4 Form of Tax Allocation Agreement
10.5 Form of iTurf Common Stock Registration Rights Agreement
10.6 Form of dELiA*s Common Stock Registration Rights Agreement
10.7 Form of Customer Service Agreement
10.8 *Form of Letter Agreement between dELiA*s and iTurf (regarding a
sale of control by dELiA*s)
10.9 *1999 Stock Incentive Plan
10.10 *Employment Agreement between iTurf and Stephen I. Kahn
10.11 *Employment Agreement between iTurf and Alex S. Navarro
10.12 *Employment Agreement between iTurf and Oliver Sharp
10.13 *Employment Agreement between iTurf and Dennis Goldstein
21.1 *Subsidiaries
23.1 Consents of Ernst & Young LLP
23.2 *Consent of Proskauer Rose LLP (included in Exhibit 5.1 above)
24.1 +Power of Attorney (included in signature page hereto)
27.1 Financial Data Schedule
99.1 Consent of Beth Vanderslice to be named as director
</TABLE>
- -----------
* To be filed by amendment
+ Previously filed
II-5
EXHIBIT 1.1
_________ Shares
iTurf Inc.
Class A Common Stock
($.01 par value per share)
FORM OF UNDERWRITING AGREEMENT
_________ ,1999
BT ALEX. BROWN INCORPORATED
HAMBRECHT & QUIST LLC
As Representatives of the Several Underwriters
named in Schedule I hereto
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
iTurf Inc., a Delaware corporation (the "Company") and wholly-owned
subsidiary of dELiA*s Inc., a Delaware corporation ("Parent"), proposes to sell
to the several underwriters named in Schedule I hereto (the "Underwriters" and
each individually an "Underwriter"), for whom you are acting as representatives
(in such capacity, the "Representatives"), an aggregate shares (the "Firm
Shares") of the Company's Class A Common Stock, $.01 par value per share (the
"Class A Common Stock"). The respective amounts of the Firm Shares to be so
purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company also proposes to sell, at the Underwriters'
option, up to additional shares (the "Option Shares") of the Company's Class A
Common Stock as set forth below.
As the Representatives, you have advised the Company and Parent (a) that
you are authorized to enter into this Agreement on behalf of the several
Underwriters, and (b) that the several Underwriters are willing, acting
severally and not jointly, to purchase the numbers of Firm
<PAGE>
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PARENT.
(a) The Company and Parent, severally and not jointly, represent and
warrant to each of the Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-71123) with
respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and
the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder and has been filed
with the Commission. Such registration statement, as amended to the date
hereof, has become effective under the Act, and no post-effective amendment
to such registration statement has been filed as of the date of this
Agreement. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the
Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore
been delivered by the Company to you. The term "Registration Statement"
means such registration statement on the date it became effective, together
with any registration statement filed by the Company pursuant to Rule
462(b) under the Act, which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below. The term "Prospectus" means the form of
prospectus first filed with the Commission pursuant to Rule 424(b) and Rule
430A. Any reference herein to any Prospectus shall be deemed to include any
supplements or amendments thereto filed with the Commission after the date
of filing of the Prospectus under Rule 424(b) and Rule 430A and prior to
the termination of the offering of the Shares by the Underwriters. The term
"Preliminary Prospectus" means each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement. The subsidiaries
of the Company listed in Exhibit 21.1 to the Registration Statement
(collectively, the "Subsidiaries") have been duly organized, and each is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement. The Subsidiaries are the
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only subsidiaries, direct or indirect, of the Company. The Company and the
Subsidiaries are duly qualified to transact business in all jurisdictions
in which the conduct of their business requires such qualification, except
where the failure to be so qualified would not have a material adverse
effect on the earnings, business, properties, assets, operations, financial
condition or prospects of the Company and its subsidiaries taken as a
whole. The outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, are fully paid and non-assessable and
are owned by the Company free and clear of all liens, encumbrances and
equities and claims, except for the lien held by First Union Bank which
shall be released on the Closing Date. No options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests
in any Subsidiary are outstanding.
(iii) The outstanding shares of Class B Common Stock, $.01 par value
per share (the "Class B Common Stock," and, collectively with the Class A
Common Stock, the "Common Stock"), of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and owned by
Parent. No shares of Class A Common Stock have been issued prior to the
date hereof. The Shares to be issued and sold by the Company have been duly
authorized and, when issued and paid for as contemplated herein, will be
validly issued, fully paid and non-assessable. No preemptive rights of
stockholders exist with respect to any of the Shares or the issue and sale
thereof. Except as provided in the Material Agreements (as defined),
neither the filing of the Registration Statement nor the offering or sale
of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to
the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct in all material respects. The Company's
Common Stock conforms in all material respects to the description thereof
contained in the Registration Statement. The form of certificate for the
Shares conforms to the corporate law of the jurisdiction of the Company's
incorporation. Except as described in the Prospectus, there are no
outstanding securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of capital
stock of the Company and there are no outstanding or authorized options,
warrants or rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares of
such stock. Except as described in the Prospectus, no holder of any
securities of the Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or permit them to underwrite
the sale of, any of the Shares or the right to have any shares of Common
Stock or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the Registration
Statement, to require registration under the Act of any shares of Common
Stock or other securities of the Company.
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(v) None of Parent, the Company nor any Subsidiary is, nor with the
giving of notice or lapse of time or both will be, in violation of its
Certificate of Incorporation or Bylaws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of its
properties may be bound and which default is of material significance in
respect of the earnings, business, management, properties, assets, rights,
operations, financial condition or prospects of the Company and its
Subsidiaries taken as a whole. The execution, delivery and performance of
this Agreement and the Material Agreements by the Parent and Company and
the consummation by Parent and the Company of the transactions contemplated
hereby and thereby (A) have been duly authorized by all requisite corporate
and stockholder action, (B) will not violate the Certificate of
Incorporation or Bylaws of Parent, the Company or any Subsidiary or
conflict with or result in a default in the performance or observance of
any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which Parent, the Company or any Subsidiary is a
party or by which they or any of their respective properties may be bound
and (C) will not result in a breach of any law, order, rule or regulation
applicable to Parent, the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction, or result in the creation or imposition of a material lien or
encumbrance of any kind on any of the properties of Parent, the Company or
any Subsidiary.
(vi) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares
nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will
not contain, any untrue statement of a material fact and do not omit, and
will not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus and
any amendment and supplement thereto at the time the Prospectus or any such
amendment or supplement was issued does not contain, and will not contain,
any untrue statement of material fact and do not omit, and will not omit,
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company makes
no representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
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(vii) The consolidated financial statements of the Company and its
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly in all material respects the
financial position and the results of operations and cash flows of the
Company and the consolidated Subsidiaries, at and as of the indicated dates
and for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted
accounting principles, consistently applied throughout the periods
presented, except as disclosed therein, and all adjustments necessary for a
fair presentation of results for such periods have been made. The summary
financial data included in the Registration Statement present fairly in all
material respects the information shown therein, and such data have been
compiled, as applicable, on a basis consistent with the financial
statements presented therein and the books and records of the Company. The
pro forma information labeled "as adjusted" that is included in the
Registration Statement and the Prospectus present fairly the information
shown therein, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company and Parent, the assumptions
used in the preparation thereof are reasonable, and the adjustments used
therein are appropriate to give effect to the transactions or circumstances
referred to therein.
(viii) Ernst & Young, LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration Statement,
are independent public accountants as required by the Act and the Rules and
Regulations.
(ix) There is no action, suit, claim or proceeding pending or, to the
knowledge of Parent or the Company, threatened against Parent or the
Company or any Subsidiary before any court or administrative agency or
otherwise which if determined adversely to Parent or the Company or such
Subsidiary could reasonably be expected to be of material significance to
the earnings, business, management, properties, assets, rights, operations,
financial condition or prospects of the Company and the Subsidiaries taken
as a whole or prevent the consummation of the transactions contemplated
hereby, except as set forth in the Registration Statement.
(x) The Company and its Subsidiaries have good and marketable title
to all of their respective properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of
any kind except for the lien of First Union Bank which shall be released on
the Closing Date those reflected in such financial statements, (or as
described in the Registration Statement), customary restrictions that are
contained in the Company's personal property leases and software license
agreements or which are not material in amount. The Company and its
Subsidiaries occupy their respective leased properties under valid and
binding leases conforming in all material respects to the descriptions
thereof set forth in the Registration Statement. Parent has transferred to
the Company and its Subsidiaries good and marketable title to all the
assets and properties of Parent that are used primarily for the provision
of Internet community and e-commerce services.
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(xi) Parent, the Company and its Subsidiaries have filed all material
Federal, state, local and foreign tax returns which have been required to
be filed and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such taxes
have become due. All tax liabilities have been adequately provided for in
the financial statements of the Company, and neither Parent nor the Company
knows of any actual or proposed additional material tax assessments.
(xii) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, as each may be amended or
supplemented, except as otherwise stated therein, there has not been any
material adverse change in, or any development relating specifically to the
Company and its Subsidiaries taken as a whole involving a prospective
material adverse change in, or affecting the earnings, business,
management, properties, assets, rights, operations, financial condition or
prospects of the Company and its Subsidiaries taken as a whole, whether or
not occurring in the ordinary course of business, and there has not been
any material transaction entered into or any material transaction that is
probable of being entered into by the Company or its Subsidiaries, other
than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended
or supplemented. The Company and its Subsidiaries have no material
contingent obligations that are not disclosed in the Company's financial
statements, which are included in the Registration Statement.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions
herein contemplated (except such additional steps as may be required by the
Commission, The National Association of Securities Dealers, Inc. (the
"NASD") or such additional steps as may be necessary to qualify the Shares
for public offering by the Underwriters under state securities or Blue Sky
laws) has been obtained or made and is in full force and effect.
(xiv) The Company and its Subsidiaries each hold all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their respective businesses now operated by
them, and neither the Company nor any Subsidiary has infringed any patents,
patent rights, trade names, trademarks or copyrights, which infringement is
material to the business of the Company and its Subsidiaries taken as a
whole. Neither Parent nor the Company knows of any material infringement by
others of patents, patent rights, trade names, trademarks or copyrights
owned by or licensed to the Company.
(xv) Neither Parent, the Company, nor to Parent's or the Company's
knowledge, any of their respective affiliates, has taken or may take,
directly or indirectly, any action designed to cause or result in, or which
has constituted or which might reasonably be
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expected to constitute, the stabilization or manipulation of the price of
any securities of the Company or Parent to facilitate the sale or resale of
the Shares.
(xvi) Neither the Company nor any Subsidiary is, and upon the issuance
and sale of the Shares as herein contemplated and the application of the
proceeds therefrom as described in the Prospectus will not be, an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific authorization;
(B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (C) access to assets
is permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared
with existing assets at reasonable intervals, and appropriate action is
taken with respect to any differences.
(xviii) The Company and its Subsidiaries each carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses as such businesses are currently
conducted and the value of their respective properties and as is customary
for companies in similar industries.
(xix) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"). No "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability. The Company has not
incurred and does not expect to incur liability under (A) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(B) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"). Each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is so
qualified, and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(xx) To the Company's and Parent's knowledge, there are no
affiliations or associations between any member of the NASD and any of the
Company's officers, directors or 5% or greater securityholders, except as
set forth in the Registration Statement.
(xxi) The Restated Certificate of Incorporation of the Company in the
form filed as Exhibit 3.3 to the Registration Statement has been duly
authorized and duly filed with
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the Secretary of State of the State of Delaware and has not been amended
since the date of such filing. The Bylaws of the Company in the form filed
as Exhibit 3.4 to the Registration Statement have been duly adopted as and
for the bylaws of the Company and have not been amended since the date of
such adoption.
(xxii) Annexed hereto as Schedule 1(a)(xxii) is a list setting forth
certain contracts and agreements (collectively, the "Material Agreements")
(A) between the Company and Parent and (B) between the Company and certain
of its executive officers. True and complete copies of all the Material
Agreements or forms thereof have been provided to the Representatives and
their counsel. There does not exist under any such Material Agreement any
existing default or event of default or event which with notice or lapse of
time or both would constitute such a default and to the knowledge of the
Parent and the Company, there is no claim that any Material Agreement
referred to in said Schedule is not valid and enforceable in accordance
with its terms for the periods stated therein; provided, however, that the
Company makes no representation as to the enforceability of non-competition
provisions contained in the Material Agreements.
(xxiii) The shares of common stock, $.01 par value ("Parent Company
Stock"), to be issued and sold to the Company pursuant to the Subscription
Agreement dated as of the date hereof (the "Subscription Agreement")
between Parent and the Company have been duly authorized and, when issued
and paid for as contemplated therein, will be validly issued, fully paid
and non-assessable.
(xxiv) The Web sites at the URLs listed in Schedule 1(a)(xxiv)
(collectively, the "Sites"), which, in each case, are owned by the Company
or owned by Parent and licensed by the Company, and the features and
functionality of such Sites (individually and in relation to one another)
conform in all material respects to the description thereof contained in
the Prospectus.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Company agrees to
sell to the Underwriters, and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $ per share, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made by wire
transfer to the Company of immediately available funds to a bank account or bank
accounts designated by the Company against delivery of certificates therefor to
the Representatives for the several accounts of the Underwriters. Such payment
and delivery are to be made through the facilities of the Depository Trust
Company, New York, New York at 10:00 a.m., New York time, on the third business
day after the date of this Agreement or at such other time and date not later
than five
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business days thereafter as you and the Company shall agree upon, such time and
date being herein referred to as the "Closing Date." (As used herein, "business
day" means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and are not permitted by law or
executive order to be closed.) The certificates for the Firm Shares will be
delivered in such denominations and in such registrations as the Representatives
request in writing not later than the second full business day prior to the
Closing Date, and will be made available for inspection by the Representatives
at least one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase the Option
Shares at the price per share set forth in the first paragraph of this Section
2. The option granted hereby may be exercised in whole or in part by giving
written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than ten full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of the
several Underwriters, may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date by wire transfer to the Company of immediately
available funds to the bank account or bank accounts designated by the Company
for the Option Shares to be sold by it, against delivery of certificates
therefor to the Representatives for the several accounts of the Underwriters.
Such payment and delivery are to be made through the facilities of the
Depository Trust Company, New York, New York, on the Option Closing Date.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other
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selling terms. To the extent, if at all, that any Option Shares are purchased
pursuant to Section 2 hereof, the Underwriters will offer them to the public on
the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND PARENT.
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) use its reasonable best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A of the Rules and Regulations, and (B)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been
advised and furnished with a copy or to which the Representatives shall
have reasonably objected in writing or which is not in compliance with the
Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have
become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its reasonable best efforts to prevent the issuance of
any such stop order preventing or suspending the use of the Prospectus and
to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided
the Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction where it
is not now so qualified or required to file such a consent. The Company
will, from time to time, prepare and file such statements, reports and
other documents as are or may be required to continue such qualifications
in effect for so long a period as the Representatives may reasonably
request for distribution of the Shares.
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(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period
when delivery of a prospectus is required under the Act, as many copies of
the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto, including all exhibits
filed therewith, and will deliver to the Representatives such number of
copies of the Registration Statement (including such number of copies of
the exhibits filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the
Representatives, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and
file with the Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so
amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with
the law.
(vi) The Company will make generally available to its securityholders,
as soon as it is practicable to do so, but in any event not later than 15
months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a
period of at least twelve consecutive months beginning not later than the
first day of the fiscal quarter next following the effective date of the
Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been so
made available.
(vii) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim quarterly financial statements of
the Company for any period ending subsequent to the period covered by the
most recent financial statements appearing in the Registration Statement
and the Prospectus.
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(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company (other than the Shares) or other
securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivative of Common Stock (or agreement for such) will be
made for a period of 180 days after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of BT Alex. Brown Incorporated and Hambrecht & Quist LLC.
The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectus, (C) any
shares of Common Stock issued or options to purchase Common Stock granted
pursuant to existing employee benefit plans of the Company referred to in
the Prospectus or (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or dividend reinvestment plan and (E) any
shares of Common Stock issued in connection with an acquisition, a merger,
a consolidation or sale of assets or in connection with a strategic
investment, partnership or joint venture, provided that the holders of such
shares so issued enter into Lockup Agreements (as hereinafter defined) that
restrict the sale or other disposition of such shares for a period of 180
days from the date of the Prospectus.
(ix) The Company will use its reasonable best efforts to cause the
Shares to be listed, subject to notice of issuance, on The Nasdaq National
Market.
(x) The Company has caused each beneficial owner of the Company's
Common Stock listed on Schedule 4(a)(x) hereto to furnish to you, on or
prior to the date of this agreement, a letter or letters, in form and
substance satisfactory to the Underwriters, pursuant to which each such
person shall agree not to offer, sell, sell short or otherwise dispose of
any shares of Common Stock of the Company or other capital stock of the
Company, or any other securities convertible, exchangeable or exercisable
for shares of Common Stock or derivative of Common Stock owned by such
person or request the registration for the offer or sale of any of the
foregoing (or as to which such person has the right to direct the
disposition of) for a period of 180 days after the date of this Agreement,
directly or indirectly except with the prior written consent of BT Alex.
Brown Incorporated and Hambrecht & Quist LLC (collectively, the "Lockup
Agreements").
(xi) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of
the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.
(xii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock as long as it is a reporting company under the Exchange Act.
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(xiii) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the price
of any securities of the Company during the period prohibited by the Act
and the Rules and Regulations.
(b) Parent covenants and agrees with the several Underwriters that:
(i) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for shares of
Common Stock or derivative of shares of Common Stock owned by Parent or
request for the registration for the offer or sale of any of the foregoing
(or as to which Parent has the right to direct the disposition) will be
made for a period of 180 days after the date of this Agreement, directly or
indirectly, by Parent otherwise than hereunder or with the prior written
consent of BT Alex. Brown Incorporated and Hambrecht & Quist LLC. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder,
(B) any shares of Common Stock issued by the Company upon the exercise of
an option or warrant or the conversion of a security outstanding on the
date hereof and referred to in the Prospectus, (C) any shares of Common
Stock issued or options to purchase Common Stock granted pursuant to
existing employee benefit plans of the Company referred to in the
Prospectus or (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or dividend reinvestment plan and (E) any
shares of Common Stock issued in connection with an acquisition, a merger,
a consolidation or sale of assets or in connection with a strategic
investment, partnership or joint venture, provided that the holders of such
shares so issued enter into Lockup Agreements (as hereinafter defined) that
restrict the sale or other disposition of such shares for a period of 180
days from the date of the Prospectus.
(ii) Parent will not take, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any securities of the Company during the period prohibited by the Act and
the Rules and Regulations.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company and Parent under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Listing Application, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission; the filing
fees and expenses (including legal fees and disbursements) incident to securing
any required review by the NASD of the terms of the sale of the Shares, the
Listing Fee of The Nasdaq Stock Market, and the expenses,
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including the fees and disbursements of counsel for the Underwriters, incurred
in connection with the qualification of the Shares under State securities or
Blue Sky laws and the qualification of the terms of the sale of the Shares under
NASD regulation. The Company shall not, however, be required to pay for any of
the Underwriters' expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws), except that, if this
Agreement shall not be consummated because the conditions in Section 6 hereof
are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11 hereof, or by reason of any failure,
refusal or inability on the part of the Company or Parent to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on their part to be performed, unless such failure to satisfy
said condition or to comply with said terms is due to the default or omission of
any Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company and Parent shall not in any event be liable to any of the
several Underwriters for damages on account of loss of anticipated profits from
the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and Parent
contained herein, and to the performance by the Company and Parent of their
respective covenants and obligations hereunder and to the following additional
conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective, and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued, and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or Parent, shall be contemplated by the
Commission, and no injunction, restraining order, or order of any nature by a
Federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date and the
Option Closing Date, the opinion of Proskauer Rose LLP ("Proskauer Rose"),
counsel for the Company and Parent, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters (and stating that it may
be relied upon by counsel to the Underwriters) to the effect set forth in
Exhibit A hereto. In rendering such opinion, Proskauer Rose may rely as to
matters governed by the laws of states other than Delaware or Federal laws on
local counsel in such
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jurisdictions, provided that in each case Proskauer Rose shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, as of
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Proskauer Rose may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(c) The Representatives shall have received from Reboul, MacMurray,
Hewitt, Maynard & Kristol ("Reboul MacMurray"), counsel for the Underwriters, an
opinion dated the Closing Date and the Option Closing Date, to the effect set
forth in Exhibit B hereto. In rendering such opinion, Reboul MacMurray may rely
as to all matters governed other than by the laws of the state of Delaware or
Federal laws on the opinion of counsel referred to in paragraph (b) of this
Section 6. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, as of
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Reboul MacMurray may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior to the Closing
Date from Reboul MacMurray a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the state securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
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(e) The Representatives shall have received from Ernst & Young LLP (i) on
each of the date hereof, the Closing Date and the Option Closing Date, as the
case may be, a letter dated the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance satisfactory to you, of
Ernst & Young, LLP confirming that they are independent public accountants
within the meaning of the Act and the applicable published Rules and Regulations
thereunder and stating that in their opinion the financial statements and
schedules examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such other
statements and information as are ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus and (ii) an opinion dated the Closing Date to the effect set
forth in Exhibit C hereto.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
President and Chief Executive Officer and the Chief Financial Officer of the
Company and a certificate of Parent to the effect that, as of the Closing Date
or the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) In the case of the Company's Officers Certificate only, the
Registration Statement has become effective under the Act, and, to the best
knowledge of such officers, after due inquiry, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceedings for such purpose have been taken or are, to his, her or its
knowledge, contemplated by the Commission.
(ii) The representations and warranties of the Company or Parent, as
applicable, contained in Section 1 hereof are true and correct as of the
Closing Date or the Option Closing Date, as the case may be.
(iii) In the case of the Company's Officers Certificate only, all
filings required to have been made pursuant to Rules 424 or 430A under the
Act have been made.
(iv) He, she or it has carefully examined the Registration
Statement and the Prospectus and, in his, her or its opinion, as of the
effective date of the Registration Statement, the statements contained in
the Registration Statement were true and correct in all material respects,
and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such a supplement or amendment.
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any material
adverse change or any
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development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company and its Subsidiaries
taken as a whole, or the earnings, business, management, properties,
assets, rights, operations, financial condition or prospects of the Company
and its Subsidiaries taken as a whole, whether or not arising in the
ordinary course of business.
(g) The Company and Parent shall have furnished to the Representatives
such further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on The Nasdaq Stock Market.
(i) The Lock-up Agreements described in Section 4(a)(x) are in full force
and effect.
(j) The transactions contemplated by the Subscription Agreement and the
TSISoccer.com Asset Transfer Agreement described in the Prospectus shall have
been consummated simultaneously with the closing transactions contemplated
hereby, to the satisfaction of the Representatives and Reboul MacMurray.
(k) Each of the Material Agreements shall have been executed and delivered
by Parent and the Company.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Reboul MacMurray, counsel
for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company, Parent and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the Shares required to
be delivered as and when specified in this Agreement are subject to the
conditions that at the Closing Date or the Option Closing Date, as the case may
be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated or
threatened.
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8. INDEMNIFICATION.
(a) The Company and Parent, jointly and severally, agree: (i) to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, against any losses,
claims, damages or liabilities ("Damages"), to which such Underwriter or any
such controlling person may become subject under the Act or otherwise, insofar
as such Damages (or actions or proceedings in respect thereof) arise out of or
are based upon (A) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (B) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; provided, however, that
neither the Company nor Parent will be liable in any such case to the extent
that any such Damages arise out of or are based upon an untrue statement or
alleged untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof; and (ii) to reimburse each
Underwriter and each such controlling person upon demand for any legal or other
out-of-pocket expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such
Damages, action or proceeding or in responding to a subpoena or governmental
inquiry related to the offering of the Shares, whether or not such Underwriter
or controlling person is a party to any action or proceeding; provided, however,
in the event that it is finally judicially determined that the Underwriters were
not entitled to receive payments for legal and other expenses pursuant to this
subparagraph, the Underwriters will promptly return all sums that had been
advanced pursuant hereto. The indemnity agreement will be in addition to any
liability which the Company or Parent may otherwise have. The liability of
Parent for indemnification pursuant to this Section 8(a) shall not exceed the
proceeds received by Parent pursuant to the Subscription Agreement, unless any
such Damages (or actions or proceedings in respect thereof) to which such
Underwriter or any such controlling person may become subject arise out of or
are based upon (A) information pertaining to Parent furnished by or on behalf of
the Company or Parent expressly for use in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
(B) facts that would constitute a breach of any representation or warranty of
Parent as to itself set forth in Section 1(a)(v), (ix), (x), (xi), (xiv), (xv),
(xx), (xxii), (xxiii) and (xxiv) hereof, or (C) any act or failure to act by
Parent, or unless and to the extent that indemnification from the Company is
unavailable due to any act by Parent.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each person named in the Prospectus
as about to become a director, each of its officers who have signed the
Registration Statement, Parent, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company, Parent or any such director, person, officer,
or controlling person may become subject under the Act or otherwise, insofar as
such losses, claims,
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damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company, Parent or any such
director, person, officer or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that each Underwriter will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for use
in the preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against an indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of presentation) the
reasonable fees and expenses of the counsel retained by the indemnified party in
the event (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel, (ii) the named parties to any
such proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them or (iii) the indemnifying party shall have failed to assume the
defense and employ counsel acceptable to the indemnified party within a
reasonable period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in
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writing by you in the case of parties indemnified pursuant to Section 8(a) and
by the Company and Parent in the case of parties indemnified pursuant to Section
8(b). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. In addition, the indemnifying party will
not, without the prior written consent of the indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding of which indemnification may be sought hereunder
(whether or not any indemnified party is an actual or potential party to such
claim, action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8(a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and Parent on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company and Parent on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company and Parent on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and Parent
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or Parent on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, Parent and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in
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connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and Parent set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company or Parent), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the
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respective numbers of Firm Shares or Option Shares, as the case may be, which
they are obligated to purchase hereunder, to purchase the Firm Shares or Option
Shares, as the case may be, which such defaulting Underwriter or Underwriters
failed to purchase, or (b) if the aggregate number of shares of Firm Shares or
Option Shares, as the case may be, with respect to which such default shall
occur exceeds 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the Company and Parent or you as the Representatives of the
Underwriters will have the right, by written notice given within the next
36-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriters or of the
Company or of Parent except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as Representatives,
may determine in order that the required changes in the Registration Statement
or in the Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to BT Alex. Brown Incorporated,
One South Street, Baltimore, Maryland 21202, Attention: Jay S. Eastman, with
copies to BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland
21202, Attention: General Counsel, and Reboul, MacMurray, Hewitt, Maynard &
Kristol, 45 Rockefeller Plaza, New York, New York 10111, Attention: Othon A.
Prounis; if to the Company or Parent, to iTurf Inc. or dELiA*s Inc.,
respectively, at 435 Hudson Street, New York, New York 10014, Attention: Stephen
I. Kahn, with a copy to Proskauer Rose LLP, 1585 Broadway, New York, New York
10036, Attention: Ronald R. Papa.
11. TERMINATION.
(a) This Agreement may be terminated by you as follows by notice to the
Company at any time prior to the Closing Date if any of the following has
occurred: (A) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (B) any outbreak or escalation of hostilities or declaration of war or
national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, (C) suspension of trading in securities generally on
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the New York Stock Exchange or The Nasdaq Stock Market or limitation on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such Exchange, (D) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your reasonable opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (E) declaration of a banking moratorium by United States or New York
State authorities, (F) the suspension of trading of the Company's Class A Common
Stock by The Nasdaq National Market, the Commission, or any other governmental
authority, or (G) the taking of any action by any governmental body or agency in
respect of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
23
<PAGE>
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
24
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us he enclosed duplicates hereof, whereupon
it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
iTurf Inc.
By
---------------------------
Stephen I. Kahn, President and
Chief Executive Officer
dELiA*s Inc.
By
---------------------------
Stephen I. Kahn, President and
Chief Executive Officer
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
HAMBRECHT & QUIST LLC
As Representatives of the several
Underwriters listed on Schedule I
By BT Alex. Brown Incorporated
By
------------------------------------
Authorized Officer
By Hambrecht & Quist LLC
By:
------------------------------------
Authorized Officer
<PAGE>
SCHEDULE I
UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
BT Alex. Brown Incorporated...........................
Hambrecht & Quist LLC.................................
J.P. Morgan Securities Inc............................
CIBC Oppenheimer Corp.................................
-----------------
Total........................................
=================
<PAGE>
Schedule 1(a)(xxii)
Material Agreements
(A) Intercompany Agreements
Intercompany Services Agreement
Trademark License and Customer List Agreement
Intercompany Indemnification Agreement
Tax Sharing Agreement
iTurf Common Stock Registration Rights Agreement
dELiA*s Common Stock Registration Rights Agreement
Customer Service Agreement
Letter Agreement relating to a sale of a controlling interest in the
Company by Parent
(B) Employment Agreements
Employment Agreement between the Company and Stephen I. Kahn
Employment Agreement between the Company and Alex S. Navarro
Employment Agreement between the Company and Oliver Sharp
Employment Agreement between the Company and Dennis Goldstein
<PAGE>
Schedule 1(a)(xxiv)
Sites
www.iturf.com
www.gURL.com
www.gURLnet.com
www.gURLpages.com
www.gURLmAIL.com
www.dELiAs.com
www.TSISoccer.com
www.discountdomain.com
www.contentsonline.com
www.droog.com
29
________________, 1999
iTurf Inc.
435 Hudson Street
New York, New York 10014
BT Alex. Brown Incorporated
Hambrecht & Quist LLC
One South Street
Baltimore, Maryland 21202
Form of Lock-Up Agreement
Ladies and Gentlemen:
The undersigned understands that BT Alex. Brown Incorporated ("BT Alex. Brown")
and Hambrecht & Quist LLC ("Hambrecht & Quist"), as representatives
(collectively, the "Representatives") of the several underwriters (the
"Underwriters"), propose to enter into an underwriting agreement (the
"Underwriting Agreement") with iTurf Inc., a Delaware corporation (the
"Company") and a subsidiary of dELiA*s Inc., formerly known as dELiA*s
Interactive Company, providing for the initial public offering by the
Underwriters, including the Representatives, of Class A common stock, $.01 par
value (the "Class A Common Stock"), of the Company (the "Initial Public
Offering").
In consideration of the Underwriters' agreement to make the Initial Public
Offering and for other good and valuable consideration, receipt and sufficiency
of which is hereby acknowledged, the undersigned agrees that, without the prior
written consent of both BT Alex. Brown and Hambrecht & Quist, the undersigned
will not, directly or indirectly, offer, sell, pledge, contract to sell
(including any short sale), grant any option to purchase or otherwise dispose of
any shares of common stock, $.01 par value ("Common Stock"), of the Company
(including, without limitation, (i) shares of the Company's Class B Common
Stock, $.01 par value, (ii) shares of Common Stock of the Company which may be
deemed to be beneficially owned by the undersigned on the date hereof in
accordance with the rules and regulations of the Securities and Exchange
Commission and (iii) shares of Common Stock which may be issued upon exercise of
any stock option, warrant or conversion privilege) or enter into any Hedging
Transaction (as defined below) relating to the Common Stock (each of the
foregoing being referred to as a "Disposition") for a period of 180 days after
the effective date of the registration statement relating to the Initial Public
Offering (the "Lock-Up Period"). The foregoing restriction is expressly intended
to preclude the undersigned from engaging in any Hedging Transaction or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition during the Lock-Up Period, even if the securities would be
disposed of by someone other than
<PAGE>
the undersigned. "Hedging Transaction" means any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from the Common Stock.
Notwithstanding the foregoing, the undersigned may transfer any or all of the
Common Stock beneficially owned by them by gift, will or intestacy or as a
transfer to any trust for the direct benefit of the undersigned or the immediate
family of the undersigned; provided, however, that in any such case it shall be
a condition to the transfer that the transferee execute an agreement stating
that the transferee is receiving and holding the Common Stock subject to the
provisions of this agreement, and there shall be no further transfer of such
Common Stock except in accordance with this agreement. For purposes of this
agreement, "immediate family" shall mean any relationship by blood, marriage, or
adoption, not more remote than first cousin.
Without limiting the restrictions herein, any Disposition by the undersigned
shall remain at all times subject to applicable securities laws, including,
without limitation, the resale restrictions imposed by Rule 144 promulgated
under the Securities Act of 1933, as amended to date.
The undersigned agrees that the Company may, and that the undersigned will, (i)
with respect to any shares of Common Stock for which the undersigned is the
record holder, cause the transfer agent for the Company to note stop transfer
instructions with respect to such shares on the transfer books and records of
the Company, and (ii) with respect to any shares of Common Stock for which the
undersigned is the beneficial holder but not the record holder, cause the record
holder of such shares to cause the transfer agent for the Company to note stop
transfer instructions with respect to such shares on the transfer books and
records of the Company.
In addition, the undersigned hereby waives any and all notice requirements and
rights with respect to registration of securities of the Company pursuant to any
agreement, understanding or otherwise setting forth the terms of any security of
the Company held by the undersigned, including any registration rights agreement
to which the undersigned and the Company may be party, provided that such waiver
shall apply only to the proposed Initial Public Offering, and any other action
taken by the Company in connection with the proposed Initial Public Offering.
The undersigned hereby agrees that, to the extent that the terms of this letter
agreement conflict with or are in any way inconsistent with any registration
rights agreement to which the undersigned and the Company may be a party, this
letter agreement supersedes such registration rights agreement.
The undersigned understands that the Company, the Underwriters and the
Representatives will proceed with the Initial Public Offering in reliance on
this Lock-Up Agreement.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into this letter agreement. All authority herein
conferred or agreed to be confirmed shall survive the death or incapacity of the
undersigned, and any obligations of the
<PAGE>
undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
Any notices to the undersigned relating to this letter agreement should be
delivered by first-class mail to the following address, or by fax to the number
below:
___________________________
___________________________
___________________________
Fax: ( )
___________________________
Telephone: ( )
___________________________
Very truly yours,
_________________________
Name
Number of shares
owned or subject to
warrants, options or
convertible securities: Certificate numbers:
____________________________ _______________________
____________________________ _______________________
____________________________ _______________________
BY-LAWS
OF
dELiA*s Interactive Company
1. MEETINGS OF STOCKHOLDERS.
1.1 Annual Meeting. The annual meeting of stock-holders shall be
held on the first Monday of June in each year, or as soon thereafter as
practicable, and shall be held at a place and time determined by the board of
directors (the "Board").
1.2 Special Meetings. Special meetings of the stockholders may be
called by resolution of the Board, the chairman or the president and shall be
called by the president or secretary upon the written request (stating the
purpose or purposes of the meeting) of a majority of the directors then in
office or of the holders of a majority of the outstanding shares entitled to
vote. Only business related to the purposes set forth in the notice of the
meeting may be transacted at a special meeting.
1.3 Place and Time of Meetings. Meetings of the stockholders may be
held in or outside Delaware at the place and time specified by the Board or the
officers or stockholders requesting the meeting.
1.4 Notice of Meetings; Waiver of Notice. Written notice of each
meeting of stockholders shall be given to each stockholder entitled to vote at
the meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given, except when required
under section 1.5 below or by law. Each notice of a meeting shall be given,
personally or by mail, not fewer than 10 nor more than 60 days before the
meeting and shall state the time and place of the meeting, and, unless it is the
annual meeting, shall state at whose direction or request the meeting is called
and the purposes for which it is called. If mailed, notice shall be considered
given when mailed to a stockholder at his address on the corporation's records.
The attendance of any stockholder at a meeting, without protesting at the
beginning of the meeting that the meeting is not lawfully called or convened,
shall constitute a waiver of notice by him.
1.5 Quorum. At any meeting of stockholders, the presence in person
or by proxy of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of any business. In the absence of a
quorum, a majority in voting interest of those present or, if no stockholders
are present, any officer entitled to preside at or to act as secretary of the
meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is present, any action may be taken that might have
been taken at the meeting as originally called. No notice of an adjourned
meeting need be given, if the time and place are
- 1 -
<PAGE>
announced at the meeting at which the adjournment is taken, except that, if
adjournment is for more than 30 days or if, after the adjournment, a new record
date is fixed for the meeting, notice of the adjourned meeting shall be given
pursuant to section 1.4.
1.6 Voting; Proxies. Each stockholder of record shall be entitled to
one vote for each share registered in his name. Corporate action to be taken by
stockholder vote, other than the election of directors, shall be authorized by a
majority of the votes cast at a meeting of stockholders, except as otherwise
provided by law or by section 1.8. Directors shall be elected in the manner
provided in section 2.1. Voting need not be by ballot, unless requested by a
majority of the stockholders entitled to vote at the meeting or ordered by the
chairman of the meeting. Each stockholder entitled to vote at any meeting of
stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person to act for him by proxy.
No proxy shall be valid after three years from its date, unless it provides
otherwise.
1.7 List of Stockholders. Not fewer than 10 days prior to the date
of any meeting of stockholders, the secretary of the corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not fewer than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place within the city where
the meeting is to be held, if that place shall have been specified in the notice
of the meeting, or (b) if not so specified, at the place where the meeting is to
be held. The list shall also be available for inspection by stockholders at the
time and place of the meeting.
1.8 Action by Consent Without a Meeting. Any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not fewer than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting. Prompt notice of the taking of any such
action shall be given to those stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
2.1 Number, Qualification, Election and Term of Directors. The
business of the corporation shall be managed by the entire Board, which
initially shall consist of directors. The number of directors may be changed by
resolution of a majority of the Board or by the stockholders, but no decrease
may shorten the term of any incumbent director. Directors shall be elected at
each annual meeting of stockholders by a plurality of the votes cast and shall
hold office until the next annual meeting of stockholders and until the election
and qualification of their respective successors, subject to the provisions of
section 2.9. As used in these by-laws, the term "entire Board" means the total
number of directors the corporation would have, if there were no vacancies on
the Board.
- 2 -
<PAGE>
2.2 Quorum and Manner of Acting. A majority of the entire Board
shall constitute a quorum for the transaction of business at any meeting, except
as provided in section 2.10. Action of the Board shall be authorized by the vote
of the majority of the directors present at the time of the vote, if there is a
quorum, unless otherwise provided by law or these by-laws. In the absence of a
quorum, a majority of the directors present may adjourn any meeting from time to
time until a quorum is present.
2.3 Place of Meetings. Meetings of the Board may be held in or
outside Delaware.
2.4 Annual and Regular Meetings. Annual meetings of the Board, for
the election of officers and consideration of other matters, shall be held
either (a) without notice immediately after the annual meeting of stockholders
and at the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in section 2.6. Regular meetings of the
Board may be held without notice at such times and places as the Board
determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
2.5 Special Meetings. Special meetings of the Board may be called by
the president or by a majority of the directors.
2.6 Notice of Meetings; Waiver of Notice. Notice of the time and
place of each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting.
Notice of a special meeting also shall state the purpose or purposes for which
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting or who attends the meeting
without protesting at the beginning of the meeting the transaction of any
business because the meeting was not lawfully called or convened. Notice of any
adjourned meeting need not be given, other than by announcement at the meeting
at which the adjournment is taken.
2.7 Board or Committee Action Without a Meeting. Any action required
or permitted to be taken by the Board or by any committee of the Board may be
taken without a meeting, if all the members of the Board or the committee
consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents by the members of the Board or the committee
shall be filed with the minutes of the proceedings of the Board or the
committee.
2.8 Participation in Board or Committee Meetings by Conference
Telephone. Any or all members of the Board or any committee of the Board may
participate in a meeting of the Board or the committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at the meeting.
- 3 -
<PAGE>
2.9 Resignation and Removal of Directors. Any director may resign at
any time by delivering his resignation in writing to the chairman, the president
or secretary of the corporation, to take effect at the time specified in the
resignation; the acceptance of a resignation, unless required by its terms,
shall not be necessary to make it effective. Any or all of the directors may be
removed at any time, either with or without cause, by vote of the stockholders.
2.10 Vacancies. Any vacancy in the Board, including one created by
an increase in the number of directors, may be filled for the unexpired term by
a majority vote of the remaining directors, though less than a quorum.
2.11 Compensation. Directors shall receive such compensation as the
Board determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director also may be paid for
serving the corporation or its affiliates or subsidiaries in other capacities.
3. COMMITTEES.
3.1 Executive Committee. The Board, by resolution adopted by a
majority of the entire Board, may designate an executive committee of one or
more directors, which shall have all the powers and authority of the Board,
except as otherwise provided in the resolution, section 141(c) of the General
Corporation Law of Delaware or any other applicable law. The members of the
executive committee shall serve at the pleasure of the Board. All action of the
executive committee shall be reported to the Board at its next meeting.
3.2 Other Committees. The Board, by resolution adopted by a majority
of the entire Board, may designate other committees of one or more directors,
which shall serve at the Board's pleasure and have such powers and duties as the
Board determines.
3.3 Rules Applicable to Committees. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In case of the absence
or disqualification of any member of a committee, the member or members present
at a meeting of the committee and not disqualified, whether or not a quorum, may
unanimously appoint another director to act at the meeting in place of the
absent or disqualified member. All action of a committee shall be reported to
the Board at its next meeting. Each committee shall adopt rules of procedure and
shall meet as provided by those rules or by resolutions of the Board.
4. OFFICERS.
4.1 Number; Security. The executive officers of the corporation
shall be the chairman, the president, one or more vice presidents (including an
executive vice president, if the Board so determines), a secretary and a
treasurer. Any two or more offices may be held by the same person. The board may
require any officer, agent or employee to give security for the faithful
performance of his duties.
- 4 -
<PAGE>
4.2 Election; Term of Office. The executive officers of the
corporation shall be elected annually by the Board, and each such officer shall
hold office until the next annual meeting of the Board and until the election of
his successor, subject to the provisions of section 4.4.
4.3 Subordinate Officers. The Board may appoint subordinate officers
(including assistant secretaries and assistant treasurers), agents or employees,
each of whom shall hold office for such period and have such powers and duties
as the Board determines. The Board may delegate to any executive officer or
committee the power to appoint and define the powers and duties of any
subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer may resign at
any time by delivering his resignation in writing to the president or secretary
of the corporation, to take effect at the time specified in the resignation; the
acceptance of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any officer elected or appointed by the Board or
appointed by an executive officer or by a committee may be removed by the Board
either with or without cause, and in the case of an officer appointed by an
executive officer or by a committee, by the officer or committee that appointed
him or by the president or the chairman.
4.5 Vacancies. A vacancy in any office may be filled for the
unexpired term in the manner prescribed in sections 4.2 and 4.3 for election or
appointment to the office.
4.6 The President. The president shall be the chief executive
officer of the corporation. Subject to the control of the Board, he shall have
general supervision over the business of the corporation and shall have such
other powers and duties as presidents of corporations usually have or as the
Board assigns to him.
4.7 Vice President. Each vice president shall have such powers and
duties as the Board or the president assigns to him.
4.8 The Treasurer. The treasurer shall be the chief financial
officer of the corporation and shall be in charge of the corporation's books and
accounts. Subject to the control of the Board, he shall have such other powers
and duties as the Board or the president assigns to him.
4.9 The Secretary. The secretary shall be the secretary of, and keep
the minutes of, all meetings of the Board and the stockholders, shall be
responsible for giving notice of all meetings of stockholders and the Board, and
shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
powers and duties as the Board or the president assigns to him. In the absence
of the secretary from any meeting, the minutes shall be kept by the person
appointed for that purpose by the presiding officer.
4.10 Salaries. The Board may fix the officers' salaries, if any, or
it may authorize the president or the chairman to fix the salary of any other
officer.
- 5 -
<PAGE>
5. SHARES.
5.1 Certificates. The corporation's shares shall be represented by
certificates in the form approved by the Board. Each certificate shall be signed
by the president or a vice president, and by the secretary or an assistant
secretary or the treasurer or an assistant treasurer, and shall be sealed with
the corporation's seal or a facsimile of the seal. Any or all of the signatures
on the certificate may be a facsimile.
5.2 Transfers. Shares shall be transferable only on the
corporation's books, upon surrender of the certificate for the shares, properly
endorsed. The Board may require satisfactory surety before issuing a new
certificate to replace a certificate claimed to have been lost or destroyed.
5.3 Determination of Stockholders of Record. The Board may fix, in
advance, a date as the record date for the determination of stockholders
entitled to notice of or to vote at any meeting of the stockholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 60 or fewer than 10 days
before the date of the meeting or more than 60 days before any other action.
6. INDEMNIFICATION AND INSURANCE.
6.1 Right to Indemnification. Each person who was or is a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person of whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action or inaction in an
official capacity or in any other capacity while serving as director, officer,
employee or agent, shall be indemnified and held harmless by the corporation to
the fullest extent permitted by the General Corporation Law of Delaware, as
amended from time to time, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and that indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his heirs, executors and administrators;
provided, however, that, except as provided in section 6.2, the corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by that person, only if that proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in these by-laws shall be a contract right and shall include the right
to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
General Corporation Law of Delaware, as amended from time to time, requires, the
payment of such expenses incurred by a director or officer in his capacity as a
- 6 -
<PAGE>
director or officer (and not in any other capacity in which service was or is
rendered by that person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced, if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under these by-laws or otherwise. The
corporation may, by action of its Board, provide indemnification to employees
and agents of the corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
6.2 Right of Claimant to Bring Suit. If a claim under section 6.1 is
not paid in full by the corporation within 30 days after a written claim has
been received by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant also shall be entitled to be paid
the expense of prosecuting that claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition, where the required
undertaking, if any, is required and has been tendered to the corporation) that
the claimant has failed to meet a standard of conduct that makes it permissible
under Delaware law for the corporation to indemnify the claimant for the amount
claimed. Neither the failure of the corporation (including its Board, its
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
permissible in the circumstances because he has met that standard of conduct,
nor an actual determination by the corporation (including its Board, its
independent counsel or its stockholders) that the claimant has not met that
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has failed to meet that standard of conduct.
6.3 Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this section 6 shall not be exclusive of any other
right any person may have or hereafter acquire under any statute, provision of
the certificate of incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
6.4 Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against that expense,
liability or loss under Delaware law.
6.5 Expenses as a Witness. To the extent any director, officer,
employee or agent of the corporation is by reason of such position, or a
position with another entity at the request of the corporation, a witness in any
action, suit or proceeding, he shall be indemnified against all costs and
expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
- 7 -
<PAGE>
6.6 Indemnity Agreements. The corporation may enter into agreement
with any director, officer, employee or agent of the corporation providing for
indemnification to the fullest extent permitted by Delaware law.
7. MISCELLANEOUS.
7.1 Seal. The Board shall adopt a corporate seal, which shall be in
the form of a circle and shall bear the corporation's name and the year and
state in which it was incorporated.
7.2 Fiscal Year. The Board may determine the corporation's fiscal
year. Until changed by the Board, the last day of the corporation's fiscal year
shall be January 31.
7.3 Voting of Shares in Other Corporations. Shares in other
corporations held by the corporation may be represented and voted by an officer
of this corporation or by a proxy or proxies appointed by one of them. The Board
may, however, appoint some other person to vote the shares.
7.4 Amendments. By-laws may be amended, repealed or adopted by the
stockholders.
- 8 -
FORM OF INTERCOMPANY SERVICES AGREEMENT
This Services Agreement (this "Agreement") is being entered into as of the
___ day of __ __________, 1999 and is entered into by and between dELiA*s Inc.,
a Delaware corporation ("dELiA*s"), and iTurf Inc., a Delaware corporation
("iTurf").
RECITALS
A. iTurf is currently a wholly-owned subsidiary of dELiA*s and obtains
various corporate, administrative and other services from dELiA*s;
B. iTurf is considering an initial public offering of its common stock
("IPO");
C. After the IPO, iTurf desires to continue to obtain various
corporate, administrative and other services ("Services") from
dELiA*s, and dELiA*s desires to continue to provide such Services
following the closing date of the IPO.
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
Section 1. Services.
dELiA*s or, at its option, its subsidiaries (other than iTurf and
its subsidiaries) shall render to iTurf the following Services in accordance
with the terms of this Agreement:
(a) Corporate Services. dELiA*s shall provide, directly or through
its subsidiaries, the services described on Exhibit A hereto, at the cost
specified and on the other terms and conditions set forth on Exhibit A.
(b) Fulfillment Services. dELiA*s shall provide, directly or through
its subsidiaries, the services described on Exhibit B hereto, at the cost
specified and on the other terms and conditions set forth on Exhibit B.
(c) Supply Services. iTurf shall have the right to purchase from
dELiA*s, and dELiA*s shall sell goods to iTurf solely for resale through the
channels approved under the Trademark License and Customer List Agreement on and
subject to the terms of Exhibit C hereto.
(d) Advertising Services. dELiA*s shall provide, directly or through
its subsidiaries, the services described on Exhibit D hereto, at the cost
specified and on the other terms and conditions set forth on Exhibit D.
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(e) Space Sharing. dELiA*s may make certain office space available
to iTurf at the cost specified and the other terms and conditions set forth on
Exhibit E.
(f) In the event that iTurf requires services that exceed the scope
or extent of the Services provided for herein, and if dELiA*s agrees to provide
such services, dELiA*s and iTurf shall negotiate in good faith the terms and
conditions, including price, under which dELiA*s shall provide such Services;
provided, however, that the fee payable by iTurf for such Services shall be no
less favorable to iTurf than the charges for comparable services from
unaffiliated third parties.
Section 2. Compensation.
iTurf shall pay to dELiA*s when due a fee for each of the Services
equal to the amount described in the appropriate Exhibit hereto relating to such
Service, provided that in the event iTurf terminates any Service in accordance
with Section 3 hereof, the fee for such Service shall no longer be payable
following the effective date of such termination. Late payments shall accrue
interest at a rate equal to the prime rate announced from time to time by First
Union National Bank plus 300 basis points.
Section 3. Term.
(a) The term of this Agreement shall begin on the date of the closing of
the IPO (the "Effective Date") and shall continue for an indefinite period in
full force and effect until it is terminated in accordance with this Section 3.
(b) dELiA*s shall have the right (but not the obligation) to terminate
immediately this Agreement:
(i) if iTurf is in material breach of any of its obligations or
representations hereunder, which breach is not cured within
(twenty) 20 days of receipt of written notice from dELiA*s of
such breach,
(ii) iTurf is the subject of a voluntary petition in bankruptcy or
any voluntary proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors, if
such petition or proceeding is not dismissed within sixty (60)
days of filing, or becomes the subject of any involuntary
petition in bankruptcy or any involuntary proceeding relating
to insolvency, receivership, liquidation, or composition for
the benefit of creditors, if such petition or proceeding is
not dismissed within sixty (60) days of filing,
(iii) if the business of iTurf is liquidated or otherwise terminated
for insolvency or any other basis, or
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(iv) if iTurf becomes insolvent or unable to pay its debts as they
mature or makes an assignment for the benefit of its
creditors.
(c) iTurf shall have the right (but not the obligation) to terminate
immediately this Agreement:
(i) if dELiA*s is in material breach of any of its obligations or
representations hereunder, which breach is not cured within
(twenty) 20 days of receipt of written notice from iTurf of
such breach,
(ii) dELiA*s is the subject of a voluntary petition in bankruptcy
or any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed
within sixty (60) days of filing, or becomes the subject of
any involuntary petition in bankruptcy or any involuntary
proceeding relating to insolvency, receivership, liquidation,
or composition for the benefit of creditors, if such petition
or proceeding is not dismissed within sixty (60) days of
filing,
(iii) if the business of dELiA*s is liquidated or otherwise
terminated for insolvency or any other basis, or
(iv) if dELiA*s becomes insolvent or unable to pay its debts as
they mature or makes an assignment for the benefit of its
creditors.
(d) dELiA*s shall have the right (but not the obligation) to terminate
this Agreement and the rights granted to iTurf hereunder, upon (ninety) 90 days
written notice to iTurf, following the acquisition of the direct or beneficial
ownership of 20% or more of the voting power represented by the voting
securities of iTurf by any person other than an affiliate of dELiA*s or a
Strategic Partner. For purposes of this Agreement, (i) the term "beneficial
ownership" shall have the meaning set forth in Section 13(d) of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder,
(ii) the term "voting securities" shall mean the Class A common stock and Class
B common stock of iTurf and any other securities issued by iTurf having the
power to vote in the election of directors of iTurf, including without
limitation any securities having such power only upon the occurrence of a
default or any other extraordinary contingency, and (iii) the term "Strategic
Partner" has the meaning given to it in iTurf's Restated Certificate of
Incorporation filed with the Secretary of State of Delaware on ________, 1999.
For purposes of this Section 3, an acquisition shall not include the acquisition
by a person of voting securities of iTurf pursuant to an involuntary disposition
by dELiA*s through foreclosure or similar event, but shall include a subsequent
acquisition of voting securities pursuant to a disposition by the person that
acquired the voting securities in such involuntary disposition.
(e) A party may exercise its right to terminate pursuant to this Section 3
by sending appropriate notice to the other party. No exercise by a party of its
rights under this Section 3 will
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limit its remedies by reason of the other party's default, the party's rights to
exercise any other rights under this Section 3, or any of that party's other
rights.
Section 4. Records and Accounts.
dELiA*s shall maintain accurate books, records and accounts of all
transactions relating to the Services performed by it pursuant to this
Agreement. iTurf may, at its own expense, examine and copy those books and
records as provided in this Section 4. Such books, records and accounts shall be
maintained separately from dELiA*s own records and accounts and shall reflect
such information as would normally be examined by an independent accountant in
performing an audit pursuant to United States generally accepted auditing
standards for the purpose of certifying financial statements, and to permit
verification thereof by governmental agencies. iTurf may make those examinations
only during dELiA*s usual business hours, and at the place where it keeps the
books and records. iTurf will be required to notify dELiA*s at least ten (10)
days before the date of planned examination. If iTurf's examination is not
completed within two months from commencement, dELiA*s may require iTurf to
terminate it on seven (7) days' notice to iTurf at any time, provided that
dELiA*s has cooperated with iTurf in the examination of such books and records.
Section 5. Directors and Officers of dELiA*s.
Nothing in this Agreement shall limit or restrict the right of any
of dELiA*s directors, officers or employees to engage in any other business or
devote their time and attention in part to the management or other aspects of
any other business, whether of a similar nature, or to limit or restrict the
right of dELiA*s to engage in any other business or to render services of any
kind to any corporation, firm, individual, trust or association.
Section 6. Independent Contractor.
dELiA*s is an independent contractor and when its employees act
under the terms of this Agreement, they shall be deemed at al times to be under
the supervision and responsibility of dELiA*s; and no person employed by dELiA*s
and acting under the terms of this Agreement shall be deemed to be acting as
agent or employee of iTurf or any customer of iTurf for any purpose whatsoever.
Section 7. Other Agreements.
From time to time, iTurf may find it necessary or desirable either to
enter into agreements covering services of the type contemplated by this
Agreement to be provided by parties other than dELiA*s or to enter into other
agreements covering functions to be performed by dELiA*s hereunder. Nothing in
this Agreement shall be deemed to limit in any way the right of iTurf to acquire
such services from others or to enter into such other agreements.
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Section 8. Confidentiality.
dELiA*s agrees to hold in strict confidence, and to use reasonable efforts
to cause its employees and representatives to hold in strict confidence (a) all
confidential information concerning iTurf furnished to or obtained by dELiA*s in
the course of providing the Services except to the extent that such information
has been in the public domain through no fault of dELiA*s (b) disclosure or
release is compelled by judicial or administrative process, or (c) in the
opinion of counsel to dELiA*s, disclosure or release is necessary pursuant to
requirements of law or the requirements of any governmental entity including,
without limitation, disclosure requirements under the Securities Exchange Act of
1934, as amended.
Section 9. Miscellaneous.
(a) Neither party may assign this Agreement, or their respective
rights and obligations hereunder, in whole or in part without the other party's
prior written consent. Any attempt to assign this Agreement without such consent
shall be void and of no effect ab initio. Notwithstanding the foregoing, either
party may assign this Agreement or any of its rights and obligations hereunder
to any entity controlled by it or to any entity that acquires it by purchase of
stock or by merger or otherwise, or by obtaining substantially all of its assets
(a "Permitted Assignee"), provided that any such Permitted Assignee, or any
division thereof, thereafter succeeds to all of the rights and is subject to all
of the obligations of dELiA*s under this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York applicable to agreements made
and to be performed entirely within such State, without regard to the conflicts
of law principles of such State. Each party shall comply in all respects with
all laws and regulations applicable to its activities under this Agreement.
(c) Each party hereto irrevocably submits to the exclusive
jurisdiction of (a) the Supreme Court of the State of New York, New York County,
or (b) the United States District Court for the Southern District of New York,
for the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby or thereby. Each of dELiA*s and
iTurf agrees to commence any such action, suit or proceeding either in the
United States District Court for the Southern District of New York or if such
suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of dELiA*s and iTurf further agrees that service of any process,
summons, notice or documents by U.S. registered mail to such party's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in New York with respect to any maters to which it has
submitted to jurisdiction in this Section 9(c). Each of dELiA*s and iTurf
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby and thereby in (i) the Supreme Court of the State of New
York, New York County, or (ii) the United States District Court for the Southern
District of New York, and hereby and thereby further irrevocably and
unconditionally waives and agrees not to
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plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
(d) If any provision of this Agreement (or any portion thereof) or
the application of any such provision (or any portion thereof) to any person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof (or the remaining portion thereof)
or the application of such provision to any other persons or circumstances.
(e) All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
(i) if to iTurf,
iTurf Inc.
435 Hudson Street
New York, NY 10014
Attention: President
(ii) if to dELiA*s,
dELiA*s Inc.
435 Hudson Street
New York, New York 10014
Attention: President
(f) The provisions of Section 9 hereof shall survive any termination
of this Agreement.
(g) The parties to this Agreement are independent contractors. There
is no relationship of partnership, joint venture, employment, franchise, or
agency between the parties. Neither party shall have the power to bind the other
or incur obligations on the other's behalf without the other's prior written
consent.
(h) No failure of either party to exercise or enforce any of its
rights under this Agreement shall act as a waiver of such right.
(i) This Agreement, along with the Exhibits hereto, contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. Neither
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party shall be liable or bound to any other party in any manner by any
representations, warranties or covenants relating to such subject matter except
as specifically set forth herein.
(j) This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each of the
parties and delivered to each of the other parties.
(k) This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto; provided, however, that
as long as dELiA*s has direct or beneficial ownership of 30% or more of the
voting power represented by the voting securities of iTurf and no other person
directly or beneficially owns a greater percentage of such voting power, no
amendment of a material term or waiver of a material obligation of this
Agreement shall be valid unless it has been approved by a majority of the
members of the board of directors of iTurf, who are not directors or officers of
dELiA*s or the beneficial owners of five percent or more of the outstanding
voting securities of dELiA*s.
(l) This Agreement is for the sole benefit of the parties hereto and
nothing herein expressed or implied shall give or be construed to give to any
person, other than the parties hereto any legal or equitable rights hereunder.
(m) The headings contained in this Agreement or in any Exhibit
hereto are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All Exhibits annexed hereto or
referred to herein are hereby incorporated in and made a part of this Agreement
as if set forth in full herein. Any capitalized terms used in any Exhibit but
not otherwise defined therein, shall have the meaning as defined in this
Agreement. When a reference is made in this Agreement to a Section or an
Exhibit, such reference shall be to a Section of, or an Exhibit to, this
Agreement unless otherwise indicated.
[SIGNATURE PAGE FOLLOWS]
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[SIGNATURE PAGE TO INTERCOMPANY SERVICES AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
dELiA*s Inc.
By:_____________________________________________
Name:
Title:
iTurf Inc.
By:_____________________________________________
Name:
Title:
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EXHIBIT A
CORPORATE SERVICES: dELiA*s shall provide, by itself or through its
subsidiaries, the services described below.
(a) Scope of Services: All services currently provided by dELiA*s and its
subsidiaries to iTurf (other than the Fulfillment
Services described in Exhibit B, including,
without limitation merchandising, inventory
management, creative, marketing, technical, human
resources, finance, accounting, administrative and
legal services, as well as services required by
iTurf by virtue of its status as an issuer subject
to reporting requirements under the federal
securities laws. Notwithstanding the foregoing,
the scope of services provided may not increase
from one year to the next.
(b) Quality of Services: At least equal to the quality of services being
provided prior to the effectiveness of the
agreement.
(c) Price: The price paid by iTurf will be at 105% of dELiA*s
cost.
(d) Payment and Accounting: dELiA*s shall invoice iTurf within 45 days of the
end of each fiscal quarter for services rendered
in such fiscal quarter. iTurf shall pay such
invoice within 30 days of receipt.
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EXHIBIT B
FULFILLMENT SERVICES: dELiA*s shall provide, by itself or through its
subsidiaries the services described below.
(a) Scope of Services: Receiving, quality control, storage, picking,
packing, shipping of inventory to customers and
processing of customer returns.
(b) Consideration: iTurf shall pay dELiA*s an amount equal to the
product of dELiA*s Average Warehouse Cost Per
Package Shipped multiplied by the Number of
Packages Shipped by iTurf multiplied by 105%.
"dELiA*s Average Warehouse Cost Per Package
Shipped" includes all warehouse costs, including
the cost of receiving inventory, quality control,
storage, picking, packing, shipping, returns
processing and overhead costs including rent, CAM,
depreciation and other operating and
administrative costs.
(c) Postage: iTurf shall be directly responsible for third
party shipping costs (e.g., USPS, FedEx, UPS).
(d) Supplies: iTurf shall be directly responsible for the cost
of all shipping and packaging supplies unique to
its business.
(e) Quality of Services: A level at least equal to the quality of services
being provided by dELiA*s to iTurf prior to the
effectiveness of the agreement.
(f) Payment and Accounting: dELiA*s shall invoice iTurf within 45 days of the
end of each fiscal quarter for services rendered
in such fiscal quarter. iTurf shall pay such
invoice within 30 days of receipt.
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EXHIBIT C
INVENTORY SUPPLY: iTurf may purchase inventory from dELiA*s and its
subsidiaries solely for resale through the
channels approved under the Trademark License and
Customer List Agreement between the parties hereto
on the following
terms.
(a) Price: The lesser of:
(a) 105% multiplied by (the cost of goods
+ in-bound freight + all other direct
costs charged to dELiA*s by its
supplier, e.g., screening or
labeling), and
(b) "dELiA*s Best Available Resale Price"
Such lesser price is referred to herein as the
"Intercompany Sales Price."
"dELiA*s Best Available Resale Price" means that
price stated by a senior member of dELiA*s
inventory department as the highest price at which
dELiA*s believes in good faith it could resell the
particular inventory, whether through dELiA*s
catalogs (premium or sales), dELiA*s-owned retail
stores, third party liquidators or other channels.
(b) Terms: Net seven (7) days.
(c) Returns: iTurf shall have the right to sell to dELiA*s, and
dELiA*s shall have the obligation to purchase from
iTurf, any inventory originally purchased by iTurf
from dELiA*s and subsequently shipped to and then
returned to iTurf by customers of iTurf. The
purchase price for such inventory shall be equal
to the Intercompany Sales Price for such inventory
decreased by an amount equal to any reserves
(whether or obsolescence, damages or otherwise)
taken by dELiA*s with respect to such inventory in
accordance with GAAP.
(d) Projections: iTurf will provide dELiA*s twice-annually with its
best projections of sales for the next six months,
broken down monthly by category. iTurf will update
these projections each month. dELiA*s will use
best efforts to meet the
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anticipated demand for dELiA*s inventory generated
by iTurf in accordance with the projections.
(e) Closeout Inventory: In addition to the foregoing, iTurf shall have the
right but not the obligation to purchase from
dELiA*s up to $300,000 each fiscal year of
closeout inventory (valued at dELiA*s cost) for
the lesser of (i) the Intercompany Sale Price or
(ii) 33 1/3% of dELiA*s cost, such closeout
inventory to be selected by dELiA*s.
(f) Minimum Resale Prices: iTurf may not, without dELiA*s consent, resell any
inventory purchased from dELiA*s at less than the
lesser of (i) 10% below dELiA*s suggested retail
price or (ii) 140% of the Intercompany Sales
Price.
(g) Other: All vendor warranties with respect to inventory
purchased by iTurf hereunder are hereby assigned
to iTurf.
(h) No Contact: iTurf may not, directly or indirectly, contact
any of the dELiA*s merchandise vendors without the
prior consent of dELiA*s.
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EXHIBIT D
ADVERTISING SERVICES: Subject to the Minimum Advertising Commitment,
iTurf may at its option purchase advertising from
dELiA*s as follows.
(a) Cost: $40 cost per thousand catalogs distributed in
fiscal 1999 for the "Minimum Advertising Space"
set forth below.
(b) Minimum Advertising
Space: The amount of space allocated to the above
advertising shall be not less than the following:
- A web site URL shall be featured on
substantially all of the pages as an ordering
method.
- At least 1 square inch on the cover of each
catalog.
- A bind-in card or similar promotion in each
catalog.
- 15 square inches on the dELiA*s catalog order
form.
(c) Minimum Advertising
Commitment: iTurf is obligated to purchase advertising space
in at least 50 percent of dELiA*s catalogs
distributed each fiscal year.
(d) Failure to Meet
Minimum Performance
Standards: In the event dELiA*s delivers less than the
Minimum Advertising Space set forth above in a
material number catalogs, iTurf shall be relieved
of all obligations hereunder in that fiscal year.
(e) Additional Advertising: In addition, iTurf may purchase the following
advertising from dELiA*s based on dELiA*s
advertising rate card then in effect less a 20%
discount:
- additional advertising in dELiA*s catalog pages.
- bounceback flyer in every customer package.
- point of sale displays in dELiA*s-branded retail
stores.
- such other advertising opportunities as dELiA*s
may from time to time develop.
(f) Annual Inflation
Adjustment: All rates shall be adjusted annually by the U.S.
consumer price index (all goods).
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(g) Payment and Accounting: dELiA*s shall invoice iTurf within 45 days of the
end of each fiscal quarter for services rendered
in such fiscal quarter. iTurf shall pay such
invoice within 30 days of receipt.
(h) Projection: By December 1 of each fiscal year, dELiA*s shall
provide iTurf with a projection of catalogs to be
distributed in the in the next fiscal year. By
January 1, iTurf shall provide dELiA*s with
projections of the number of catalogs in the next
fiscal year in which it intends to advertise.
(i) Exclusivity: iTurf shall be the exclusive e-commerce and
Internet community advertiser in dELiA*s catalogs.
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EXHIBIT E
Space Sharing
(a) License to Use Space. During the term of this Agreement, dELiA*s
shall permit iTurf to use a portion of dELiA*s (or any of its subsidiaries')
offices ("dELiA*s Offices") for the purposes permitted under the lease
agreements pursuant to which dELiA*s leases such offices (to the extent such
offices are leased), subject to the terms and conditions set forth in this
Agreement. The space to be used by iTurf shall be as mutually agreed by the
parties from time to time. iTurf's right to use a portion of dELiA*s Offices
shall terminate on the earlier of (i) 90 days after iTurf notifies dELiA*s that
iTurf no longer desires to use any portion of dELiA*s Offices, or (ii) 90 days
after dELiA*s notifies iTurf that iTurf may no longer use any portion of dELiA*s
Offices.
(b) Consideration. So long as iTurf uses any portion of dELiA*s
Offices, iTurf shall pay to dELiA*s on the first day of each calendar month an
amount equal to the product of (X) the lesser of (i) the prevailing market rate
per square foot for similar offices (taking all relevant factors into account,
including location, age of facility and facility amenities) and (ii) the highest
rate per square foot then being paid by dELiA*s (or any of its subsidiaries) for
offices in the metropolitan area in which the specific dELiA*s offices are
located, and (Y) the number of square feet agreed to pursuant to paragraph (a)
above, in each case determined in the same manner as rent is computed under the
relevant lease, or if the offices are owned by dELiA*s, in the same manner as
the parties agree is customary for commercial leases of similar offices.
Payments for any partial calendar month shall be prorated on a per diem basis.
(c) Compliance with Leases. iTurf hereby agrees not to take any
action or fail to take any action in connection with its use of a portion of
dELiA*s Offices a result of which would be dELiA*s violation of any of the terms
and conditions of any lease or other restriction on dELiA*s use of such offices.
iTurf agrees to comply with the terms and provisions of any such leases for
dELiA*s Offices in which it uses space.
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FORM OF TRADEMARK LICENSE AND CUSTOMER LIST AGREEMENT
This Trademark License and Customer List Agreement (this "Agreement") is
being entered into as of the __ day of _______, 1999 and is entered into by and
between dELiA*s Inc., ("dELiA*s"), a Delaware corporation, the subsidiaries of
dELiA*s listed on Exhibit A hereto (the "dELiA*s Subsidiaries," and,
collectively with dELiA*s, "Licensors") and iTurf Inc. ("Licensee" or "iTurf"),
a Delaware corporation.
RECITALS
A. Licensors own or license and use the name(s) and/or trademark(s) and/or
registered trademark(s) set forth in Exhibit A, as it may be amended from
time to time in accordance with this Agreement, together with associated
logos, designs and trade dress (collectively referred to as the "Marks");
B. Licensee engages in direct marketing services on the Internet and performs
other Internet-related services and desires to use the Marks in
furtherance of such activities; and
C. Licensors are willing to permit such use of the Marks under the terms and
conditions set forth in this Agreement.
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS
1.1 "Content" means text, graphics, photographs, video, audio and/or other
data or information containing the Marks.
1.2 "Customer List" means all information (including without limitation
names, addresses, e-mail addresses, transactional histories and demographic
information), held by a Person regarding its customers, users, and potential
customers and users as such information may exist from time to time during the
term of this agreement.
1.3 "Effective Date" means the date on which the initial public offering
of Licensee is completed or such earlier date as the parties hereto shall agree
in writing.
1.4 "Net Sales" means the net sales of Licensee and its subsidiaries
derived from all (i) sales of goods and services under the Marks, including
sales from web sites that are identified by or branded with the Marks, and (ii)
the Applicable Percentage of sales from each web site in the iTurf Network on
which greater than 50% of such sales are of goods obtained from dEliA*s or a
subsidiary thereof, in each case determined in accordance with generally
accepted accounting principles and, if applicable, consistent with reporting
made by Licensee in its periodic quarterly and annual statements required by the
Securities and Exchange Commission.
1.5 "Applicable Percentage" means the percentage of sales from a given web
site in the iTurf Network that is represented by sales of goods obtained from
dELiA*s or a subsidiary thereof.
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1.6 "Intellectual Property Rights" means all inventions, discoveries,
trademarks, patents, trade names, copyrights, moral rights, jingles, know-how,
intellectual property, software, shop rights, licenses, developments, research
data, designs, technology, trade secrets, test procedures, processes, route
lists, computer programs, computer discs, computer tapes, literature, reports
and other confidential information, intellectual and similar intangible property
rights, whether or not patentable or copyrightable (or otherwise subject to
legally enforceable restrictions or protections against unauthorized third party
usage), and any and all applications for, registrations of and extensions,
divisions, renewals and reissuance of, any of the foregoing, and rights therein,
including without limitation (a) rights under any royalty or licensing
agreements, and (b) programming and programming rights, whether on film, tape or
any other medium.
1.7 "Internet" means global network of interconnected computer networks,
each using the Transmission Control Protocol/Internet Protocol and/or such other
standard network interconnection protocols as may be adopted from time to time,
which is used to transmit Content that is directly or indirectly delivered to a
computer or other digital electronic device for display to an end-user, whether
such Content is delivered through on-line browsers, off-line browsers, or
through "push" technology, electronic mail, broadband distribution, satellite,
wireless or otherwise, and any subset of such global network, such as
"intranets."
1.8 "Internet Site" means any site or service delivering Content on or
through the Internet.
1.9 "Person" means any natural person, legal entity, or other organized
group of persons or entities. (All pronouns whether personal or impersonal,
which refer to Person include natural persons and other Persons.)
1.10 "Scope" means on the Internet and similar electronic media, and for
promotional purposes in any media incidental to the foregoing, but excluding
packaged software products such as CD-ROMS (and in any event not in connection
with the sale of any alcoholic beverages, tobacco products, gambling services,
pornographic products and services and other goods and services inappropriate
for minors).
1.11 "iTurf Network" means any Internet Sites owned or controlled by
Licensee.
1.12 "Related Content" means copyrightable work owned or controlled by a
Licensor and used by such Licensor in connection with its Marks.
2. LICENSE
2.1 Each Licensor hereby grants to Licensee, during the Term (as defined
in Section 3.1) of this Agreement and subject to the terms and conditions
contained herein, an exclusive, nontransferable license, and shall not grant a
license or authorize another to license any Person, to use and reproduce the
Marks set forth beside its name on Exhibit A and all Related Content owned or
controlled by such Licensor in conjunction with Licensee's (a) marketing or sale
of products and services and (b) use on community web pages, worldwide, solely
within the Scope contemplated by this Agreement. Nothing in this Agreement
grants Licensee ownership or other rights in or to the Marks or Related Content,
except in accordance with and to the extent of this license. This
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Section 2.1 shall not be construed to prohibit the use of any Mark and Related
Content by dELiA*s, its divisions, business units, affiliates and subsidiaries
outside the Scope.
2.2 Each Licensor shall have the right to demand the withdrawal of any
Content from the web pages on the iTurf Network on which the Marks and Related
Content it licenses appear which in such Licensor's sole opinion conflicts with,
interferes with or is detrimental to such Licensor's interests, reputation or
business or which might subject such Licensor to unfavorable regulatory action,
violate any law, infringe the rights of any Person, or subject such Licensor to
liability for any reason. Upon notice from such Licensor to withdraw any
Content, Licensee shall, in its discretion, either (a) cease using any such
Content on such web pages or (b) remove the Marks and Related Content from such
web pages, in either case as soon as commercially and technically feasible, but
in any event within three (3) days after the date of such Licensor's notice. If
Licensee cannot cease using such Content or remove such Marks and Related
Content, as the case may be, within twenty-four (24) hours, Licensee will so
notify such Licensor detailing why the cessation or removal cannot be effected
within twenty-four (24) hours and when the cessation or removal will be
effected, subject to the terms of the preceding sentence.
3. TERM
3.1 The term of this Agreement shall begin on the Effective Date and shall
continue for an indefinite period in full force and effect until it is
terminated in accordance with this Article 3.
3.2 Each Licensor shall have the right (but not the obligation) to
terminate immediately the licence(s) it has granted under this Agreement:
(a) if Licensee is in material breach of any of its obligations or
representations hereunder, which breach is not cured within 20 days of receipt
of written notice from such Licensor of such breach; provided, however, that no
Licensor shall have a right to terminate this Agreement based on a breach by
Licensee of Sections 9.2(iv), 9.2(v) or 11.3 unless such breach arises out of
the gross negligence or willful misconduct of Licensee and the conduct
constituting the breach has not ceased within such 20-day period,
(b) if Licensee is the subject of a voluntary petition in bankruptcy
or any voluntary proceeding relating to insolvency, receivership, liquidation,
or composition for the benefit of creditors, if such petition or proceeding is
not dismissed within sixty (60) days of filing; or (iii) becomes the subject of
any involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within sixty (60)
days of filing,
(c) if the business of the Licensee is liquidated or otherwise
terminated for insolvency or any other basis,
(d) if Licensee becomes insolvent or unable to pay its debts as they
mature or makes an assignment for the benefit of its creditors.
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3.3 Licensee shall have the right (but not the obligation) to terminate
immediately this Agreement:
(a) if any Licensor is in material breach of any of its obligations
or representations hereunder, which breach is not cured within 20 days of
receipt of written notice from Licensee of such breach,
(b) if any Licensor is the subject of a voluntary petition in
bankruptcy or any voluntary proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors, if such petition or
proceeding is not dismissed within sixty (60) days of filing, or becomes the
subject of any involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing,
(c) if the business of any Licensor is liquidated or otherwise
terminated for insolvency or any other basis,
(d) if any Licensor becomes insolvent or unable to pay its debts as
they mature or makes an assignment for the benefit of its creditors.
3.4 Each Licensor shall have the right (but not the obligation) to
terminate the rights granted to Licensee hereunder, upon 90 days written notice
to Licensee, following the acquisition of the direct or beneficial ownership of
20% or more of the voting power represented by the voting securities of Licensee
by any Person other than an affiliate of dELiA*s or a Strategic Partner. For
purposes of this Agreement, (i) the term beneficial ownership shall have the
meaning set forth in Section 13(d) of the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder, (ii) the term voting
securities shall mean the Class A common stock and Class B common stock of
Licensee and any other securities issued by Licensee having the power to vote in
the election of directors of Licensee, including without limitation any
securities having such power only upon the occurrence of a default or any other
extraordinary contingency, and (iii) "Strategic Partner" has the meaning given
to it in Licensee's Restated Certificate of Incorporation filed with the
Secretary of State of Delaware on ________, 1999. For purposes of this Section
3.4, an acquisition shall not include the acquisition by a Person of voting
securities of Licensee pursuant to an involuntary disposition by dELiA*s through
foreclosure or similar event, but shall include a subsequent acquisition of
voting securities pursuant to a disposition by the Person that acquired the
voting securities in such involuntary disposition.
3.5 A party may exercise its right to terminate pursuant to this Article 3
by sending appropriate notice to the other party. No exercise by a party of its
rights under this Article 3 will limit its remedies by reason of the other
party's default, the party's rights to exercise any other rights under this
Article 3, or any of that party's other rights.
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4. TRADEMARKS
4.1 (a) The parties acknowledge that the Marks are trademarks owned or
controlled by the respective Licensors and that all goodwill generated by
Licensee's use of the Marks shall inure to such Licensor's benefit or to the
benefit of the Marks' owner, as the case may be. Nothing contained herein shall
constitute an assignment of the marks or grant to the Licensee any right, title
or interest therein, except as specifically set forth herein. Licensee shall
maintain such Licensor's quality standards with respect to its use of the Marks,
and otherwise use the Marks subject to any restrictions or requirements
disclosed by the Licensor of such Marks.
(b) In the event that during the term of this Agreement Licensee
shall create any proprietary right in any Marks, as a result of the exercise by
Licensee of any right granted to it hereunder, such proprietary right shall
immediately vest in the Licensor of such Mark and Licensee shall be authorized
to use such new proprietary right as though same had specifically been included
in this Agreement.
4.2 (a) Licensee shall not file any application in any country to register
a trademark which is the same as, similar to, or misleading with respect to the
Marks or any other trademark of Licensors. If any application for registration
is filed in any country by Licensee in contravention of this paragraph 4.2, the
applicable Licensor shall have the right to take appropriate action against
Licensee, including seeking injunctive relief, to prohibit or otherwise restrain
Licensee's use of the infringing mark.
(b) Licensee shall furnish each Licensor proofs of all materials
bearing any Marks licensed hereunder by such Licensor (including, without
limitation, advertising and publicity materials). Licensee will not authorize
full scale production of any such material until after obtaining such Licensor's
approval in each instance. Any changes in such material shall also be subject to
such Licensor's prior approval. Approval by a Licensor shall not relieve
Licensee of any of its warranties or obligations under this Agreement and all
materials that bear any Marks shall strictly conform with the samples and proofs
approved by the applicable Licensors. Samples and materials to be approved by
dELiA*s shall be submitted to such person that may be designated in writing by
dELiA*s.
4.3 In the event that Licensee learns of any infringement, threatened
infringement, or passing off of the trademarks or logos licensed for use
under this Agreement, or that any Person claims or alleges that the such
trademarks or logos are liable to cause deception or confusion to the public,
then Licensee shall notify the applicable Licensor of the particulars thereof.
4.4 Upon the expiration or termination of this Agreement, Licensee shall
cease all use of the Marks and Related Content, as soon as commercially and
technically practicable, and shall remove or erase the Marks and Related Content
from the iTurf Network, and from any advertising and promotional materials, as
soon as commercially and technically practicable, given customary Internet
business practices, but in no event shall any such material remain on the iTurf
Network more than thirty (30) days after expiration or notice of termination, as
applicable, and at the applicable Licensor's request, Licensee shall certify in
writing to each Licensor such removal or erasure.
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4.5 The Licensee shall cause the trademark notice "(R)" or "(TM)" and/or
the legend: "[Trademark] is a trademark of [the applicable Licensor] and is
used under license" and/or such other legend as requested by the applicable
Licensor from time to time, to appear on promotional materials and, to the
extent consistent with general Internet practices, on or in connection with
services provided by Licensee.
5. CUSTOMER LISTS
5.1 Subject to applicable law, Licensee and dELiA*s shall provide each
other with access on a royalty-free basis to their respective Customer Lists in
machine-readable form from time to time to be used for any reasonable business
purpose other than the marketing to minors of alcoholic, pornographic, tobacco
or gambling products or services.
5.2 Neither Licensee nor dELiA*s shall disclose, sell, lease, rent the
other party's Customer List to any third party without the written consent of
the other party, except that for a period ending on the third anniversary of the
Effective Date dELiA*s may lease or rent Licensee's Customer Lists (but
excluding email addresses) to third parties that are not direct competitors of
Licensee.
6. OWNERSHIP
6.1 (a) As between the Licensor and Licensee: the Licensor is or shall be
the exclusive owner of and shall retain all right, title and interest to the
Marks set forth beside such Licensor's name on Exhibit A, including all
Intellectual Property Rights therein (the "dELiA*s Property").
(b) Licensee is the exclusive owner of and shall retain all right,
title and interest to the iTurf Network and all Intellectual Property Rights
therein, excluding the dELiA*s Property.
6.2 Each party agrees to take all action and cooperate as is reasonably
necessary, at the other party's request and expense, to protect the other's
respective rights, titles, and interests specified in this Article 6, and
further agrees to execute any documents that might be necessary to perfect each
party's ownership of such rights, titles, and interests.
7. COMPENSATION
In consideration of the rights herein granted, Licensee shall pay each
Licensor a royalty equal to 5% of Net Sales associated with the Marks licensed
by such Licensor, provided that aggregate royalty payments hereunder shall not
exceed 5% of all Net Sales.
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8. ACCOUNTINGS
8.1 Licensee will compute Net Sales as of each April 30, July 31, October
31 and January 31 for the prior three (3) months. Within sixty (60) days after
the fourth quarterly period and within sixty (60) days after each of the first
three (3) quarterly periods concerned, Licensee will deliver to each Licensor a
statement covering Net Sales due such Licensor and will pay such Licensor the
royalty amount as computed in accordance with Article 7. Acceptance by a
Licensor of any statement or payment shall not preclude the Licensor from
challenging the accuracy thereof.
8.2 Licensee will maintain accurate books and records which report the
recognition of Net Sales. Each Licensor may, at its own expenses, examine and
copy those books and records, as provided in this paragraph. Each Licensor may
make such an examination for a particular statement within three (3) years after
the date when Licensee sends each Licensor the statement concerned. The
Licensors may make those examinations only during Licensee's usual business
hours, and at the place where it keeps the books and records. Each Licensor will
be required to notify Licensee at least ten (10) days before the date of planned
examination. If an examination has not been completed within two months from
commencement, Licensee may require the applicable Licensor to terminate it on
seven (7) days notice to such Licensor at any time, provided that Licensee has
cooperated with such Licensor in the examination of such books and records.
9. WARRANTIES; REPRESENTATIONS
9.1 Each Licensor represents and warrants that:
(i) it has full power and authority to enter into this Agreement;
(ii) it either owns or has a valid license to use the Marks and
Related Content licensed by it hereunder and has sufficient
right and authority to grant to Licensee all licenses and
rights granted by such Licensor hereunder;
(iii) the Marks and Related Content licensed by it hereunder and the
use thereof as permitted pursuant to this Agreement will not
violate any law or infringe upon or violate any rights of any
Person;
(iv) the execution, delivery and performance by such Licensor of
this Agreement will not conflict with, or result in a breach
or termination of or constitute a default under, any lease,
agreement, commitment or other instrument to which such
Licensor is a party; and
(v) this Agreement constitutes the valid and binding obligations
of such Licensor enforceable against it in accordance with its
terms.
9.2 Licensee represents and warrants that:
(i) it owns or controls all right, title, and interest in and to
the iTurf Network and all Intellectual Property Rights
therein, necessary to carry out its obligations hereunder;
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(ii) it is has the full power and authority to enter into and fully
perform this Agreement;
(iii) this Agreement constitutes the valid and binding obligations
of Licensee enforceable against it in accordance with its
terms;
(iv) the iTurf Network, any iTurf Network content and any content
developed or furnished by Licensee hereunder and the use
thereof will not infringe upon or violate any rights of any
Person; and
(v) the iTurf Network will be advertised, distributed, transmitted
and licensed in compliance with all applicable federal, state,
local and foreign laws and in a manner that will not reflect
adversely on any Licensor.
10. NON-COMPETITION
The parties hereto hereby agree to the terms contained in Exhibit B.
11. GENERAL
11.1 Neither the Licensors (or any of them) nor Licensee may assign this
Agreement, or its respective rights and obligations hereunder, in whole or in
part without the other party's prior written consent. Any attempt to assign this
Agreement without such consent shall be void and of no effect ab initio.
Notwithstanding the foregoing, any party may assign this Agreement or any of its
rights and obligations hereunder to any entity controlled by it or to any entity
that acquires it by purchase of stock or by merger or otherwise, or by obtaining
substantially all of its assets (a "Permitted Assignee"), provided that any such
Permitted Assignee, or any division thereof, thereafter succeeds to all of the
rights and is subject to all of the obligations of the assignor under this
Agreement.
11.2 Each party hereto irrevocably submits to the exclusive jurisdiction
of (a) the Supreme Court of the State of New York, New York County, or (b) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby or thereby. Each party
agrees to commence any such action, suit or proceeding either in the United
States District Court for the Southern District of New York or if such suit,
action or other proceeding may not be brought in such court for jurisdictional
reasons, in the Supreme Court of the State of New York, New York County. Each
party further agrees that service of any process, summons, notice or documents
by U.S. registered mail to such party's respective address set forth above shall
be effective service of process for any action, suit or proceeding in New York
with respect to any maters to which it has submitted to jurisdiction in this
Section 11.2. Each party irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
Agreement or
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the transactions contemplated hereby and thereby in (i) the Supreme Court of the
State of New York, New York County, or (ii) the United States District Court for
the Southern District of New York, and hereby and thereby further irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
11.3 Each party shall comply with all laws and regulations applicable to
its activities under this Agreement.
11.4 If any provision of this Agreement (or any portion thereof) or the
application of any such provision (or any portion thereof) to any Person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforcability
shall not affect any other provision hereof (or the remaining portion thereof)
or the application of such provision to any other Persons or circumstances.
11.5 All notices or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered by hand or sent, postage
prepaid, by registered, certified or express mail or reputable overnight courier
service and shall be deemed given when so delivered by hand, or if mailed, three
days after mailing (one business day in the case of express mail or overnight
courier service), as follows:
(i) if to Licensee,
iTurf Inc.
435 Hudson Street
New York, NY 10014
Attention: President
(ii) if to a Licensor,
c/o dELiA*s Inc.
435 Hudson Street
New York, New York 10014
Attention: President
11.6 The parties to this Agreement are independent contractors. There is
no relationship of partnership, joint venture, employment, franchise, or agency
between the parties. No party shall have the power to bind any other or
incur obligations on any other's behalf without the other's prior written
consent.
11.7 No failure of any party to exercise or enforce any of its rights
under this Agreement shall act as a waiver of such right.
11.8 This Agreement, along with the Exhibits hereto, contains the entire
agreement and understanding among the parties hereto with respect to the
subject matter hereof and supersedes
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all prior agreements and understandings relating to such subject matter. No
party shall be liable or bound to any other party in any manner by any
representations, warranties or covenants relating to such subject matter except
as specifically set forth herein.
11.9 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more such counterparts have been signed by each of the parties and
delivered to each of the other parties.
11.10 This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto; provided, however, that as long
as dELiA*s has direct or beneficial ownership of 30% or more of the voting power
represented by the voting securities of Licensee and no other person directly or
beneficially owns a greater percentage of such voting power, no amendment of a
material term or waiver of a material obligation of this Agreement shall be
valid unless it has been approved by a majority of the members of the board of
directors of Licensee who are not directors or officers of dELiA*s or the
beneficial owners of five percent or more of the outstanding voting securities
of dELiA*s.
11.11 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York applicable to agreements made and to
be performed entirely within such State, without regard to the conflicts of law
principles of such State.
11.12 This Agreement is for the sole benefit of the parties hereto and
nothing herein expressed or implied shall give or be construed to give to any
person, other than the parties hereto any legal or equitable rights hereunder.
11.13 The headings contained in this Agreement or in any Exhibit hereto
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All Exhibits annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if set
forth in full herein. Any capitalized terms used in any Exhibit but not
otherwise defined therein, shall have the meaning as defined in this Agreement.
When a reference is made in this Agreement to a Section or an Exhibit, such
reference shall be to a Section of, or an Exhibit to, this Agreement unless
otherwise indicated.
[SIGNATURE PAGE FOLLOWS]
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[SIGNATURE PAGE TO TRADEMARK LICENSE AND CUSTOMER LIST AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
iTurf Inc.
By: _________________________
Name: _________________________
Title:_________________________
dELiA*s Inc.
By: _________________________
Name: _________________________
Title:_________________________
dELiA*s Properties Inc.
By: _________________________
Name: _________________________
Title:_________________________
TSI Soccer Corporation
By: _________________________
Name: _________________________
Title:_________________________
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EXHIBIT A
(Attached to and forming a part of the Trademark License and Customer List
Agreement, made ________ __, 1999 among Licensors and iTurf)
Trademark and
Intellectual Property
Marks Licensor
- ----- --------
dELiA*s dELiA*s Inc.
CONTENTS dELiA*s Inc.
TSI SOCCER TSI Soccer Corporation
STORYBOOK HEIRLOOMS dELiA*s Properties Inc.
DROOG dELiA*s Properties Inc.
DISCOUNT DOMAIN dELiA*s Inc.
SCREEEM! dELiA*s Properties Inc.
DOTDOTDASH dELiA*s Properties Inc.
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EXHIBIT B
(Attached to and forming a part of the Trademark License and Customer List
Agreement, made ________ __, 1999 among Licensors and iTurf)
NON-COMPETITION PROVISIONS
1. Definitions. Capitalized terms used but not defined in this Exhibit B
have the respective meanings given to them in the body of the Agreement. The
following capitalized terms have the meanings set forth below when used in this
Exhibit B.
"dELiA*s Affiliate" means (a) a subsidiary of dELiA*s other than iTurf and
any iTurf Affiliate, and (b) Stephen I. Kahn, only so long as he is the direct
or beneficial owner of at least 20 percent of the issued and outstanding capital
stock of dELiA*s, and only in his capacity as an executive officer of or the
beneficial owner of at least 30 percent of the issued and outstanding capital
stock of a Generation Y Internet Business.
"Generation Y" means persons between the ages of 10 and 24 (or any subset
thereof)
"Generation Y Internet Business" means a business, or component of a
business, that is engaged in (i) the sale of goods or services intended
primarily for Generation Y on the Internet or similar electronic media, which
sales are originated or consummated online or (ii) the offering of interactive
services intended primarily for Generation Y on the Internet supported by paid
advertising or sponsorships.
"iTurf" means iTurf Inc., a Delaware corporation.
"iTurf Affiliate" means a subsidiary of iTurf.
"dELiA*s Non-Compete Period" means that period beginning on the Effective
Date and ending
(a) six months after termination of this Agreement, if this Agreement is
terminated by dELiA*s pursuant to Section 3.4 following a
transaction (other than a transaction described in clause (b),
below) in which a person (or persons acting as a group) other than
an affiliate of dELiA*s would have direct or beneficial ownership of
35 percent or more of the voting power represented by the voting
securities of iTurf and no other person directly or beneficially
owns a greater percentage of such voting power (a "Controlling
Interest");
(b) one year after termination of this Agreement, if this Agreement is
terminated by dELiA*s pursuant to Section 3.4 following a
transaction in which voting securities of iTurf are sold to the
public or distributed to the stockholders of dELiA*s through a
tax-free spin-off, sale or other distribution;
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(c) two years after termination of this Agreement, if this Agreement is
terminated by dELiA*s pursuant to Section 3.4 following a
transaction in which dELiA*s sells a portion of the common stock of
iTurf owned by it that does not convey to any person a Controlling
Interest, or if this Agreement is terminated by iTurf pursuant to
Section 3.3; and
(d) on termination of this Agreement if this Agreement is terminated for
any other reason, including without limitation by dELiA*s pursuant
to Section 3.2.
"iTurf Non-Compete Period" means that period beginning on the Effective
Date and ending
(a) two years after termination of this Agreement if this Agreement is
terminated by dELiA*s pursuant to Section 3.2; and
(b) on termination of this Agreement if this Agreement is terminated for
any other reason, including without limitation by iTurf pursuant to
Section 3.3.
"Post-Acquisition Period" with respect to a particular business that is
acquired by dELiA*s (or a dELiA*s Affiliate) and engages in a Generation Y
Internet Business or that is acquired by iTurf (or an iTurf Affiliate) means the
nine-month period following the date of the acquisition of that business.
"Offline Business" means a business or component of a business that is
primarily engaged in the establishment or operation of paper catalogs or
physical retail stores for the sale of goods.
2. Non-Competition Obligations.
2.1 During the dELiA*s Non-Compete Period, dELiA*s shall not, and
shall not permit any dELiA*s Affiliate to, engage in any Generation Y Internet
Business except:
(a) during a Post-Acquisition Period, dELiA*s or a dELiA*s
Affiliate may engage in the acquired business, and
(b) a Permitted dELiA*s Business (as defined in Section 3).
2.2 During the iTurf Non-Compete Period iTurf shall not, and shall
not permit any iTurf Affiliate to, engage in any Offline Business except:
(a) during a Post-Acquisition Period, iTurf or an iTurf
Affiliate may engage in the acquired business, and
(b) a Permitted iTurf Business (as defined in Section 4).
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2.3 Nothing contained herein shall be construed so as to preclude
(a) iTurf from promoting its Generation Y Internet Businesses in media other
than the Internet, including without limitation direct mail and in-store
advertising, or (b) dELiA*s from promoting its Offline Businesses on the
Internet or similar electronic media.
3. First Offer/First Refusal of Generation Y Internet Business to iTurf.
Prior to dELiA*s or a dELiA*s Affiliate engaging in a Generation Y Internet
Business, other than a Generation Y Internet Business that is acquired from a
third party, or within twenty (20) days following the acquisition of a
Generation Y Internet Business from a third party, the parties shall engage in
the following procedures:
3.1 dELiA*s shall notify iTurf in writing of its intention to engage
in a Generation Y Internet Business (a "Generation Y Internet Business First
Offer Notice"), which notice shall describe the business in sufficient detail to
permit iTurf to make an informed decision about whether to acquire or license
that business. Upon iTurf's written request, dELiA*s shall promptly provide
iTurf with such additional information as iTurf reasonably requests regarding
the business, pursuant to the terms of an appropriate confidentiality agreement
between the parties.
3.2 Within ninety (90) days of the receipt of a Generation Y
Internet Business First Offer Notice, iTurf may deliver to dELiA*s an offer to
acquire or license the business described in the Generation Y Internet Business
Offer Notice (a "Generation Y Internet Business First Offer Proposal"). Such
offer shall set forth all of the material terms and conditions pursuant to which
iTurf proposes to acquire or license the business.
3.3 If iTurf does not deliver a Generation Y Internet Business First
Offer Proposal, then the business that was the subject of the Generation Y
Internet Business First Offer Notice shall be deemed to be a Permitted dELiA*s
Business.
3.4 If iTurf delivers a Generation Y Internet Business First Offer
Proposal, then, within ninety (90) days of receipt of the Generation Y Internet
Business First Offer Proposal, dELiA*s shall notify iTurf of (a) its intention
to accept such offer (a "Generation Y Internet Business First Offer Acceptance
Notice") or (b) unless iTurf has delivered a Generation Y Internet Business
First Offer Acceptance Notice, the material terms of the best bona fide third
party offer (a "Generation Y Internet Business Third Party Offer") it has
received to acquire or license the business (a "Generation Y Internet Business
Best Offer Notice").
3.5 Within 30 days following a Generation Y Internet Business First
Offer Acceptance Notice, iTurf and dELiA*s shall act in good faith to complete
definitive documentation of the acquisition or licensing transaction proposed in
the Generation Y Internet Business First Offer Proposal.
3.6 Within 30 days following receipt of a Generation Y Internet
Business Best Offer Notice, iTurf may notify dELiA*s of its offer to acquire the
business on the terms described in the Generation Y Internet Business Third
Party Offer (a "Matching Notice").
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<PAGE>
3.7 If iTurf delivers a Matching Notice, then iTurf and dELiA*s
shall act in good faith to complete definitive documentation of the acquisition
or licensing transaction proposed in the Generation Y Business Best Offer Notice
within 30 days of receipt by dELiA*s of the Matching Notice.
3.8 If iTurf does not deliver a Matching Notice, then dELiA*s may
consummate the transaction described in the Generation Y Internet Business Third
Party Offer.
4. First Offer/First Refusal of Offline Business to dELiA*s. Prior to
iTurf or an iTurf Affiliate engaging in an Offline Business, other than an
Offline Business that is acquired from a third party, or within twenty (20) days
following the acquisition of an Offline Business from a third party, the parties
shall engage in the following procedures:
4.1 iTurf shall notify dELiA*s in writing of its intention to engage
in an Offline Business (an "Offline Business First Offer Notice"), which notice
shall describe the business in sufficient detail to permit dELiA*s to make an
informed decision about whether to acquire or license that business. Upon
dELiA*s's written request, iTurf shall promptly provide dELiA*s with such
additional information as dELiA*s reasonably requests regarding the business,
pursuant to the terms of an appropriate confidentiality agreement between the
parties.
4.2 Within ninety (90) days of the Offline Business First Offer
Notice, dELiA*s may deliver to iTurf an offer to acquire or license the business
described in the Offline Business Offer Notice (an "Offline Business First Offer
Proposal"). Such offer shall set forth all of the material terms and conditions
pursuant to which dELiA*s proposes to acquire or license the business.
4.3 If dELiA*s does not deliver an Offline Business First Offer
Proposal, then the business described in the Offline Business First Offer Notice
shall be deemed to be a Permitted iTurf Business.
4.4 If dELiA*s delivers an Offline Business First Offer Proposal,
then, within ninety (90) days of the Offline Business First Offer Proposal,
iTurf shall notify dELiA*s of (a) its intention to accept such offer (an
"Offline Business First Offer Acceptance Notice") or (b) unless dELiA*s has
delivered an Offline Business First Offer Acceptance Notice, the material terms
of the best available bona fide third party offer (an "Offline Business Third
Party Offer") it has received to acquire or license the business (an "Offline
Business Best Offer Notice").
4.5 Within 30 days following an Offline Business First Offer
Acceptance Notice, dELiA*s and iTurf shall act in good faith to complete
definitive documentation of the acquisition or licensing transaction proposed in
the Offline Business First Offer Proposal.
4.6 Within 30 days following an Offline Business Best Offer Notice,
dELiA*s may notify iTurf of its offer to acquire the business on the terms
described in the Offline Business Third Party Offer (a "Matching Notice").
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4.7 If dELiA*s delivers a Matching Notice, then dELiA*s and iTurf
shall complete definitive documentation of the acquisition or licensing
transaction proposed in the Generation Y Business Best Offer Notice within 30
days of receipt by iTurf of the Matching Notice.
4.8 If dELiA*s does not deliver a Matching Notice, then iTurf may
consummate the transaction described in the Offline Business Third Party Offer.
5. Miscellaneous.
5.1 Each party agrees not to disclose to any third party other than
its legal counsel and financial advisers any information delivered pursuant to
this Exhibit B, including without limitation the terms of any notice delivered
hereunder without the prior written consent of the other party.
5.2 The taking of any action by iTurf (including without limitation
the giving of any notice) pursuant to Sections 3 or 4 hereof shall be approved
by a majority of the members of the board of directors of iTurf who are not
directors or officers of dELiA*s or the beneficial owners of five percent or
more of the outstanding voting securities of dELiA*s.
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FORM OF INTERCOMPANY INDEMNIFICATION AGREEMENT
This Intercompany Indemnification Agreement (this "Agreement") is made and
entered into as of the __ day of ____________, 1999 by and between iTurf Inc., a
Delaware corporation (the "Company"), and dELiA*s Inc., a Delaware corporation
("dELiA*s").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions
1.1 "Dispute Period" means the period ending 30 days following receipt by
an Indemnifying Party of a Claim Notice (as hereinafter defined).
1.2 "Effective Date" means the date on which the initial public offering
of iTurf Inc. is completed or such earlier date as the parties hereto agree in
writing.
1.3 "Indemnified Party" means any party seeking indemnity under this
Agreement.
1.4 "Indemnifying Party" means the party from whom indemnification is
sought under this Agreement.
1.5 "Loss" means any and all actual costs or expenses (including, without
limitation, counsel's fees billed at standard hourly rates and expenses as and
when incurred, in connection with any action, claim or proceeding relating
thereto), judgments, amounts paid in settlement, fines, penalties, assessments
and taxes. Notwithstanding the foregoing, Loss shall be reduced to reflect any
insurance proceeds actually recovered by the Indemnified Party relating to such
claim, provided that this reduction shall not be applied if to do so would
excuse any insurer from any obligation to cover any loss. If the Indemnified
Party receives insurance proceeds after it receives indemnity hereunder, then
the Indemnified Party, within 10 days of receipt of such proceeds, shall pay to
the Indemnifying Party the amount by which the Indemnifying Party's payment
would have been reduced if the insurance proceeds had been received before the
indemnity payments.
1.6 "Newco" means iTurf Finance Company, Inc., the wholly-owned subsidiary
of the Company.
1.7 "Person" means any natural person, legal entity or other organized
group of persons or entities.
1.8 "Purchased Shares" means those shares of common stock of dELiA*s
purchased by Newco in connection with the initial public offering of the
Company.
1.9 "Subsidiary" with respect to any Person means any corporation,
partnership or other entity for which more than 50% of the voting securities are
directly or indirectly owned by such Person, except that iTurf and its
Subsidiaries shall not be deemed to be Subsidiaries of dELiA*s.
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1.10 "Third Party Claim" means all claims, suits, actions, proceedings,
judgments, deficiencies, damages, settlements, liabilities, and legal and other
expenses as and when incurred asserted by a Person other than the Company or
dELiA*s or any of their respective affiliates in respect of which an Indemnified
Party might seek indemnity.
2. Indemnification
2.1 Indemnification by the Company and dELiA*s.
(a) The Company agrees to indemnify and hold dELiA*s and its
officers, directors, employees, subsidiaries, affiliates and agents harmless
against and in respect of any and all Losses and Third Party Claims arising out
of or based upon (i) the negligence or willful misconduct of the Company or any
of its Subsidiaries, (ii) any breach by the Company of any agreement between the
parties hereto that is described in the Form S-1 (as defined below) as the same
may be amended (iii) all liabilities of the parties and their respective
subsidiaries (whenever arising, whether prior to, at or following the Effective
Date) arising out of or in connection with or otherwise relating to the
management or conduct before or after the Effective Date of the business of the
Company; and (iv) the failure by the Company or any of its Subsidiaries to pay,
perform or otherwise promptly discharge any of its or its Subsidiaries'
liabilities (whenever arising whether prior to, at or following the Effective
Date).
(b) dELiA*s agrees to indemnify and hold the Company and its
officers, directors, employees, subsidiaries, affiliates and agents harmless
against and in respect of any and all Losses and Third Party Claims arising out
of or based upon (i) the negligence or willful misconduct of dELiA*s or any of
its Subsidiaries, (ii) any breach by dELiA*s of any agreement between the
parties hereto that is described in the Form S-1 (as defined below) as the same
may be amended (iii) all liabilities of the parties and their respective
subsidiaries (whenever arising, whether prior to, at or following the Effective
Date) arising out of or in connection with or otherwise relating to the
management or conduct before or after the Effective Date of the business of
dELiA*s, other than the business of the Company; and (iv) the failure by dELiA*s
or any of its Subsidiaries to pay, perform or otherwise promptly discharge any
of its or its Subsidiaries' liabilities (whenever arising whether prior to, at
or following the Effective Date).
(c) dELiA*s agrees to indemnify and hold Company and its officers,
directors, employees, subsidiaries, affiliates and agents harmless against and
in respect of any and all Losses incurred by any of them by reason of, or
arising out of (a) any liability for income and franchise taxes arising out of
the inclusion of the Company and any Subsidiaries in any consolidated federal
income tax return, or any consolidated, combined or unitary state or local tax
return, of dELiA*s, except for any such liability as is directly attributable to
the operations of the Company and any Subsidiaries, and (b) any liability or
obligations of any entity, whether or not incorporated, which is or was part of
a controlled group or under common control with the Company or otherwise treated
as a "single employer" with the Company within the meaning of Section 414(b),
(c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the "Code") or
under Section 4001 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (other than the Company or any Subsidiary), with respect to
any "employee benefit plan" (as defined in Section 3(3) of ERISA)
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<PAGE>
established, maintained, sponsored or contributed to by such entity, including,
but not limited to (i) liabilities for complete and partial withdrawals under
any "multiemployer plan" (as defined in Section 3(37) of ERISA) pursuant to
Section 4203 or 4205 of ERISA, respectively; (ii) liabilities to the Pension
Benefit Guaranty corporation (including without limitation, liabilities for
premiums and terminations); (iii) liabilities under Section 4980B of the code or
Part 6 of Subtitle B of Title I of ERISA; and (iv) liabilities arising under
Section 412 of the Code or Section 302(a)(2) of ERISA.
(d) dELiA*s agrees to indemnify and hold the Company, Newco and
their officers, directors, employees, subsidiaries, affiliates and agents
harmless against (i) the aggregate federal, state and local income tax liability
arising from any gain on a disposition by Company, Newco or any of their
subsidiaries of any of the Purchased Shares to the extent that the final
determination of such aggregate income tax liability exceeds the aggregate
federal, state and local income tax liability computed on the excess of the
amount realized on such disposition over the amount that Newco actually paid for
the Purchased Shares disposed of and (ii) any costs or expenses, including
attorneys' fees, reasonably incurred in connection with income taxes subject to
indemnification under clause (i) above.
2.2 Limitations. Notwithstanding anything to the contrary contained in
this Agreement neither the Company nor dELiA*s shall be entitled to
indemnification pursuant to Section 2 of this Agreement with respect to any
claim for indemnification unless, and only to the extent that, the aggregate of
all Losses to the Indemnified Party exceeds $20,000 whereupon the Indemnifying
Party shall be obligated to pay in full the aggregate amount of the Losses
(including such first $20,000).
2.3 Indemnification Procedure. All claims for indemnification by an
Indemnified Party will be asserted and resolved as follows:
(a) In the event any Third Party Claim in respect of which an
Indemnified Party might seek indemnity is asserted against or sought to be
collected from such Indemnified Party, the Indemnified Party shall deliver a
notice (a "Claim Notice") with reasonable promptness to the Indemnifying Party,
which Claim Notice shall include the amount of Loss claimed, to the extent
known. The Indemnifying Party shall notify the Indemnified Party as soon as
practicable within the Dispute Period whether the Indemnifying Party disputes
its liability to the Indemnified Party, and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim pursuant to this Section, then the
Indemnifying Party shall have the right to defend, with counsel reasonably
satisfactory to the Indemnified Party, at the sole cost and expense of the
Indemnifying Party, such Third Party Claim by all appropriate proceedings, which
proceedings must be vigorously and diligently prosecuted by the Indemnifying
Party to a final conclusion or may be settled at the discretion of the
Indemnifying Party; provided, however, that the Indemnifying Party shall not be
permitted to effect any settlement without the written consent of the
Indemnified Party unless (x) the sole relief provided in connection with such
settlement is monetary damages that are paid in full by the Indemnifying Party,
(y) such settlement involves no finding or admission of any
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<PAGE>
wrongdoing, violation or breach by any Indemnified Party of any right of any
other Person or any laws, Contracts, or governmental permits, and (z) such
settlement has no effect on any other claims that may be made against or
liabilities of any Indemnified Party. The Indemnifying Party shall have full
control of such defense and proceedings, including any compromise or settlement
thereof (except as provided in the preceding sentence); provided, however, that
the Indemnified Party may, at its sole cost and expense, at any time prior to
the Indemnifying Party's delivery of the notice referred to in the first
sentence of this clause (b), file any motion, answer or other pleadings or take
any other action that the Indemnified Party reasonably believes to be necessary
or appropriate to protect its interests; and provided further, that if requested
by the Indemnifying Party, the Indemnified Party shall, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to the
Indemnifying Party in contesting any Third Party Claim that the Indemnifying
Party elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause (b) and except as provided in the
first sentence of this clause (b) and the preceding sentence, the Indemnified
Party will bear its own costs and expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party may take over the control
of the defense or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity with respect to such Third Party
Claim.
(c) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Third Party Claim pursuant to this Section or if the Indemnifying Party gives
such notice but fails to prosecute vigorously and diligently or settle the Third
Party Claim (in each case in accordance with clause (b) above), or if the
Indemnifying Party fails to give any notice whatsoever within the Dispute
Period, then the Indemnified Party will have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be prosecuted by the Indemnified
Party in a reasonable manner and in good faith or will be settled at the
discretion of the Indemnified Party (with the consent of the Indemnifying Party,
which consent will not be unreasonably withheld). Subject to the immediately
preceding sentence, the Indemnified Party will have full control of such defense
and proceedings, including any compromise or settlement thereof, provided,
however, that if requested by the Indemnified Party, the Indemnifying Party
will, at the sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnified Party and its counsel in contesting any Third
Party Claim which the Indemnified Party is contesting. The Indemnifying Party
may participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this clause (c), and the Indemnifying Party will
bear its own costs and expenses with respect to such participation.
3. Term
The term of this Agreement shall begin on the date on which the Company's
registration statement on Form S-1 relating to the Company's initial public
offering (the "Form S-1") is declared effective by the Securities and Exchange
Commission (the "Effective Date").
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4. General
4.1 Notices. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
(i) if to iTurf,
iTurf Inc.
435 Hudson Street
New York, NY 10014
Attention: President
(ii) if to dELiA*s,
dELiA*s Inc.
435 Hudson Street
New York, New York 10014
Attention: President
4.2 Entire Agreement. This Agreement, along with the Exhibits hereto,
contains the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. Neither party shall be liable or
bound to any other party in any manner by any representations, warranties or
covenants relating to such subject matter except as specifically set forth
herein.
4.3 Amendment of Rights. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the Company and dELiA*s
(and/or any of its permitted successors or assigns pursuant to Section 4.7);
provided, however, that as long as dELiA*s has direct or beneficial ownership of
30% or more of the voting power represented by the voting securities of the
Company and no other person directly or beneficially owns a greater percentage
of such voting power, no amendment of a material term or waiver of a material
obligation of this Agreement shall be valid unless it has been approved by a
majority of the members of the board of directors of the Company who are not
directors or officers of dELiA*s or the beneficial owners of five percent or
more of the outstanding voting securities of dELiA*s.
4.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
the conflicts of law principles of such State.
4.5 Severability. If any provision of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any Person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such
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invalidity, illegality or unenforcability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other Persons or circumstances.
4.6 Third Parties. This Agreement is for the sole benefit of the parties
hereto and, except as expressly provided in Section 2.1, nothing herein
expressed or implied shall give or be construed to give to any person, other
than the parties hereto any legal or equitable rights hereunder. The parties to
this Agreement are independent contractors. There is no relationship of
partnership, joint venture, employment, franchise, or agency between the
parties. Neither party shall have the power to bind the other or incur
obligations on the other's behalf without the other's prior written consent.
4.7 Assignment; Successors And Assigns. This Agreement may not be assigned
with out the prior written consent of the other party. Any instrument purporting
to make an assignment in breach of this clause shall be void. The provisions of
this Agreement shall inure to the benefit of, and shall be binding upon, the
successors and permitted assigns of dELiA*s.
4.8 Captions. The captions and headings contained in this Agreement or in
any Exhibit hereto are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. When a reference is made in
this Agreement to a Section or an Exhibit, such reference shall be to a Section
of this Agreement unless otherwise indicated.
4.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each of the other parties.
4.10 Specific Performance. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
[SIGNATURE PAGE FOLLOWS]
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[SIGNATURE PAGE TO INTERCOMPANY
INDEMNIFICATION AGREEMENT]
IN WITNESS WHEREOF, the parties have signed or caused this Agreement
to be signed and delivered as of the date first written above.
iTurf Inc.
By:_________________________________________
Name:
Title:
dELiA*s Inc.
By:_________________________________________
Name:
Title:
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FORM OF TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT, made as of __________, 1999 (the
"Agreement"), by and among dELiA*s Inc. (hereinafter referred to as "dELiA*s"),
and iTurf Inc., (hereinafter referred to as "iTurf") for taxable years
commencing on and after January 1, 1999.
RECITALS
A. dELiA*s and its subsidiaries form an affiliated group (the "dELiA*s
Group") within the meaning of Section 1504(a) of the Internal Revenue Code
including any successor provision thereto (the "Code"), and the dELiA*s
Group desires to continue to file a consolidated Federal income tax return
and consolidated or combined state income tax returns where allowed by
law;
B. It is contemplated that concurrently with or shortly after the execution
of this Agreement, iTurf may consummate an initial public offering of less
than 20 percent of its common stock;
C. It would be to the mutual advantage of the parties hereto, and could
result in reduced Federal and State income tax being paid by all parties,
if a consolidated Federal income tax return and consolidated or combined
state income (or franchise) tax returns (where allowed) are filed which
will include dELiA*s (and its subsidiaries) and iTurf in accordance with
the terms of applicable state law and regulations.
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
I. Consolidated Return
A. dELiA*s and iTurf shall file such consents and other documents and
take such action as may be necessary to continue filing a
consolidated tax return for the dELiA*s Group, and such consolidated
or combined state income tax returns as allowed.
B. dELiA*s and iTurf shall cause any corporation that is currently or
which hereafter becomes an affiliate of either of them and a member
of the dELiA*s Group to join in this Agreement.
C. dELiA*s and iTurf shall maintain, and shall cause any subsidiaries
subsequently formed or acquired to maintain, concurrent fiscal
years.
D. Any dispute between the parties with respect to the operation or
interpretation of
<PAGE>
this Agreement shall be referred to and decided by the independent
public accountants for the dELiA*s Group.
II. Calculation of Corporate Income Tax Liability
A. Beginning with the tax year commencing February 1, 1999, and for
each tax year thereafter, each member of the dELiA*s Group,
including iTurf but other than dELiA*s, will pay to dELiA*s an
amount equal to its Federal corporate income tax liability computed
as if that member filed a separate Federal income tax return for
such period. In making this computation, items specified in Treas.
Reg. ss. 1.1552-1(a)(2)(ii)-(a) through (i) shall be computed as if
a dELiA*s consolidated return had been filed.
B. This paragraph B applies in the event that the computation set forth
in paragraph A, above, results in iTurf incurring a net operating
loss or unutilized tax credit (such iTurf loss or credit hereinafter
referred to as a "Tax Attribute") with respect to any taxable year,
which Tax Attribute is absorbed (within the meaning of Treasury
Regulation Section 1.1502-32) by another member of the dELiA*s Group
(other than iTurf) in the same (or another preceding or succeeding
taxable year). In that event, at the close of the tax year in which
the Tax Attribute is incurred or absorbed (whichever is later), an
intercompany note receivable ("Tax Receivable") in favor of iTurf
payable by dELiA*s shall be created in an amount equal to the
portion of Tax Attribute absorbed multiplied by the highest marginal
federal corporate income tax rate provided for in Section 11 of the
Code or any successor provision thereto (or in the case of the
absorption of a credit, the amount of such credit).
C. Principles similar to the principles set forth in this Section II
shall be applied in determining (i) the amounts of any consolidated
or combined state, local or foreign corporate income (or franchise)
tax liability that is required to be paid by members of the dELiA*s
Group, including iTurf, but other than dELiA*s, to dELiA*s, and (ii)
the amount of any Tax Receivable in favor of iTurf payable by
dELiA*s that shall be created to reflect the absorption by any
member of the dELiA*s Group (other than iTurf) of any Tax Attribute
for state, local or foreign income tax purposes.
III. Liability for Tax Payments
A. dELiA*s will pay the Federal corporate tax liabilities of the
dELiA*s Group for any period in which the dELiA*s Group files a
consolidated Federal income tax return. If the dELiA*s Group files a
consolidated or combined return for any state, locality or foreign
jurisdiction for any period, dELiA*s will pay the liability arising
out of that return.
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B. iTurf and each member of the dELiA*s Group shall pay to dELiA*s the
amount of its federal tax liability (and where iTurf or another
member has been included in a consolidated or combined return, the
amount of the state, local or foreign tax liability relating to such
inclusion) as computed pursuant to the provisions of Section II,
above.
C. If the consolidated or combined federal, state, local or foreign
income tax liability is adjusted for any taxable period, whether by
means of an amended return, claim for refund, or audit by the
Internal Revenue Service or any other taxing authority, the
obligation of each member shall be recomputed under Section II and
this Section III of this Agreement to give effect to such
adjustments. In the case of a refund, dELiA*s shall make payments to
each member for its share of the refund, within thirty days after
the refund is received by the dELiA*s, and in the case of an
increase in tax liability, each member shall pay to dELiA*s its
allocable share of such increased tax liability within twenty days
after receiving notice of such liability from dELiA*s. If any
interest (or penalty) is to be paid or received as a result of a
consolidated federal income tax deficiency or refund, such interest
shall be allocated in the ratio each member's change in federal,
state, local or foreign income tax liability bears to the total
change in such tax liability.
D. Any payments that iTurf is required to make pursuant to this
Agreement may be satisfied by a corresponding offset to, and
reduction of, the amount of any Tax Receivable. In the event iTurf
leaves the dELiA*s Group, for any tax year in which it is no longer
a member, it shall become entitled to the payment of the Tax
Receivable to the extent, and in the amount, of its aggregate
federal, state, local and foreign income tax liability computed
pursuant to the principles of Section II of this Agreement. To the
extent that a Tax Receivable is not offset, reduced or paid pursuant
to the preceding sentences of this paragraph D, the outstanding
amount of the receivable shall be paid at the close of the fifth
succeeding calendar year following its creation.
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IV. Method and Time of Payment
Payments of consolidated estimated tax for the consolidated dELiA*s Group at the
normal quarterly due dates will be made by dELiA*s. Each member of the dELiA*s
Group (including iTurf) will pay to dELiA*s at those quarterly due dates, such
amounts as determined by dELiA*s, based on estimates of the payment obligation
of each member pursuant to this Agreement prepared by dELiA*s and computed
pursuant to the provisions of Section II, above, as of the close of the
appropriate quarter. Upon the determination of the dELiA*s Group's consolidated
tax liability for the year, each member (including iTurf) shall make/receive
payment to/from dELiA*s in an amount equal to such member's liability for the
entire year determined pursuant to paragraph III, above, less amounts already
paid for estimated tax. In the event a member leaves the dELiA*s Group, the
payment obligation of or to such member pursuant to this paragraph shall be
computed as of the day immediately preceding the first day any such member is no
longer a member of the dELiA*s Group and payment of the obligation of such
member shall be made no later than the quarterly due date as described above and
payments by dELiA*s to such member should be made no later than 30 days after
the close of the last quarter of the taxable year.
V. Successors Assigns
The provisions and terms of this Agreement shall be binding on and inure to the
benefit of any successor, by merger, acquisition of assets or otherwise, of any
of the parties hereto.
VI. New Members/Members Leaving the Group
If, at any time any other company becomes a member of the dELiA*s Group, the
parties hereto agree that such member shall become a party to this Agreement by
executing a duplicate copy of this Agreement. Unless otherwise specified, such
named member shall have all the rights and obligations of a subsidiary under
this Agreement. Any member corporation which leaves the dELiA*s Group shall
continue to be bound by this Agreement with respect to periods during which it
was a member.
VII. Parent Designate
dELiA*s may designate a subsidiary (other than iTurf) to act on behalf of the
dELiA*s Group in performing the duties identified in this Agreement (other than
dELiA*s obligation with respect to the Tax Receivable).
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VIII. Duration
Unless earlier terminated by mutual agreement of the parties, this Agreement
shall remain in effect with respect to any tax year for which iTurf is a member
of the dELiA*s Group, and in any event so long as a Tax Receivable remains
outstanding.
IX. General
All material including but not limited to, returns, supporting schedules, work
papers, correspondence and other documents relating to the consolidated return
shall be made available to any party to this Agreement during regular business
hours. This Agreement shall be governed by the laws of Delaware. This Agreement
contains the entire agreement of the parties and there are no agreements,
representations or warranties not contained herein. This Agreement may not be
amended except by written instrument executed with the same formality as this
Agreement; provided, however, that as long as dELiA*s has direct or beneficial
ownership of 30% or more of the voting power represented by the voting
securities of iTurf and no other person directly or beneficially owns a greater
percentage of such voting power, no amendment of a material term or waiver of a
material obligation of this Agreement shall be valid unless it has been approved
by a majority of the members of the board of directors of the iTurf who are not
directors or officers of dELiA*s or the beneficial owners of five percent or
more of the outstanding voting securities of dELiA*s. This Agreement may be
executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective with respect to the periods written above.
dELiA*s Inc.
By:_______________________________________________
Name:
Title: Chief Financial Officer
iTurf Inc.
By:_______________________________________________
Name:
Title: Chief Operating Officer
5
FORM OF ITURF COMMON STOCK REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of ________ __, 1999 by and between iTurf Inc., a Delaware corporation
(the "Company"), and dELiA*s Inc., a Delaware corporation ("dELiA*s").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS.
1.1 Definitions. For purposes of this Agreement:
(a) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(b) Prospectus. The term "Prospectus" shall mean the prospectus
included in any registration statement filed pursuant to the provisions hereof
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the 1933 Act), as amended
or supplemented by any prospectus supplement (including, without limitation, any
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by such registration statement), and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
(c) Effective Date. The term "Effective Date" means the date on
which the Company's registration statement relating to its initial public
offering is declared effective by the SEC.
(d) Registrable Securities. The term "Registrable Securities" means
(1) any common stock of the Company held as of the Effective Date by dELiA*s,
its successors, its assigns under this Agreement, or any entity which controls,
is controlled by, or is under common control with dELiA*s, and (2) any
securities of the Company issued as a dividend or other distribution with
respect to, or in exchange for or in replacement thereof, excluding in all
cases, however, (i) any Registrable Securities sold by dELiA*s in a transaction
in which rights under this Section 1 are not assigned in accordance with this
Agreement, or (ii) any Registrable Securities sold in a public offering pursuant
to a registration statement filed with the SEC or sold pursuant to Rule 144
except to the extent reacquired by dELiA*s or an entity which controls, is
controlled by or is under common control with dELiA*s as provided in clause (1)
above.
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(e) Registration. The terms "Register," "Registered," and
"Registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement.
(f) SEC. The term "SEC" or "Commission" means the U.S. Securities
and Exchange Commission.
1.2 Demand Registration.
(a) Request by dELiA*s. If the Company shall receive at any time
after 180 days following the effective date of the registration statement for
the Company's initial public offering, a written request from dELiA*s that the
Company file a registration statement under the 1933 Act covering the
registration of Registrable Securities with a reasonably anticipated aggregate
price to the public of at least three million dollars ($3,000,000) pursuant to
this Section 1.2, then the Company shall effect, as soon as practicable, and in
any event use its best efforts to effect within 60 days of such request, the
registration under the 1933 Act of all Registrable Securities which dELiA*s
requests to be registered and included in such registration, subject only to the
limitations of this Section 1.2.
(b) Underwriting. If dELiA*s intends for the Registrable Securities
covered by its request to be distributed by means of an underwriting, then it
shall so advise the Company as a part of its request made pursuant to this
Section 1.2. dELiA*s shall (a) select the managing underwriter to administer
such offering after consultation with the Company and subject to the approval of
the Company, which approval shall not be unreasonably withheld, and (b) enter
into an underwriting agreement in customary form with such managing underwriter.
Notwithstanding any other provision of this Section 1.2, if the underwriter(s)
advise(s) the Company in writing that marketing factors require a limitation of
the number of Registrable Securities which would otherwise be registered and
underwritten pursuant hereto the Company will so advise dELiA*s, and the number
of securities that may be included in the underwriting shall be reduced as
required by the underwriter(s) and allocated first, to the Registrable
Securities covered by dELiA*s request, second, to the Company and third, among
any other holders of securities of the Company entitled to inclusion in such
registration.
(c) Maximum Number of Demand Registrations. The Company is obligated
to effect only one (1) such registration pursuant to this Section 1.2 in any
12-month period. The Company shall not be deemed to have effected a registration
pursuant to this Section 1.2 unless a registration statement in respect thereof
shall have been declared effective by the SEC and remains effective for 120 days
or such earlier time at which all Registrable Securities registered under such
Registration Statement have been sold (or withdrawn from such registration at
the request of dELiA*s).
(d) Deferral; Jurisdictional Requirements. Notwithstanding the
foregoing, if the Company shall furnish to dELiA*s a certificate signed by the
President or Chief Executive Officer of the Company stating that it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the
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<PAGE>
filing of such registration statement, then the Company shall have the right to
defer such filing for a period of not more than 120 days after receipt of the
request of dELiA*s or such earlier time as such a certificate could no longer be
given in good faith; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
(e) Withdrawn Request. dELiA*s may withdraw a request for
registration under this Section 1.2 at any time prior to the effective date of
the Registration Statement related to such registration, provided that if it
elects to remain liable for all expenses incurred in conjunction therewith then
such withdrawn registration statement shall not be considered to be a demand
registration for the purposes of Section 1.2(c).
1.3 Piggyback Registrations.
(a) dELIA*s Rights. The Company shall notify dELiA*s in writing at
least thirty (30) days (or such shorter period of time as is practicable) prior
to filing any registration statement under the 1933 Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements on Form S-8 or
S-4 or relating solely to any employee benefit plan or an acquisition of any
entity or business) and will afford dELiA*s, subject to the terms and conditions
set forth herein, an opportunity to include in such registration statement all
or any part of the Registrable Securities. dELiA*s shall, within ten (10) days
after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number of
Registrable Securities it requests to be included in such registration
statement. If dELiA*s decides not to include all of its Registrable Securities
in any registration statement filed by the Company, it shall nevertheless
continue to have the right to include any Registrable Securities not included in
such registration statement in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(b) Underwriting. If a registration statement with respect to which
the Company gives notice under this Section 1.3 pertains to an underwritten
offering, then the Company shall so advise dELiA*s. In such event, the right of
dELiA*s to have Registrable Securities included in a registration pursuant to
this Section 1.3 shall be conditioned upon dELiA*s participation in such
underwriting and the inclusion of the Registrable Securities in the underwriting
to the extent provided herein. dELiA*s shall enter into an underwriting
agreement in customary form with the managing underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Agreement, if the managing underwriter or underwriters determine(s) in good
faith that marketing factors require a limitation of the number of securities to
be underwritten, then the managing underwriter(s) may exclude securities
(including Registrable Securities) from the registration and the underwriting,
and the number of securities that may be included in the registration and the
underwriting shall be allocated, first, to the Company, second to dELiA*s and
third to any other holders of securities of the Company entitled to inclusion in
such registration, provided that if the registration is a registration pursuant
to Section 1.2, the "cut-back" provisions described in the last sentence of
Section 1.2(b) shall
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<PAGE>
apply. If dELiA*s disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter(s), delivered at least ten (10) business days prior to the effective
date of the registration statement or if notified of the terms thereafter,
promptly after such notification. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration.
1.4 Form S-3 Registration. In case the Company shall receive from dELiA*s
a written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by dELiA*s, then the Company will:
(a) Registration. As soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of dELiA*s
Registrable Securities as are specified in such request, provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 1.4:
(1) if Form S-3 is not available for such offering by
dELiA*s;
(2) if dELiA*s, together with any other holders of securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than one million dollars ($1,000,000); or
(3) if the Company shall furnish to dELiA*s a certificate
signed by the President or Chief Executive Officer of the Company stating that
it would be seriously detrimental to the Company and its stockholders for such
Form S-3 Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration statement
no more than once during any twelve month period for a period of not more than
one hundred twenty (120) days after receipt of the request of dELiA*s under this
Section 1.4 or such earlier time as such a certificate could no longer be given
in good faith.
(b) Not Demand Registration. Form S-3 registrations shall not be
deemed to be demand registrations as described in Section 1.2 above.
(c) Number of Registrations. Notwithstanding anything to the
contrary herein, the Company is obligated to effect only one (1) registration on
Form S-3 per year pursuant to this Section 1.4.
(d) Withdrawn Request. dELiA*s may withdraw its request for
registration under this Section 1.4 at any time prior to the effective date of
the Registration Statement related to such registration, provided that if
provided that if it elects to remain liable for all expenses incurred in
conjunction therewith then such withdrawn registration statement shall not be
considered to be a Form S-3 registration for the purposes of this Section 1.4.
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<PAGE>
1.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities, use its best efforts to cause such
registration statement to become effective as soon as practicable and with
respect to registrations effected pursuant to Sections 1.2, 1.3 and 1.4 keep
such registrations effective for up to one hundred twenty (120) days, excluding
any lock-up period, or such shorter period of time as is agreed to in writing by
the Company and dELiA*s.
(b) For such period of time as shall be required in connection with
the transactions contemplated thereby and permitted by applicable rules,
regulations and administrative practice of the SEC (but not for more than 120
days from the effective date thereof), file such post-effective amendments and
supplements to such registration statement as shall be necessary so that neither
such registration statement nor any related prospectus shall contain any
material misstatement or omission relative to the Company or any of its assets
or liabilities or its businesses of affairs and will otherwise comply with all
applicable federal, state and foreign securities laws.
(c) Furnish to dELiA*s such number of copies of a Prospectus,
including a preliminary Prospectus, in conformity with the requirements of the
1933 Act, and such other documents as it may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by it that are
included in such registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by dELiA*s, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions unless already subject thereto.
(e) If requested by the underwriters for any underwritten offering
by dELiA*s pursuant to any registration requested under Section 1.2, 1.3 or 1.4,
the Company shall enter into an underwriting agreement with such underwriters
for such offering, such agreement to be satisfactory in form and substance to
dELiA*s and to contain such representations and warranties by the Company and
such other terms and provisions (including, without limitation, provisions for
indemnification of such underwriters by the Company) as are customarily
contained in such underwriting agreements. dELiA*s shall be a party to such
underwriting agreement and may, at its option, require that any or all of the
representations and warranties by, and the agreements on the part of, the
Company to and for the benefit of such underwriters be made to and for the
benefit of dELiA*s and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of dELiA*s.
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<PAGE>
(f) Notify dELiA*s promptly, (i) of the time such registration
statement becomes effective or when any amendment or supplement or prospectus
forming a part of such registration statement has been filed or becomes
effective, (ii) of any request by the SEC or any other federal or state
governmental authority during the period of effectiveness of a registration
statement for amendments or supplements to such registration statement or
related prospectus or for additional information, (iii) of the issuance by the
SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of a registration statement or the initiation or
threatening of any proceedings for that purpose (and the Company will use its
best efforts to prevent the issuance of any such stop order or to obtain its
withdrawal promptly if such stop order should be issued), (iv) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event which makes any
statement made in a registration statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or which requires the making of any changes in the registration
statement or prospectus so that, in the case of a registration statement, it
will not contain any untrue statement of a material fact required to be stated
therein or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading and, at the reasonable request of dELiA*s, the Company
shall also promptly prepare and file with the Securities and Exchange Commission
and make available to dELiA*s any supplement or amendment reasonably necessary
so that neither such registration statement nor any related prospectus shall
contain any material misstatement or omission as a result of such event
(provided that the 120 day period referred to in Section 1.2, 1.3 or 1.4 shall
be extended by the period from which the Company gives the notice specified in
this clause until such supplement or amendment is made available to dELiA*s),
and (vi) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate; except that notice
of an event or determination referred to in (v) or (vi) above need be made only
if a registration statement relating to Registrable Securities is then in
effect.
(g) Provide for the listing of the Registrable Securities on the
stock exchange or authorization for trading on automated quotation system on
which the Registrable Securities' class of securities are then listed or quoted;
provided however, nothing contained herein shall obligate the Company to have
listed any Registrable Securities which are of a class of securities of the
Company not then listed on a stock exchange or authorized for trading on
automated quotation system.
(h) Make available for inspection by any underwriter participating
in any disposition pursuant to such registration statement, and any attorney,
accountant or other professional retained by such underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all
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<PAGE>
information reasonably requested by any such Inspector in connection with such
registration statement.
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 1.2, 1.3 or
1.4 that dELiA*s shall furnish to the Company such information regarding
dELiA*s, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to timely effect the
registration of its Registrable Securities.
1.7 Expenses. All expenses incurred in connection with a registration
pursuant to Sections 1.2, 1.3 and 1.4, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for dELiA*s (but excluding underwriters' discounts
and commissions), shall be borne by the Company. dELiA*s shall bear a
proportionate share (based on the total number of shares sold in a registration
pursuant to Section 1 other than for the account of the Company) of all
discounts, commissions or other amounts payable to underwriters or brokers in
connection with such offering.
1.8 Indemnification. In the event any registration statement is filed by
the Company:
(a) By the Company. To the extent permitted by law, the Company will
indemnify and hold harmless dELiA*s, each officer and director of dELiA*s, any
agent or underwriter (as defined in the 1933 Act) for dELiA*s and each person
(as defined in Section 2(2) of the 1933 Act), if any, who controls dELiA*s or
such underwriter within the meaning of Section 15 of the 1933 Act or the Section
20 of the Securities Exchange Act of 1934, as amended (the "1934 Act") or any
similar federal statute then in effect, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the 1933
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or in any
amendments or supplements thereto; (ii) the omission or alleged omission to
state in such registration statement, including any preliminary prospectus or
final prospectus contained therein or in any amendments or supplements thereto,
a material fact required to be stated therein, or necessary to make the
statements therein not misleading (in the case of any preliminary prospectus or
final prospectus, in the light of the circumstances under which they are made);
or (iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any federal or state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any federal or state securities
law in connection with the offering covered by such registration statement; and
the Company will reimburse dELiA*s, each officer or director of dELiA*s, and
each such agent, underwriter or controlling person for any legal or other
expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity
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<PAGE>
agreement contained in this subsection 1.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage or liability to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by dELiA*s, or by such officer, director, agent, underwriter or
controlling person of dELiA*s.
(b) By dELiA*s. To the extent permitted by law, dELiA*s will
severally and not jointly indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the 1933 Act or
the 1934 Act, as applicable, and any agent or underwriter, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, agent or underwriter may become
subject under the 1933 Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information concerning dELiA*s furnished by dELiA*s
expressly for use in connection with such registration; and dELiA*s will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action to
the extent that (and only to the extent that) such Violation occurs in reliance
upon and in conformity with written information concerning dELiA*s furnished by
dELiA*s for use in connection therewith; provided, however, that the indemnity
agreement contained in this subsection 1.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of dELiA*s, which consent shall not
be unreasonably withheld; and provided further, that the total amounts payable
in indemnity by dELiA*s under this Section 1.8(b) in respect of any Violation
shall not exceed the net proceeds received by dELiA*s in the registered offering
out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
this Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim for
indemnification in respect thereof is to be made against any indemnifying party
under this Section 1.8, deliver to the indemnifying party a written notice of
the commencement of such an action and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflict of
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 1.8 except to the extent that the
indemnifying party is actually prejudiced by
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<PAGE>
the failure to give such notice. In addition, the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.8. The
indemnification provided in this Section 1.8 shall remain in full force and
effect, regardless of any investigation made by or on behalf of any indemnified
party, and shall survive the transfer of any Registrable Securities being
registered pursuant to Section 1.2, 1.3 or 1.4.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
agreements of the Company and dELiA*s are subject to the limitation that,
insofar as they relate to any Violation made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or in the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreements shall not inure to the benefit of
dELiA*s (or any officer or director of dELiA*s or any such agent, underwriter or
controlling Person of dELiA*s) if a copy of the Final Prospectus was timely
furnished to the indemnified party, and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the 1933 Act; provided, however, that this subparagraph
(d) shall not apply with respect to any underwritten offering.
(e) Contribution. In order to provide for just and equitable
contribution to joint liability under the 1933 Act in any case in which either
(i) dELiA*s (and/or any officer, director, agent, underwriter or controlling
person who may be indemnified under Section 1.8(a)) makes a claim for
indemnification pursuant to this Section 1.8 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 1.8 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of dELiA*s (and/or
any officer, director, underwriter or controlling person who may be indemnified
under Section 1.8(b)) in circumstances for which indemnification is provided
under this Section 1.8; then, and in each such case, the Company and dELiA*s
(and/or such other person) will contribute to the aggregate losses, claims,
damages and expenses or liabilities to which they may be subject (after
contribution from others) in proportion to their relative fault. The relative
fault of the Company and dELiA*s shall be determined by reference to, among
other things, whether the untrue or alleged omission of a material fact relates
to information supplied by the Company or by s dELiA*s and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and dELiA*s agree that it would not be
just and equitable if contribution pursuant to this Section 1.8(e) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the two
immediately preceding sentences; provided however, that in no event, except in
instances of fraud by dELiA*s in which there is no limitation, (i) shall dELiA*s
be responsible for more than the portion represented by the percentage that the
public offering price of the Registrable Securities of dELiA*s offered by and
sold under the registration statement bears to the public offering price of all
securities offered by and sold under such registration statement and (ii) shall
dELiA*s be required to contribute any amount in excess of the public offering
price of all such securities offered and sold by it pursuant
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to such registration statement; and in any event, no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and dELiA*s under this
Section 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement or otherwise.
1.9 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, for so
long as dELiA*s owns any Registrable Securities, the Company agrees to:
(a) Make and keep adequate, current public information available, as
required by and defined in Rule 144, at all times;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the 1934
Act;
(c) So long as dELiA*s owns any Registrable Security, furnish to
dELiA*s forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144, a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as dELiA*s may reasonably request in availing itself of
any rule or regulation of the Commission allowing a stockholder of the Company
to sell any such securities without registration; and
(d) Take such further action as dELiA*s may reasonably request.
1.10 Termination of the Company's Obligations. The Company shall have no
obligations to register Registrable Securities (i) if all Registrable Securities
have been registered and sold pursuant to registrations effected pursuant to
this Agreement, or (ii) at such time as all outstanding Registrable Securities
may be sold within a three month period under Rule 144, as it may be amended
from time to time, including but not limited to amendments that reduce the
period of time that securities must be held before such securities may be sold
pursuant to such rule.
1.11 "Market Stand-Off" Agreement. dELiA*s hereby agrees that it shall
not, to the extent requested by the Company or an underwriter of securities of
the Company, sell or otherwise transfer or dispose of any Registrable Securities
then owned by it (other than to donees or affiliates of dELiA*s who agree to be
similarly bound) for up to (1) one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the
Securities Act with respect to the initial public offering of securities of the
Company (the "IPO"), and (2) ninety (90) days following the first underwritten
public offering of securities of the Company following the IPO; provided,
however, that all executive officers and directors of the Company then holding
securities of the Company enter into similar agreements. In order to
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enforce the foregoing covenant, the Company shall have the right to place
restrictive legends on the certificates representing the shares subject to this
Section and to impose stop transfer instructions with respect to the Registrable
Securities and such other shares of stock of dELiA*s (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
1.12 Review. dELiA*s shall have the right to require the insertion in any
registration statement filed by the Company of language, in form and substance
satisfactory to it, to the effect that the holding by dELiA*s of any Registrable
Securities is not to be construed as a recommendation by the it of the
investment quality of the securities of the Company and that such holding does
not imply that dELiA*s will assist in meeting any future financial requirements
of the Company. The Company covenants that it will not file any registration
statement under the Securities Act unless it shall first have given notice
thereof to dELiA*s. The Company further covenants that dELiA*s shall have the
right prior to filing with the SEC, to receive copies of such registration
statement and any amendment thereof or supplement thereto and any prospectus
forming a part thereof in a timely fashion to enable it to participate in the
preparation of such registration statement, amendment, supplement or prospectus
and to request the insertion therein of material furnished in timely fashion
(not to exceed ten business days from the date of receipt of such material) in
writing to the Company, which in dELiA*s' judgment should be included therein.
Notwithstanding the foregoing provisions of this Section 1.12, the rights of
dELiA*s under this Section 1.12 shall not apply if the Registrable Securities
held by it are equal to or less than five percent (5%) of the total Common Stock
of the Company then outstanding.
2. ASSIGNMENT.
Notwithstanding anything herein to the contrary, the registration rights
of dELiA*s under Section 1 hereof shall inure to the benefit of and be binding
upon its successors and assigns; provided, however that (i) no party may be
assigned any of the foregoing rights until the Company is given written notice
by dELiA*s at the time of such assignment stating the name and address of the
assignee and identifying the securities of the Company as to which the
particular rights in question are being assigned; and (ii) any such Assignee
shall receive such assigned rights subject to all the terms and conditions of
this Agreement, including without limitation the provisions of this Section 2.
Notwithstanding anything to the contrary contained herein, no assignment of
rights hereunder shall increase the obligations of the Company hereunder and, in
any event, the Company shall not be obligated to effect more than one
registration pursuant to Section 1.2 in any 12-month period.
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<PAGE>
3. GENERAL PROVISIONS.
3.1 Notices. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service) as follows:
(a) if to iTurf Inc.:
iTurf Inc.
435 Hudson Street
New York, New York 10014
Attention: President
(b) if to dELiA*s, at:
dELiA*s Inc.
435 Hudson Street
New York, New York 10014
Attention: President
3.2 Entire Agreement. This Agreement constitutes and contains the
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes any and all prior negotiations, correspondence,
agreements, understandings, duties or obligations between the parties respecting
the subject matter hereof.
3.3 Amendment of Rights. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company, and dELiA*s (and/or any of its permitted
successors or assigns pursuant to Section 2) affected by such amendment or
waiver; provided, however, that as long as dELiA*s has direct or beneficial
ownership of 30% or more of the voting power represented by the voting
securities of the Company and no other person directly or beneficially owns a
greater percentage of such voting power, no amendment of a material term or
waiver of a material obligation of this Agreement shall be valid unless it has
been approved by a majority of the members of the board of directors of the
Company who are not directors or officers of dELiA*s or the beneficial owners of
five percent or more of the outstanding voting securities of dELiA*s.
3.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware, without regard to
the conflicts of law principles of such State.
3.5 Severability. If any provision of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any Person or circumstance
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<PAGE>
shall be held invalid, illegal or unenforceable in any respect by a court of
competent jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision hereof (or the remaining portion thereof) or the
application of such provision to any other Persons or circumstances.
3.6 Third Parties. This Agreement is for the sole benefit of the
parties hereto and, except as expressly provided in Section 1.8, nothing herein
expressed or implied, shall give or be construed to give to any person, other
than the parties hereto any legal or equitable rights hereunder. The parties to
this Agreement are independent contractors. There is no relationship of
partnership, joint venture, employment, franchise, or agency between the
parties. Neither party shall have the power to bind the other or incur
obligations on the other's behalf without the other's prior written consent.
3.7 Successors And Assigns. Subject to the provisions of Section 2,
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of dELiA*s.
3.8 Captions. The captions and headings contained in this Agreement
or in any Exhibit hereto are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. When a reference is
made in this Agreement to a Section or an Exhibit, such reference shall be to a
Section of this Agreement unless otherwise indicated.
3.9 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each of the
parties and delivered to each of the other parties.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
iTurf Inc.
By:_________________________________________
Name:
Title:
dELiA*s Inc.
By:_________________________________________
Name:
Title:
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FORM OF dELiA*s COMMON STOCK REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of ________ __, 1999 by and between dELiA*s Inc., a Delaware corporation
(the "Company"), and iTurf Inc., a Delaware corporation ("iTurf").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS.
1.1 Definitions. For purposes of this Agreement:
(a) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(b) Prospectus. The term "Prospectus" shall mean the prospectus
included in any registration statement filed pursuant to the provisions hereof
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the 1933 Act), as amended
or supplemented by any prospectus supplement (including, without limitation, any
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by such registration statement), and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
(c) Effective Date. The term "Effective Date" means the date on
which iTurf's registration statement relating to its initial public offering is
declared effective by the SEC.
(d) Registrable Securities. The term "Registrable Securities" means
(1) any common stock of the Company held as of or subsequent to the Effective
Date by iTurf, its successors, its assigns under this Agreement, or any entity
which controls, is controlled by, or is under common control with iTurf, and (2)
any securities of the Company issued as a dividend or other distribution with
respect to, or in exchange for or in replacement thereof, excluding in all
cases, however, (i) any Registrable Securities sold by iTurf in a transaction in
which rights under this Section 1 are not assigned in accordance with this
Agreement, or (ii) any Registrable Securities sold in a public offering pursuant
to a registration statement filed with the SEC or sold pursuant to Rule 144
except to the extent reacquired by iTurf or an entity which controls, is
controlled by or is under common control with iTurf as provided in clause (1)
above.
<PAGE>
(e) Registration. The terms "Register," "Registered," and
"Registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement.
(f) SEC. The term "SEC" or "Commission" means the U.S. Securities
and Exchange Commission.
1.2 Demand Registration.
(a) Request by iTurf. If the Company shall receive at any time after
180 days following the effective date of the registration statement for iTurf's
initial public offering, a written request from iTurf that the Company file a
registration statement under the 1933 Act covering the registration of
Registrable Securities with a reasonably anticipated aggregate price to the
public of at least three million dollars ($3,000,000) pursuant to this Section
1.2, then the Company shall effect, as soon as practicable, and in any event use
its best efforts to effect within 60 days of such request, the registration
under the 1933 Act of all Registrable Securities which iTurf requests to be
registered and included in such registration, subject only to the limitations of
this Section 1.2.
(b) Underwriting. If iTurf intends for the Registrable Securities
covered by its request to be distributed by means of an underwriting, then it
shall so advise the Company as a part of its request made pursuant to this
Section 1.2. iTurf shall (a) select the managing underwriter to administer such
offering after consultation with the Company and subject to the approval of the
Company, which approval shall not be unreasonably withheld, and (b) enter into
an underwriting agreement in customary form with such managing underwriter.
Notwithstanding any other provision of this Section 1.2, if the underwriter(s)
advise(s) the Company in writing that marketing factors require a limitation of
the number of Registrable Securities which would otherwise be registered and
underwritten pursuant hereto the Company will so advise iTurf, and the number of
securities that may be included in the underwriting shall be reduced as required
by the underwriter(s) and allocated first, to the Registrable Securities covered
by iTurf request, second, to the Company and third, among any other holders of
securities of the Company entitled to inclusion in such registration.
(c) Maximum Number of Demand Registrations. The Company is obligated
to effect only one (1) such registration pursuant to this Section 1.2 in any
12-month period. The Company shall not be deemed to have effected a registration
pursuant to this Section 1.2 unless a registration statement in respect thereof
shall have been declared effective by the SEC and remains effective for 120 days
or such earlier time at which all Registrable Securities registered under such
Registration Statement have been sold (or withdrawn from such registration at
the request of iTurf).
(d) Deferral; Jurisdictional Requirements. Notwithstanding the
foregoing, if the Company furnishes to iTurf a certificate signed by the
President or Chief Executive Officer of the Company stating that it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
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<PAGE>
registration statement, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the request of
iTurf or such earlier time as such a certificate could no longer be given in
good faith; provided, however, that the Company may not utilize this right more
than once in any twelve (12) month period.
(e) Withdrawn Request. iTurf may withdraw a request for registration
under this Section 1.2 at any time prior to the effective date of the
Registration Statement related to such registration, provided that if it elects
to remain liable for all expenses incurred in conjunction therewith then such
withdrawn registration statement shall not be considered to be a demand
registration for the purposes of Section 1.2(c).
1.3 Piggyback Registrations.
(a) iTurf Rights. The Company shall notify iTurf in writing at least
thirty (30) days (or such shorter period of time as is practicable) prior to
filing any registration statement under the 1933 Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements on Form S-8 or S-4 or relating
solely to any employee benefit plan or an acquisition of any entity or business)
and will afford iTurf, subject to the terms and conditions set forth herein, an
opportunity to include in such registration statement all or any part of the
Registrable Securities. iTurf shall, within ten (10) days after receipt of the
above-described notice from the Company, so notify the Company in writing, and
in such notice shall inform the Company of the number of Registrable Securities
it requests to be included in such registration statement. If iTurf decides not
to include all of its Registrable Securities in any registration statement filed
by the Company, it shall nevertheless continue to have the right to include any
Registrable Securities not included in such registration statement in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(b) Underwriting. If a registration statement with respect to which
the Company gives notice under this Section 1.3 pertains to an underwritten
offering, then the Company shall so advise iTurf. In such event, the right of
iTurf to have Registrable Securities included in a registration pursuant to this
Section 1.3 shall be conditioned upon iTurf's participation in such underwriting
and the inclusion of the Registrable Securities in the underwriting to the
extent provided herein. iTurf shall enter into an underwriting agreement in
customary form with the managing underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Agreement, if the
managing underwriter or underwriters determine(s) in good faith that marketing
factors require a limitation of the number of securities to be underwritten,
then the managing underwriter(s) may exclude securities (including Registrable
Securities) from the registration and the underwriting, and the number of
securities that may be included in the registration and the underwriting shall
be allocated, first, to the Company, second to iTurf and third to any other
holders of securities of the Company entitled to inclusion in such registration,
provided that if the registration is a registration pursuant to Section 1.2, the
"cut-back" provisions described in the last sentence of Section 1.2(b) shall
apply.
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<PAGE>
If iTurf disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter(s), delivered at least ten (10) business days prior to the effective
date of the registration statement or if notified of the terms thereafter,
promptly after such notification. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration.
1.4 Form S-3 Registration. In case the Company shall receive from iTurf a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by iTurf, then the Company will:
(a) Registration. As soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of iTurf
Registrable Securities as are specified in such request, provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 1.4:
(1) if Form S-3 is not available for such offering by iTurf;
(2) if iTurf, together with any other holders of securities of
the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than one million dollars ($1,000,000); or
(3) if the Company furnishes to iTurf a certificate signed by
the President or Chief Executive Officer of the Company stating that it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, then the Company shall have the right
to defer the filing of the Form S-3 registration statement no more than once
during any twelve month period for a period of not more than one hundred twenty
(120) days after receipt of the request of iTurf under this Section 1.4 or such
earlier time as such a certificate could no longer be given in good faith.
(b) Not Demand Registration. Form S-3 registrations shall not be
deemed to be demand registrations as described in Section 1.2 above.
(c) Number of Registrations. Notwithstanding anything to the
contrary herein, the Company is obligated to effect only one (1) registration on
Form S-3 per year pursuant to this Section 1.4.
(d) Withdrawn Request. iTurf may withdraw its request for
registration under this Section 1.4 at any time prior to the effective date of
the Registration Statement related to such registration, provided that if it
elects to remain liable for all expenses incurred in conjunction therewith then
such withdrawn registration statement shall not be considered to be a Form S-3
registration for the purposes of this Section 1.4.
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<PAGE>
1.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities, use its best efforts to cause such
registration statement to become effective as soon as practicable and with
respect to registrations effected pursuant to Sections 1.2, 1.3 and 1.4 keep
such registrations effective for up to one hundred twenty (120) days, excluding
any lock-up period, or such shorter period of time as is agreed to in writing by
the Company and iTurf.
(b) For such period of time as shall be required in connection with
the transactions contemplated thereby and permitted by applicable rules,
regulations and administrative practice of the SEC (but not for more than 120
days from the effective date thereof), file such post-effective amendments and
supplements to such registration statement as shall be necessary so that neither
such registration statement nor any related prospectus shall contain any
material misstatement or omission relative to the Company or any of its assets
or liabilities or its businesses of affairs and will otherwise comply with all
applicable federal, state and foreign securities laws.
(c) Furnish to iTurf such number of copies of a Prospectus,
including a preliminary Prospectus, in conformity with the requirements of the
1933 Act, and such other documents as it may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by it that are
included in such registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by iTurf, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions unless already subject thereto.
(e) If requested by the underwriters for any underwritten offering
by iTurf pursuant to any registration requested under Section 1.2, 1.3 or 1.4,
the Company shall enter into an underwriting agreement with such underwriters
for such offering, such agreement to be satisfactory in form and substance to
iTurf and to contain such representations and warranties by the Company and such
other terms and provisions (including, without limitation, provisions for
indemnification of such underwriters by the Company) as are customarily
contained in such underwriting agreements. iTurf shall be a party to such
underwriting agreement and may, at its option, require that any or all of the
representations and warranties by, and the agreements on the part of, the
Company to and for the benefit of such underwriters be made to and for the
benefit of iTurf and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of iTurf.
(f) Notify iTurf promptly, (i) of the time such registration
statement becomes effective or when any amendment or supplement or prospectus
forming a part of such registration
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<PAGE>
statement has been filed or becomes effective, (ii) of any request by the SEC or
any other federal or state governmental authority during the period of
effectiveness of a registration statement for amendments or supplements to such
registration statement or related prospectus or for additional information,
(iii) of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of a registration
statement or the initiation or threatening of any proceedings for that purpose
(and the Company will use its best efforts to prevent the issuance of any such
stop order or to obtain its withdrawal promptly if such stop order should be
issued), (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event which makes any statement made in a registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the registration statement or prospectus so that, in the case of a
registration statement, it will not contain any untrue statement of a material
fact required to be stated therein or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and that in the case of the Prospectus, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and, at the reasonable
request of iTurf, the Company shall also promptly prepare and file with the
Securities and Exchange Commission and make available to iTurf any supplement or
amendment reasonably necessary so that neither such registration statement nor
any related prospectus shall contain any material misstatement or omission as a
result of such event (provided that the 120 day period referred to in Section
1.2, 1.3 or 1.4 shall be extended by the period from which the Company gives the
notice specified in this clause until such supplement or amendment is made
available to iTurf), and (vi) of the Company's reasonable determination that a
post-effective amendment to a registration statement would be appropriate;
except that notice of an event or determination referred to in (v) or (vi) above
need be made only if a registration statement relating to Registrable Securities
is then in effect.
(g) Provide for the listing of the Registrable Securities on the
stock exchange or authorization for trading on automated quotation system on
which the Registrable Securities' class of securities are then listed or quoted;
provided however, nothing contained herein shall obligate the Company to have
listed any Registrable Securities which are of a class of securities of the
Company not then listed on a stock exchange or authorized for trading on
automated quotation system.
(h) Make available for inspection by any underwriter participating
in any disposition pursuant to such registration statement, and any attorney,
accountant or other professional retained by such underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement.
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<PAGE>
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 1.2, 1.3 or
1.4 that iTurf shall furnish to the Company such information regarding iTurf,
the Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to timely effect the registration of its
Registrable Securities.
1.7 Expenses. All expenses incurred in connection with a registration
pursuant to Sections 1.2, 1.3 and 1.4, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for iTurf (but excluding underwriters' discounts
and commissions), shall be borne by the Company. iTurf shall bear a
proportionate share (based on the total number of shares sold in a registration
pursuant to Section 1 other than for the account of the Company) of all
discounts, commissions or other amounts payable to underwriters or brokers in
connection with such offering.
1.8 Indemnification. In the event any registration statement is filed by
the Company:
(a) By the Company. To the extent permitted by law, the Company will
indemnify and hold harmless iTurf, each officer and director of iTurf, any agent
or underwriter (as defined in the 1933 Act) for iTurf and each person (as
defined in Section 2(2) of the 1933 Act), if any, who controls iTurf or such
underwriter within the meaning of Section 15 of the 1933 Act or the Section 20
of the Securities Exchange Act of 1934, as amended (the "1934 Act") or any
similar federal statute then in effect, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the 1933
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or in any
amendments or supplements thereto; (ii) the omission or alleged omission to
state in such registration statement, including any preliminary prospectus or
final prospectus contained therein or in any amendments or supplements thereto,
a material fact required to be stated therein, or necessary to make the
statements therein not misleading (in the case of any preliminary prospectus or
final prospectus, in the light of the circumstances under which they are made);
or (iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any federal or state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any federal or state securities
law in connection with the offering covered by such registration statement; and
the Company will reimburse iTurf, each officer or director of iTurf, and each
such agent, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this subsection 1.8(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
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<PAGE>
any such case for any such loss, claim, damage or liability to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by iTurf, or by such officer, director, agent,
underwriter or controlling person of iTurf.
(b) By iTurf. To the extent permitted by law, iTurf will severally
and not jointly indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the registration statement, each person, if
any, who controls the Company within the meaning of the 1933 Act or the 1934
Act, as applicable, and any agent or underwriter, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, agent or underwriter may become subject
under the 1933 Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information concerning iTurf furnished by iTurf expressly for use in
connection with such registration; and iTurf will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action to the extent that (and only
to the extent that) such Violation occurs in reliance upon and in conformity
with written information concerning iTurf furnished by iTurf for use in
connection therewith; provided, however, that the indemnity agreement contained
in this subsection 1.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of iTurf, which consent shall not be unreasonably withheld;
and provided further, that the total amounts payable in indemnity by iTurf under
this Section 1.8(b) in respect of any Violation shall not exceed the net
proceeds received by iTurf in the registered offering out of which such
Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
this Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim for
indemnification in respect thereof is to be made against any indemnifying party
under this Section 1.8, deliver to the indemnifying party a written notice of
the commencement of such an action and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflict of
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 1.8 except to the extent that the
indemnifying party is actually prejudiced by the failure to give such notice. In
addition, the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.8. The indemnification provided in this
Section 1.8 shall
-8-
<PAGE>
remain in full force and effect, regardless of any investigation made by or on
behalf of any indemnified party, and shall survive the transfer of any
Registrable Securities being registered pursuant to Section 1.2, 1.3 or 1.4.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
agreements of the Company and iTurf are subject to the limitation that, insofar
as they relate to any Violation made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or in the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreements shall not inure to the benefit of iTurf
(or any officer or director of iTurf or any such agent, underwriter or
controlling Person of iTurf) if a copy of the Final Prospectus was timely
furnished to the indemnified party, and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the 1933 Act; provided, however, that this subparagraph
(d) shall not apply with respect to any underwritten offering.
(e) Contribution. In order to provide for just and equitable
contribution to joint liability under the 1933 Act in any case in which either
(i) iTurf (and/or any officer, director, agent, underwriter or controlling
person who may be indemnified under Section 1.8(a)) makes a claim for
indemnification pursuant to this Section 1.8 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 1.8 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of iTurf (and/or any
officer, director, underwriter or controlling person who may be indemnified
under Section 1.8(b)) in circumstances for which indemnification is provided
under this Section 1.8; then, and in each such case, the Company and iTurf
(and/or such other person) will contribute to the aggregate losses, claims,
damages and expenses or liabilities to which they may be subject (after
contribution from others) in proportion to their relative fault. The relative
fault of the Company and iTurf shall be determined by reference to, among other
things, whether the untrue or alleged omission of a material fact relates to
information supplied by the Company or by s iTurf and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and iTurf agree that it would not be
just and equitable if contribution pursuant to this Section 1.8(e) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the two
immediately preceding sentences; provided however, that in no event, except in
instances of fraud by iTurf in which there is no limitation, (i) shall iTurf be
responsible for more than the portion represented by the percentage that the
public offering price of the Registrable Securities of iTurf offered by and sold
under the registration statement bears to the public offering price of all
securities offered by and sold under such registration statement and (ii) shall
iTurf be required to contribute any amount in excess of the public offering
price of all such securities offered and sold by it pursuant to such
registration statement; and in any event, no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
-9-
<PAGE>
(f) Survival. The obligations of the Company and iTurf under this
Section 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement or otherwise.
1.9 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, for so
long as iTurf owns any Registrable Securities, the Company agrees to:
(a) Make and keep adequate, current public information available, as
required by and defined in Rule 144, at all times;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the 1934
Act;
(c) So long as iTurf owns any Registrable Security, furnish to iTurf
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of said Rule 144, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as iTurf may reasonably request in availing itself of any rule or
regulation of the Commission allowing a stockholder of the Company to sell any
such securities without registration; and
(d) Take such further action as iTurf may reasonably request.
1.10 Termination of the Company's Obligations. The Company shall have no
obligations to register Registrable Securities (i) if all Registrable Securities
have been registered and sold pursuant to registrations effected pursuant to
this Agreement, or (ii) at such time as all outstanding Registrable Securities
may be sold within a three month period under Rule 144, as it may be amended
from time to time, including but not limited to amendments that reduce the
period of time that securities must be held before such securities may be sold
pursuant to such rule.
1.11 Review. iTurf shall have the right to require the insertion in any
registration statement filed by the Company of language, in form and substance
satisfactory to it, to the effect that the holding by iTurf of any Registrable
Securities is not to be construed as a recommendation by the it of the
investment quality of the securities of the Company and that such holding does
not imply that iTurf will assist in meeting any future financial requirements of
the Company. The Company covenants that it will not file any registration
statement under the Securities Act unless it shall first have given notice
thereof to iTurf. The Company further covenants that iTurf shall have the right
prior to filing with the SEC, to receive copies of such registration statement
and any amendment thereof or supplement thereto and any prospectus forming a
part thereof in a timely fashion to enable it to participate in the preparation
of such registration statement, amendment, supplement or prospectus and to
request the insertion therein of material furnished in timely fashion (not to
exceed ten business days from the date of receipt of such material) in writing
to the Company, which in iTurf's judgment should be included
-10-
<PAGE>
therein. Notwithstanding the foregoing provisions of this Section 1.11, the
rights of iTurf under this Section 1.11 shall not apply if the Registrable
Securities held by it are equal to or less than five percent (5%) of the total
Common Stock of the Company then outstanding.
2. ASSIGNMENT.
Notwithstanding anything herein to the contrary, the registration rights
of iTurf under Section 1 hereof shall inure to the benefit of and be binding
upon its successors and assigns; provided, however that (i) no party may be
assigned any of the foregoing rights until the Company is given written notice
by iTurf at the time of such assignment stating the name and address of the
assignee and identifying the securities of the Company as to which the
particular rights in question are being assigned; and (ii) any such Assignee
shall receive such assigned rights subject to all the terms and conditions of
this Agreement, including without limitation the provisions of this Section 2.
Notwithstanding anything to the contrary contained herein, no assignment of
rights hereunder shall increase the obligations of the Company hereunder and, in
any event, the Company shall not be obligated to effect more than one
registration pursuant to Section 1.2 in any 12-month period.
3. GENERAL PROVISIONS.
3.1 Notices. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service) as follows:
(a) if to dELiA*s:
dELiA*s Inc.
435 Hudson Street
New York, New York 10014
Attention: President
(b) if to iTurf Inc.:
iTurf Inc.
435 Hudson Street
New York, New York 10014
Attention: President
3.2 Entire Agreement. This Agreement constitutes and contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof and
-11-
<PAGE>
supersedes any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties respecting the subject
matter hereof.
3.3 Amendment of Rights. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company, and iTurf (and /or any of its permitted successors or
assigns pursuant to Section 2) affected by such amendment or waiver; provided,
however, that as long as the Company has direct or beneficial ownership of 30%
or more of the voting power represented by the voting securities of iTurf and no
other person directly or beneficially owns a greater percentage of such voting
power, no amendment of a material term or waiver of a material obligation of
this Agreement shall be valid unless it has been approved by a majority of the
members of the board of directors of iTurf who are not directors or officers of
the Company or the beneficial owners of five percent or more of the outstanding
voting securities of the Company.
3.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without regard to
the conflicts of law principles of such State.
3.5 Severability. If any provision of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any Person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof (or the remaining
portion thereof) or the application of such provision to any other Persons or
circumstances.
3.6 Third Parties. This Agreement is for the sole benefit of the parties
hereto and, except as expressly provided in Section 1.8, nothing herein
expressed or implied, shall give or be construed to give to any person, other
than the parties hereto any legal or equitable rights hereunder. The parties to
this Agreement are independent contractors. There is no relationship of
partnership, joint venture, employment, franchise, or agency between the
parties. Neither party shall have the power to bind the other or incur
obligations on the other's behalf without the other's prior written consent.
3.7 Successors And Assigns. Subject to the provisions of Section 2, the
provisions of this Agreement shall inure to the benefit of, and shall be binding
upon, the successors and permitted assigns of iTurf.
3.8 Captions. The captions and headings contained in this Agreement or in
any Exhibit hereto are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. When a reference is made in
this Agreement to a Section or an Exhibit, such reference shall be to a Section
or an Exhibit of this Agreement unless otherwise indicated.
-12-
<PAGE>
3.9 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more such counterparts have been signed by each of the parties and
delivered to each of the other parties.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
dELiA*s Inc.
By: ____________________________________
Name:
Title:
iTurf Inc.
By: ____________________________________
Name:
Title:
-14-
FORM OF CUSTOMER SERVICE AGREEMENT
This Customer Service Agreement (this "Agreement") is being entered into
as of the ___ day of __________, 1999 and is entered into by and between dELiA*s
Inc., a Delaware corporation ("dELiA*s"), and iTurf Inc., a Delaware corporation
("iTurf").
RECITALS
A. iTurf is currently a wholly-owned subsidiary of dELiA*s;
B. iTurf is considering an initial public offering of its common stock
("IPO");
C. After the IPO, dELiA*s desires to obtain certain customer service
services from iTurf, and iTurf desires to provide such services
following the closing date of the IPO.
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
Section 1. Customer Service Provided.
iTurf or, at its option, its subsidiaries shall render to dELiA*s
the following services ("Services") in accordance with the terms of this
Agreement:
(a) Scope of Service. iTurf shall provide, directly or through its
subsidiaries, E-mail based customer service activities to dELiA*s solely in
respect of dELiA*s catalogs, the trademark of which is licensed to iTurf under
the Trademark License and Customer List Agreement between the parties hereto.
Such Services shall include online order tracking and other routine online
customer service functions.
(b) Quality of Services. The quality of Services to be provided by
iTurf hereunder shall be at least equal to the quality of the same services
provided to dELiA*s by iTurf prior to the effectiveness of this Agreement.
(c) Change in Services Required. In the event that dELiA*s requires
services that exceed the scope or extent of the Services provided for herein,
and if iTurf agrees to provide such services, iTurf and dELiA*s shall negotiate
in good faith the terms and conditions, including price, under which iTurf shall
provide such services;
Section 2. Consideration and Compensation.
dELiA*s shall pay to iTurf when due a fee for the Services equal to
105% of iTurf's cost, provided that in the event this Agreement is terminated in
accordance with Section 3
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<PAGE>
hereof, the fee for such Service shall no longer be payable following the
effective date of such termination. Late payments shall accrue interest at a
rate equal to the prime rate announced from time to time by First Union National
Bank plus 300 basis points.
Section 3. Term.
(a) The term of this Agreement shall begin on the date of the closing of
the IPO (the "Effective Date") and shall continue for an indefinite period in
full force and effect until it is terminated in accordance with this Section 3.
(b) iTurf shall have the right (but not the obligation) to terminate
immediately this Agreement:
(i) if dELiA*s is in material breach of any of its obligations or
representations hereunder, which breach is not cured within
(twenty) 20 days of receipt of written notice from iTurf of
such breach,
(ii) dELiA*s is the subject of a voluntary petition in bankruptcy
or any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed
within sixty (60) days of filing or becomes the subject of any
involuntary petition in bankruptcy or any involuntary
proceeding relating to insolvency, receivership, liquidation,
or composition for the benefit of creditors, if such petition
or proceeding is not dismissed within sixty (60) days of
filing,
(iii) if the business of dELiA*s is liquidated or otherwise
terminated for insolvency or any other basis, or
(iv) if dELiA*s becomes insolvent or unable to pay its debts as
they mature or makes an assignment for the benefit of its
creditors.
(c) dELiA*s shall have the right (but not the obligation) to terminate
immediately this Agreement:
(i) if iTurf is in material breach of any of its obligations or
representations hereunder, which breach is not cured within
(twenty) 20 days of receipt of written notice from dELiA*s of
such breach,
(ii) iTurf is the subject of a voluntary petition in bankruptcy or
any voluntary proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors, if
such petition or proceeding is not dismissed within sixty (60)
days of filing, or becomes the subject of any involuntary
petition in bankruptcy or any involuntary proceeding relating
to insolvency, receivership, liquidation, or composition for
the
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<PAGE>
benefit of creditors, if such petition or proceeding is not
dismissed within sixty (60) days of filing,
(iii) if the business of iTurf is liquidated or otherwise terminated
for insolvency or any other basis, or
(iv) if iTurf becomes insolvent or unable to pay its debts as they
mature or makes an assignment for the benefit of its
creditors.
(d) dELiA*s may terminate this Agreement at any time on (sixty) 60 days'
notice to iTurf.
Section 4. Payment; Records and Accounts.
(a) iTurf shall invoice dELiA*s within (forty-five) 45 days of the end of
each fiscal quarter for Services rendered in such fiscal quarter. dELiA*s shall
pay such invoice within (thirty) 30 days of receipt.
(b) iTurf shall maintain accurate books, records and accounts of all
transactions relating to the Services performed by it pursuant to this
Agreement. dELiA*s may, at its own expense, examine and copy those books and
records as provided in this Section 4. Such books, records and accounts shall be
maintained separately from iTurf's own records and accounts and shall reflect
such information as would normally be examined by an independent accountant in
performing an audit pursuant to United States generally accepted auditing
standards for the purpose of certifying financial statements, and to permit
verification thereof by governmental agencies. dELiA*s may make those
examinations only during iTurf's usual business hours, and at the place where it
keeps the books and records. dELiA*s will be required to notify iTurf at least
ten (10) days before the date of planned examination. If dELiA*s examination is
not completed within two months from commencement, iTurf may require dELiA*s to
terminate it on seven (7) days' notice to dELiA*s at any time, provided that
iTurf has cooperated with dELiA*s in the examination of such books and records.
Section 5. Independent Contractor.
iTurf is an independent contractor and when its employees act under
the terms of this Agreement, they shall be deemed at al times to be under the
supervision and responsibility of iTurf; and no person employed by iTurf and
acting under the terms of this Agreement shall be deemed to be acting as agent
or employee of dELiA*s or any customer of dELiA*s for any purpose whatsoever.
Section 6. Confidentiality.
iTurf agrees to hold in strict confidence, and to use reasonable efforts
to cause its employees and representatives to hold in strict confidence, all
confidential information concerning dELiA*s furnished to or obtained by iTurf in
the course of providing the Services
-3-
<PAGE>
except to the extent that (a) such information has been in the public domain
through no fault of iTurf (b) disclosure or release is compelled by judicial or
administrative process, or (c) in the opinion of counsel to iTurf, disclosure or
release is necessary pursuant to requirements of law or the requirements of any
governmental entity including, without limitation, disclosure requirements under
the Securities Exchange Act of 1934, as amended.
Section 7. Miscellaneous.
(a) Neither party may assign this Agreement, or their respective
rights and obligations hereunder, in whole or in part without the other party's
prior written consent. Any attempt to assign this Agreement without such consent
shall be void and of no effect ab initio. Notwithstanding the foregoing, either
party may assign this Agreement or any of its rights and obligations hereunder
to any entity controlled by it or to any entity that acquires it by purchase of
stock or by merger or otherwise, or by obtaining substantially all of its assets
(a "Permitted Assignee"), provided that any such Permitted Assignee, or any
division thereof, thereafter succeeds to all of the rights and is subject to all
of the obligations of iTurf under this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York applicable to agreements made
and to be performed entirely within such State, without regard to the conflicts
of law principles of such State. Each party shall comply in all respects with
all laws and regulations applicable to its activities under this Agreement.
(c) Each party hereto irrevocably submits to the exclusive
jurisdiction of (a) the Supreme Court of the State of New York, New York County,
or (b) the United States District Court for the Southern District of New York,
for the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby or thereby. Each of dELiA*s and
iTurf agrees to commence any such action, suit or proceeding either in the
United States District Court for the Southern District of New York or if such
suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of dELiA*s and iTurf further agrees that service of any process,
summons, notice or documents by U.S. registered mail to such party's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in New York with respect to any maters to which it has
submitted to jurisdiction in this Section 9(c). Each of dELiA*s and iTurf
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby and thereby in (i) the Supreme Court of the State of New
York, New York County, or (ii) the United States District Court for the Southern
District of New York, and hereby and thereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
(d) If any provision of this Agreement (or any portion thereof) or
the application of any such provision (or any portion thereof) to any person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such
-4-
<PAGE>
invalidity, illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other persons or circumstances.
(e) All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
(i) if to iTurf,
iTurf Inc.
435 Hudson Street
New York, NY 10014
Attention: President
(ii) if to dELiA*s,
dELiA*s, Inc.
435 Hudson Street
New York, New York 10014
Attention: President
(f) The provisions of Section 7 hereof shall survive any termination
of this Agreement.
(g) The parties to this Agreement are independent contractors. There
is no relationship of partnership, joint venture, employment, franchise, or
agency between the parties. Neither party shall have the power to bind the other
or incur obligations on the other's behalf without the other's prior written
consent.
(h) No failure of either party to exercise or enforce any of its
rights under this Agreement shall act as a waiver of such right.
(i) This Agreement, along with the Exhibits hereto, contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. Neither party shall be liable or bound to any
other party in any manner by any representations, warranties or covenants
relating to such subject matter except as specifically set forth herein.
(j) This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each of the
parties and delivered to each of the other parties.
-5-
<PAGE>
(k) This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto; provided, however, that
as long as dELiA*s has direct or beneficial ownership of 30% or more of the
voting power represented by the voting securities of iTurf and no other person
directly or beneficially owns a greater percentage of such voting power, no
amendment of a material term or waiver of a material obligation of this
Agreement shall be valid unless it has been approved by a majority of the
members of the board of directors of iTurf who are not directors or officers of
dELiA*s or the beneficial owners of five percent or more of the outstanding
voting securities of dELiA*s.
(l) This Agreement is for the sole benefit of the parties hereto and
nothing herein expressed or implied shall give or be construed to give to any
person, other than the parties hereto any legal or equitable rights hereunder.
(m) The headings contained in this Agreement hereto are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
[SIGNATURE PAGE TO CUSTOMER SERVICE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
dELiA*s Inc.
By:____________________________________________
Name:
Title:
iTurf Inc.
By:____________________________________________
Name:
Title:
-7-
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 15, 1999, with respect
to the balance sheet of gURL, Interactive Inc. included in the Registration
Statement (Form S-1 No. 333-71123) and the related Prospectus of iTurf Inc. for
the registration of its Class A Common Stock.
ERNST & YOUNG LLP
New York, New York
March 12, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 28, 1999 (except to the second paragraph
of Note 1, as to which the date is 1999), in the Registration Statement
(Form S-1 No. 333-71123) and the related Prospectus of iTurf Inc. for the
registration of its Class A Common Stock.
ERNST & YOUNG LLP
New York, New York
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in the second paragraph of Note
1--Business to the financial statements.
/s/ ERNST & YOUNG LLP
New York, New York
March 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from iTurf's
financial statements for the year ended January 31, 1998 and for the nine months
ended October 31, 1998 included in its Prospectus, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001076914
<NAME> iTurf Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 375
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 375
<PP&E> 461
<DEPRECIATION> 47
<TOTAL-ASSETS> 1,255
<CURRENT-LIABILITIES> 836
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 294
<TOTAL-LIABILITY-AND-EQUITY> 1,255
<SALES> 3,352
<TOTAL-REVENUES> 4,014
<CGS> 1,687
<TOTAL-COSTS> 1,687
<OTHER-EXPENSES> 1,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 819
<INCOME-TAX> 355
<INCOME-CONTINUING> 464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 464
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
Exhibit 99.1
CONSENT
The undersigned hereby consents, in accordance with Rule 438 under the
Securities Act of 1933, to (a) being named in the registration statement (as
amended, the "Registration Statement") filed by iTurf Inc. (the "Company") as a
person who will become a director of the Company as described in the
Registration Statement and (b) the filing of this Consent as an exhibit to the
Registration Statement.
Dated: March 16, 1999
/s/ Beth Vanderslice
------------------------------
Beth Vanderslice
