ASSET PURCHASE AGREEMENT

Exhibit 2.1

ASSET PURCHASE AGREEMENT

by and among

Skate Direct, LLC,

dELiA*s, Inc.,

Zephyr Acquisition, LLC,

AND

Foot Locker, Inc., solely for the purposes of Section 10.13(b)

Dated as of September 29, 2008

Table of Contents

 

 

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Table of Contents

(continued)

 

 

ii

Table of Contents

(continued)

 

Buyer Disclosure Schedule

Seller Disclosure Schedule

 

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ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT , dated as of September 29, 2008 (this “ Agreement ”), by and among Skate Direct, LLC, a Delaware limited liability company (“ Seller ”), dELiA*s, Inc., a Delaware corporation and the sole member of Seller (“ dELiA*s ”), Zephyr Acquisition, LLC, a Wisconsin limited liability company (“ Buyer ”), and Foot Locker, Inc., a New York corporation (“ Foot Locker ”), solely for the purposes of Section 10.13(b) . Buyer and Seller are referred to collectively herein as the “ Parties .”

WHEREAS , Seller is engaged in the business of marketing and selling apparel, footwear, skateboard and snowboard products, and related accessories via catalogs and the Internet under the trade name “CCS” (the “ Business ”); and

WHEREAS , Seller desires to sell, and Buyer desires to purchase, the Purchased Assets (as defined below) upon the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE , in consideration of the foregoing, of the mutual covenants and agreements herein contained and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS

Section 1.1 Purchase and Sale of Assets

On and subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase and acquire from Seller, free and clear of all Encumbrances (other than Permitted Encumbrances), all of Seller’s right, title and interest, as of the Closing, in and to the following assets, properties and rights that are used in connection with the Business as currently conducted (collectively, the “ Purchased Assets ”):

(a) all (i) inventory, stock in trade, merchandise, goods, supplies and other products other than Excluded Inventory and (ii) raw materials, work in progress, finished products, wrapping, supply and packaging items, promotional materials and similar items;

(b) the contracts and agreements, including the purchase orders, listed on Section 1.1(b) of the Seller Disclosure Schedule, which schedule shall be updated by Seller three days prior to the scheduled Closing Date to delete those purchase orders that have been completed prior to the Closing Date and to include any purchase orders entered into in the ordinary course of business between the date hereof and the Closing Date (the “ Assumed Contracts ”);

(c) except as set forth in Section 1.2 , the Intellectual Property owned by Seller and used or held for use by Seller in the conduct of the Business, including, but not limited to, the trademark “CCS”, including all variations thereof and all common law rights therein, the

trademark registrations and applications for registration therefor, all past present and future rights and forms of protection of an equivalent or similar nature having the equivalent or similar effect to any of the foregoing which may subsist anywhere in the world, together with the goodwill associated therewith, and symbolized thereby; and all other Intellectual Property listed on Section 1.1(c) of the Seller Disclosure Schedule, including, in each case, the right to bring all claims or causes of action for infringement, misappropriation or other violation thereof and the right to collect and retain all damages recovered in connection therewith (collectively, the “ Conveyed Intellectual Property ”). Notwithstanding anything in this Agreement to the contrary, but except as set forth in Section 1.2 , the Conveyed Intellectual Property shall be deemed to include (i) all Intellectual Property owned by dELiA*s, its Affiliates, or Alloy or its Affiliates (other than the Excluded Content) as of the date hereof that is used in the conduct of the Business, including the CCS Trademark, the CCS Website, the CCS Domain Name and a joint ownership interest in and to the Data and (ii) the Intellectual Property transferred to Seller pursuant to the Intellectual Property Purchase Agreement;

(d) except as set forth in Section 1.2 , all fixed assets, including, without limitation, all fixtures, furniture, furnishings, machinery, equipment, tools, jigs, dies, patterns, molds, parts, engineering equipment, communications equipment, accessories, computers and peripheral devices, office and other equipment and appliances, any replacement and spare parts for any such assets, and all software embedded therein and all manuals, forms, guides and other materials used in connection therewith (collectively, the “ Fixed Assets ”);

(e) all 1-800 numbers and email addresses;

(f) all Permits, but only to the extent transferable;

(g) all books, records, files and papers (“ Business Records ”) that contain information relating to the Business or the Purchased Assets. In the event Seller is required by Law to keep originals of any Business Records or such Business Records relate to activities of dELiA*s other than the Business, Seller will provide copies of such Business Records to Buyer or shall provide access to such Business Records at such time and in such manner as Buyer shall reasonably request from time to time, and no such Business Records shall be destroyed without providing (or offering to provide) them to Buyer. To the extent any Business Records are in computer format, Seller will either provide hard copies or file transfers of such Business Records to Buyer; and

(h) all of the goodwill relating to the Business or any of the Purchased Assets.

Section 1.2 Excluded Assets

Seller shall retain, and Buyer shall not purchase from Seller, any and all assets, properties and rights that are not included among the Purchased Assets, including, without limitation (collectively, the “ Excluded Assets ”):

(a) all cash and cash equivalents, including checks received pending collection as of the close of business on the Closing Date, notes, bank deposits, certificates of deposit and marketable securities;

 

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(b) all receivables arising from the operation of the Business prior to the Closing;

(c) the Shared Assets;

(d) all contracts and agreements other than the Assumed Contracts;

(e) all Permits to the extent not transferable;

(f) Business Records that contain information that does not relate to the Business or the Purchased Assets or that Seller is required to retain by Law;

(g) the Purchase Price to be paid to Seller by Buyer pursuant to this Agreement and all rights of Seller under this Agreement and all other agreements, documents, certificates and instruments to be delivered at the Closing pursuant to Section 1.6(c) hereof;

(h) any interests in any real estate;

(i) all rights and interests under all Seller Employee Plans;

(j) all claims with respect to any balance or amount due from any Affiliate of Seller;

(k) all claims, deposits, prepayments, prepaid assets, prepaid expenses, deferred revenues, refunds, rebates, credits, causes of action, rights of recovery, rights of setoff and rights of recoupment relating to or arising out of the ownership or operation of the Business or any of the Purchased Assets prior to the Closing;

(l) all insurance policies and all rights thereunder and proceeds thereof;

(m) all minute books, corporate seals, stock record books and stock transfer records of Seller; and

(n) Excluded Inventory.

Section 1.3 Assumed Liabilities

Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Buyer shall assume and pay, honor, perform and discharge when due the following liabilities and obligations, to the extent arising and relating to the period after the Closing (collectively, the “ Assumed Liabilities ”):

(a) all liabilities and obligations under the Assumed Contracts;

(b) all liabilities and obligations with respect to the Permits included in the Purchased Assets;

(c) all liabilities and obligations with respect to unredeemed gift cards, gift certificates and customer credits due customers issued at any time within 15 months prior to the

 

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Closing Date, as set forth on Section 1.3(c) of the Seller Disclosure Schedule, which schedule shall be updated by Seller as of the close of business on the day immediately prior to the Closing Date and, as so updated, shall be delivered by Seller to Buyer on the Closing Date; and

(d) all liabilities and obligations with respect to the operation of the Business after the Closing, including, but not limited to, merchandise returns after the Closing.

Section 1.4 Excluded Liabilities

Buyer shall not assume, and Seller shall remain obligated to discharge, all liabilities and obligations of Seller other than the Assumed Liabilities (collectively, the “ Excluded Liabilities ”).

Section 1.5 Purchase Price; Adjustment

(a) In consideration for the sale by Seller of the Purchased Assets to Buyer and Buyer’s assumption of the Assumed Liabilities, at the Closing, Buyer shall pay to Seller cash in the amount of ONE HUNDRED AND TWO MILLION DOLLARS AND NO CENTS ($102,000,000) (as it may be adjusted pursuant to the last sentence of this Section 1.5(a) , Section 1.5(d) , and Section 1.5(i) , the “ Purchase Price ”). The Purchase Price shall be paid by wire transfer of immediately available funds to the account or accounts designated in writing by Seller at least two Business Days prior to the Closing Date. At the Closing, the Purchase Price shall be adjusted to give credit to Buyer for the amount of liabilities assumed pursuant to Section 1.3(c).

(b) On a mutually convenient date or dates as near as reasonably practicable to the Closing Date, but in no event more than five (5) days prior to the then anticipated Closing Date, Buyer and Seller shall cause to be taken a physical count of the inventory included in the Purchased Assets (“ Inventory ”) on a stock keeping unit (“ SKU ”) basis (the “ Inventory Count ”). The Inventory Count shall be taken by RGIS Inventory Services or such other inventory service designated jointly by Buyer and Seller (the “ Inventory Service ”) with Buyer and Seller sharing equally the fees and expenses of the Inventory Service and Buyer and Seller otherwise each bearing its own costs and expenses in connection therewith. The Parties shall roll back or roll forward the Inventory Count, as the case may be, to the close of business on the day prior to the Closing Date based on Gross Shipments (as defined below). From the period from the date of the Inventory Count through the close of business on the day prior to the Closing Date, Seller shall keep a count of units sold or received by SKU multiplied by the applicable cost, as truly and accurately recorded in Seller’s cost file and records (“ Cost File ”) maintained in the ordinary course of business, of such SKUs (“ Gross Shipments ”). All such reports shall be made available by Seller to Buyer on a daily basis from the date of the Inventory Count through the day prior to the Closing Date.

(c) The Inventory Service shall be additionally instructed by Buyer and Seller to prepare and deliver to Buyer and Seller a final certified report of Inventory Count as promptly as practicable following the Inventory Count and in no event later than two day(s) prior to the Closing Date. Following its receipt of the final certified report of Inventory Count and no later than the day prior to the Closing Date, Seller shall prepare or cause to be prepared, and shall deliver to Buyer, an unaudited statement (the “ Closing Statement of Inventory ”) setting forth the value of the Inventory as determined by multiplying the Inventory Count for each SKU by the

 

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related cost as set forth in the Cost File as of the close of business on the day prior to the Closing Date (the “ Closing Inventory Value ”). Seller shall deliver to Buyer, together with the Closing Statement of Inventory, the Cost File utilized in the preparation of the Closing Statement of Inventory. Buyer and Seller shall cooperate with and reasonably assist the Inventory Service, and shall make available to the Inventory Service the books, records, personnel and properties of Buyer and Seller, as the case may be, that the Inventory Service reasonably requires in order to prepare and deliver the final certified report of Inventory Count.

(d) The Purchase Price at Closing shall be subject to adjustment based upon the calculation of the Closing Inventory Value as presented by Seller to Buyer pursuant to Section 1.5(c) on the Closing Date. If, as of the Closing Date, the difference between the Closing Inventory Value and the Target Inventory is:

(i) $500,000 or less, there shall be no adjustment to the Purchase Price pursuant to this Section 1.5(d) ;

(ii) greater than $500,000, and the Closing Inventory Value is greater than the Target Inventory, the Purchase Price shall be increased by an amount equal to such excess, less $500,000; or

(iii) greater than $500,000, and the Closing Inventory Value is less than the Target Inventory, the Purchase Price shall be reduced by an amount equal to $500,000 less than such deficiency.

(e) Buyer shall have fifteen (15) days following the delivery of the Closing Statement of Inventory (the “ Objection Period ”) to provide written notice to Seller (the “ Objection Notice ”) of any good faith objection to any portion of the Closing Statement of Inventory relating to the final certified Inventory Count or calculation of the Closing Inventory Value, or adjustment pursuant to Section 1.5(d) (“ Adjustment ”), which objection shall be set forth with reasonable detail in such Objection Notice; provided , however , that if the disputed portions of the Closing Statement of Inventory or Adjustment are less than $50,000 in the aggregate, then (A) no such Objection Notice shall be delivered to Seller and (B) the Closing Statement of Inventory as prepared by Seller shall be deemed final and undisputed. During the Objection Period, Buyer and its accountants will be permitted to examine the work papers and all back-up materials and memoranda used or generated by the Inventory Service and/or Seller in connection with the preparation of the Closing Statement of Inventory and such other documents as Buyer may reasonably request in connection with its review of the Closing Statement of Inventory, and shall be provided access at all reasonable times to the personnel of the Inventory Service or Seller, as the case may be, for the purpose of reviewing and ascertaining the accuracy of the Closing Statement of Inventory or Adjustment. Unless Buyer timely delivers an Objection Notice before the expiration of the Objection Period, the Closing Statement of Inventory (and the Closing Inventory Value reflected thereon or calculated therefrom) and Adjustment shall be deemed to have been accepted and approved by Buyer and shall thereafter be final and binding upon Buyer and Seller for purposes of any closing and post-closing adjustment set forth in this Section 1.5 . In addition, to the extent any portion of the Closing Statement of Inventory or of the calculation of the Closing Inventory Value or Adjustment shall not be expressly objected to in the Objection Notice, such matters shall be deemed to have been accepted and approved by

 

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Buyer and shall be final and binding upon Buyer and Seller for purposes hereof. If Buyer timely delivers an Objection Notice before the expiration of the Objection Period, then those aspects of the Closing Statement of Inventory or Adjustment objected to in the Objection Notice shall not thereafter be final and binding until resolved in accordance with this Section 1.5 .

(f) Following receipt of any Objection Notice, Buyer and Seller shall discuss in good faith the applicable objections set forth therein for a period of ten (10) days thereafter and shall, during such period, attempt to resolve the matter or matters in dispute by mutual written agreement. If Buyer and Seller reach such an agreement, the agreement shall be confirmed in writing and Buyer and Seller shall revise the Closing Statement of Inventory to reflect such agreement, which agreement (and Closing Statement of Inventory, as so revised, including the Closing Inventory Value reflected thereon or calculated therefrom and Adjustment) shall thereafter be final and binding upon Seller and Buyer for purposes of any closing and post-closing adjustment set forth in this Section 1.5 .

(g) If Buyer and Seller are unable to reach a mutual agreement in whole or in part in accordance with Section 1.5(f) during the ten (10)-day period referred to therein, then Seller and Buyer shall appoint such accounting firm of national standing designated jointly by Seller and Buyer (other than KPMG LLP, BDO Seidman, LLP, Ernst & Young or any other accounting firm that has performed significant work for any Party or any of its Affiliates since January 1, 2007) (the “ Accounting Firm ”), which shall resolve those matters still in dispute with respect to the Closing Statement of Inventory and the Closing Inventory Value reflected thereon or calculated therefrom or Adjustment. Not later than 5:00 p.m. Eastern Standard Time on the tenth (10th) full Business Day after the day on which the Accounting Firm is appointed, Seller and Buyer each shall deliver or cause to be delivered to the Accounting Firm: (i) a written statement of its position on each remaining dispute or disagreement (that Party’s “ Position ”); (ii) the aggregate Closing Inventory Value and Adjustment, determined as though the Accounting Firm concurred with each such position (that Party’s “ Final Number ”); and (iii) a wire transfer or certified check in the amount of $10,000, which amount the Accounting Firm shall be authorized to apply towards its fees and expenses in the manner set forth below. If one Party fully complies with the immediately preceding sentence and the other Party does not, the compliant Party’s Position shall be final and binding on all Parties and no further action by the Accounting Firm is required. If both Parties comply with the second sentence of this Section 1.5(g) , the Accounting Firm shall make a final and binding resolution of the remaining disputes or disagreements between Buyer and Seller, and at such time the Party (if any) liable for any further payment of the Adjustment shall comply with the provisions of Section 1.5(i) hereof. The Accounting Firm shall be instructed that, in making its final and binding resolution, it must, as to each disputed item, select either the Position of Buyer or the Position of Seller. No appeal from such determination shall be permitted. The costs and expenses for the services of the Accounting Firm shall be borne entirely by the Party whose Final Number is furthest (in dollars) from the appropriate Adjustment as determined by the Accounting Firm. Subject to the foregoing sentence and Section 1.5(b) , all fees and expenses of Seller relating to matters described in this Section 1.5 shall be borne by Seller, and all fees and expenses of Buyer relating to matters described in this Section 1.5 shall be borne by Buyer. Seller and Buyer agree to fully cooperate with each other and with the Accounting Firm to resolve any dispute.

 

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(h) Notwithstanding any other provision of this Agreement, including, without limitation, any provision stating that remedies shall be cumulative and not exclusive, this Section 1.5 provides the sole and exclusive method for resolving any and all disputes that may arise between or among the Parties with respect to the determination of Closing Inventory Value and Adjustment. As among the Parties, each Party hereby irrevocably waives, relinquishes and surrenders on its own behalf and on behalf of its Affiliates and its officers, directors, principals, attorneys, agents, employees and other authorized representatives (each a “ Representative ”) all rights to, and agrees that it will not attempt, and shall cause its Affiliates and Representatives not to attempt, to resolve any such dispute or disputes related to the determination of the Closing Statement of Inventory or Adjustment in any manner other than as set forth in this Section 1.5 , including, without limitation, through litigation. Each Party further agrees on its own behalf and on behalf of its Affiliates and Representatives that if one or more of them should initiate any attempt to resolve any such dispute or disputes related to the determination of the Closing Statement of Inventory or Adjustment in any manner other than the sole and exclusive manner set forth in this Section 1.5 , such initiators shall pay and reimburse all fees, costs and expenses incurred by any other Party as a result of, in connection with or related to such attempt or attempts.

(i) All payments required to be made to a Party as a result of the final determination of the Adjustment pursuant to this Section 1.5 shall be made, in immediately available funds via wire transfer to the account or accounts designated in writing by the Party entitled to receive such payment, no later than two Business Days following the final calculation of the Closing Inventory Value and Adjustment. Any adjustments made to the Purchase Price pursuant to this Section 1.5 shall be treated by all parties hereto for Tax purposes as adjustments to the Purchase Price.

Section 1.6 Closing Transactions

(a) Closing . Unless this Agreement shall have been terminated in accordance with Section 8.1 , and subject to the satisfaction or, if permissible, waiver of the conditions set forth in Article VII , the closing of the Transactions (the “ Closing ”) will take place at 10:00 a.m., New York City time, on a date to be specified by the Parties (the “ Closing Date ”), which shall be not later than the second Business Day after the satisfaction or, if permissible, waiver of the conditions set forth in Article VII (other than those that by their terms are to be satisfied or waived at the Closing), at the offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP, Park Avenue Tower, 65 East 55th Street, New York, NY, 10022, unless another time, date or place is agreed to in writing by the Parties.

(b) Actions and Deliveries by Seller . At the Closing, Seller shall deliver to Buyer:

(i) a bill of sale substantially in the form of Exhibit A dated the Closing Date and duly executed by Seller (the “ Bill of Sale ”);

(ii) an assignment and assumption agreement substantially in the form of Exhibit B dated the Closing Date and duly executed by Seller (the “ Assignment and Assumption Agreement ”);

 

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(iii) a trademark assignment agreement in the form of Exhibit C dated the Closing Date and duly executed by Seller, assigning all of Seller’s right, title and interest in and to the CCS Trademark to Buyer (the “ Trademark Assignment Agreement ”);

(iv) a domain name assignment agreement in the form of Exhibit D dated the Closing Date and duly executed by Seller, assigning all of Seller’s right, title and interest in and to the CCS Domain Name to Buyer (the “ Domain Name Assignment Agreement ”);

(v) the certificates and documents required to be delivered by Seller pursuant to Section 7.2 , including the Consents;

(vi) a Transition Services Agreement substantially in the form of Exhibit E dated the Closing Date and duly executed by dELiA*s (the “ Transition Services Agreement ”); and

(vii) all such other instruments of assignment and transfer as are reasonably required to effect the transfer to Buyer of all of Seller’s right, title and interest in and to the Purchased Assets in accordance with this Agreement, in form and substance reasonably satisfactory to Buyer.

(c) Actions and Deliveries by Buyer . At the Closing, Buyer shall deliver to Seller:

(i) the Purchase Price specified in Section 1.5 above;

(ii) the Assignment and Assumption Agreement dated the Closing Date and duly executed by Buyer;

(iii) any filings or other evidence indicating that any Taxes, fees and charges described in Section 6.6 that are due on or prior to the Closing Date have been paid by Buyer;

(iv) the certificates and documents required to be delivered by Buyer pursuant to Section 7.3 ;

(v) a sales tax resale certificate for the Inventory;

(vi) the Transition Services Agreement dated the Closing Date and duly executed by Buyer; and

(vii) the Bill of Sale dated the Closing Date and duly executed by Buyer.

Section 1.7 Allocations

The Purchase Price shall be allocated among the Purchased Assets in accordance Exhibit F hereto. Each of Seller, dELiA*s, and Buyer agrees to complete IRS Form 8594 consistently with such allocation and, if requested by the other Party hereto, to furnish such Party with a copy of such Form prepared in draft form no less than 45 days prior to the filing due date of such Form. Neither Seller nor Buyer shall file any Return or take a position with any taxing authority or in connection with any Tax-related Action or audit that is inconsistent with this Section 1.7 .

 

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Section 1.8 Non-Assignable Assets

Notwithstanding anything in this Agreement to the contrary, except with respect to the Conveyed Intellectual Property, to the extent that the assignment of any contracts or the transfer of any properties or assets requires the consent of any other Person or Governmental Authority and such consent has not been obtained, this Agreement shall not constitute an agreement to assign or transfer any such contracts, properties or assets or any claim, right or benefit arising thereunder or resulting therefrom if any such attempted assignment or transfer would constitute a breach or default thereunder or otherwise materially adversely affect the rights of Buyer thereunder. If consent to the assignment or transfer of any such contracts, properties or assets is not obtained, or if an attempted assignment or transfer thereof in the absence of such a consent would be ineffective or would materially adversely affect the rights of Buyer thereunder, then, at Buyer’s request and at its sole cost and expense, Seller shall cooperate with Buyer in any reasonable arrangement designed to provide to Buyer the benefits under such contracts, properties or assets; provided that such cooperation by Seller shall not cause Seller to violate any terms of any such contract or any applicable Law; provided , further , that Buyer shall assume all of the post-Closing liabilities and obligations of Seller under such contracts to the extent to which Buyer receives the post-Closing benefits thereof. Notwithstanding the foregoing, nothing in this Section 1.8 shall require Buyer to waive any condition to Closing contained in Section 7.1 or 7.2 hereof or excuse Seller from making all deliveries required by Section 1.6(b) .

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF SELLER AND dELiA*s

Seller and dELiA*s each hereby represent and warrant to Buyer that, except as set forth in the disclosure schedule delivered by Seller to Buyer and attached hereto and made a part hereof (the “ Seller Disclosure Schedule ”):

Section 2.1 Organization and Qualification; Subsidiaries

Each of Seller and dELiA*s is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization and has the requisite corporate or limited liability company power and authority, as the case may be, to own, operate or lease the properties that it purports to own, operate or lease and to carry on the Business as it is now being conducted. Seller is duly qualified to do business as a foreign limited liability company and is in good standing in the jurisdictions set forth in Section 2.1 of the Seller Disclosure Schedule, which includes each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification necessary, other than those jurisdictions in which the failure to so qualify or be in good standing would not have a Seller Material Adverse Effect. Seller does not have any Subsidiaries.

 

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Section 2.2 Authority Relative to this Agreement and Related Matters

Each of Seller and dELiA*s has all necessary corporate or limited liability company power and authority, as the case may be, to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery by each of Seller and dELiA*s, respectively, of this Agreement and the consummation by Seller of the transactions contemplated hereby (the “ Transactions ”) have been duly authorized by all necessary corporate or limited liability company action on their part. This Agreement has been duly executed and delivered by each of Seller and dELiA*s and, assuming the due authorization, execution and delivery hereof by Buyer and Foot Locker, constitutes the legal, valid and binding obligation of each of Seller and dELiA*s, enforceable against each of Seller and dELiA*s in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 2.3 Certificate of Formation and LLC Agreement

Seller has heretofore furnished to Buyer a true, complete and correct copy of Seller’s certificate of formation (the “ Certificate of Formation ”) and limited liability company operating agreement (the “ LLC Agreement ”), each as amended to date. Such Certificate of Formation and LLC Agreement are in full force and effect and Seller is not in violation in any material respect of any of the provisions of such Certificate of Formation or LLC Agreement.

Section 2.4 Capitalization

dELiA*s owns all of the authorized, issued and outstanding membership interests in Seller, and such membership interests have been duly authorized and validly issued and are fully paid and non-assessable. Except as set forth in Section 2.4 of the Seller Disclosure Schedule, there are no authorized or outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (contingent or otherwise) obligating Seller to issue, sell, deliver or transfer any equity interests in Seller.

Section 2.5 No Conflict; Required Filings and Consents

The execution and delivery of this Agreement by each of Seller or dELiA*s do not, and the consummation by Seller or dELiA*s of the Transactions will not, (a) conflict with or violate the Certificate of Formation or the LLC Agreement or the organic corporate documents of dELiA*s, (b) conflict with or violate any Law or Order applicable to Seller or dELiA*s or by which Seller or dELiA*s or any of their respective properties is bound, (c) result in a breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give rise to any right of termination, acceleration or cancellation under, or result in the creation of an Encumbrance on any of the Purchased Assets pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license or other instrument or obligation to which Seller or dELiA*s is a party or by which Seller or dELiA*s or any of their respective properties is bound, or (d) require Seller or dELiA*s to obtain any consent, approval, authorization or permit of, or to make any filing with or notification to, any Governmental Authority, except (i) as set forth in Section 2.5 of the Seller Disclosure Schedule, (ii) for filings

 

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required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “ HSR Act ”), (iii) for any filings required pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “ Exchange Act ”), or (iv) in the case of clauses (b) through (d) above, where such conflicts, violations, breaches, defaults or other failures or occurrences would not have a Seller Material Adverse Effect.

Section 2.6 Financial Statements; Undisclosed Liabilities; Absence of Certain Changes

(a) Seller has delivered to Buyer, as Section 2.6 to the Seller Disclosure Schedule, (a) the audited balance sheets of the Business as of February 2, 2008 (the audited balance sheet of the Business as of February 2, 2008 is referred to herein as the “ Balance Sheet ” and February 2, 2008 is referred to herein as the “ Balance Sheet Date ”) and February 3, 2007 and audited statements of operations, statements of cash flows and statements of changes in equity of the Business for each of the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006 and (b) the unaudited balance sheet of the Business as of August 30, 2008 and unaudited statement of operations of the Business for the seven months ended August 30, 2008 (all such audited and unaudited financial statements and any notes thereto are hereinafter collectively referred to as the “ Financial Statements ”).

(b) Except as set forth in Section 2.6(b) of the Seller Disclosure Schedule, the Financial Statements: (i) present fairly in all material respects the financial position of the Business as of the dates thereof and the results of operations of Seller for the periods covered thereby; (ii) are consistent in all material respects with the books and records of the Business; and (iii) have been prepared in accordance with U.S. generally accepted accounting principles applied on a consistent basis throughout the periods indicated (except as may be indicated therein), except that the Financial Statements may not contain footnotes and any interim Financial Statements are subject to normal and recurring year-end adjustments, none of which is expected to be material individually or in the aggregate.

(c) Except as set forth in Section 2.6(c) of the Seller Disclosure Schedule, Seller does not have any liabilities of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than (i) liabilities reflected on the Balance Sheet, or (ii) liabilities incurred subsequent to the Balance Sheet Date in the ordinary course of business. At the Balance Sheet Date, there were no material loss contingencies (as such term is used in Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) that will not be adequately provided for in the Balance Sheet as required by said Statement No. 5.

(d) Except as set forth in Section 2.6(d) of the Seller Disclosure Schedule or as otherwise contemplated by this Agreement, since February 3, 2008, Seller has conducted the Business in the ordinary course of business and there has not occurred any Seller Material Adverse Effect.

 

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Section 2.7 Absence of Litigation

Except as disclosed in Section 2.7 of the Seller Disclosure Schedule, as of the date hereof, (a) there is no private or governmental action, suit, proceeding, litigation, arbitration or investigation (“ Action ”) pending or, to the knowledge of Seller, threatened against Seller before any Governmental Authority that, if adversely determined, would have a Seller Material Adverse Effect, and (b) there is no legally binding judgment, decree, order, injunction, decision or award of any Governmental Authority (“ Order ”) against Seller that has or would have a Seller Material Adverse Effect.

Section 2.8 Employee Benefit Plans

Section 2.8 of the Seller Disclosure Schedule sets forth a true and complete list of the employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) currently maintained, sponsored or contributed to by Seller or any entity that would be deemed a “single employer” with Seller within the meaning of Section 414(b), (c), (m) or (o) of the Code, and all material bonus, stock option, stock purchase, stock appreciation right, incentive, deferred compensation, supplemental retirement, post-retirement or post-termination health or welfare benefit, severance, welfare, medical, life, vacation, sickness, change in control, death benefit and other similar fringe and employee benefit plans, programs, policies and arrangements, and all employment and consulting agreements, in each case for the benefit of, or relating to, any employee or former employee of Seller (including their beneficiaries) (collectively, the “ Seller Employee Plans ”). For purposes of the preceding sentence, “material” means any program, plan, benefit, policy or arrangement involving either more than five (5) persons or aggregate liability in excess of $250,000. Except as set forth in Section 2.8 of the Seller Disclosure Schedule and except as would not have a Seller Material Adverse Effect, with respect to any of the Seller Employee Plans, (i) each Seller Employee Plan (other than a Multiemployer Plan (as defined below)) intended to qualify under Section 401(a) of the Code is so qualified and has received a favorable determination letter from the Internal Revenue Service (the “ IRS ”) or, pursuant to Revenue Proceeding 2005-16, may rely upon an opinion or advisory letter; (ii) no such Seller Employee Plan is a “multiemployer plan” within the meaning of Section 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code (a “ Multiemployer Plan ”) or a single employer pension plan within the meaning of Section 4001(a)(15) of ERISA that is subject to Sections 4063 and 4064 of ERISA (a “ Multiple Employer Plan ”), and no withdrawal liability exists with respect to any Multiemployer Plan or Multiple Employer Plan; (iii) there has been no “prohibited transaction” within the meaning of Section 4975(c) of the Code or Section 406 of ERISA, involving the assets of any of the Seller Employee Plans; (iv) no “accumulated funding deficiency” (within the meaning of Section 412 of the Code and Section 302 of ERISA) has been incurred, and no excise or other Taxes have been incurred or are due and owing by Seller with respect to any of the Seller Employee Plans because of any failure to comply with the minimum funding standards of the Code and ERISA; (v) no Action has been instituted or, to the knowledge of Seller, is threatened against or with respect to any Seller Employee Plan (other than routine claims for benefits and appeals of such claims); (vi) each Seller Employee Plan (other than a Multiemployer Plan) complies and has been maintained and operated in accordance with its terms and applicable Law, including, without limitation, ERISA and the Code; (vii) no Seller Employee Plan (other than a

 

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Multiemployer Plan) is under audit or investigation by the IRS, U.S. Department of Labor or any other Governmental Authority; (viii) except as required by Section 4980B(f) of the Code, no Seller Employee Plan provides medical, death or welfare benefits (whether or not insured) with respect to current or former employees of Seller beyond their retirement or other termination of employment; and (ix) the consummation of the Transactions (either alone or in conjunction with any other event) will not entitle any current or former employee of Seller to any payment (whether of severance pay, unemployment compensation, golden parachute, bonus or otherwise) or increase the amount of compensation due to any employee of Seller. Notwithstanding the foregoing, the representations and warranties contained in this Section 2.8 (other than the representations and warranties contained in subsections (ii), (iii) and (viii)) are qualified such that to the extent that any such representation or warranty applies to a Seller Employee Plan that is a Multiemployer Plan, such representation or warranty shall be deemed to be to the knowledge of Seller.

Section 2.9 Permits

Except as set forth in Section 2.9 of the Seller Disclosure Schedule, Seller has all material Permits required in connection with the operation of the Business as it is now being operated and conducted by Seller (collectively, “ Seller Permits ”). Seller is in compliance with the terms and conditions of such Seller Permits, except where the failure to so comply would not have a Seller Material Adverse Effect, and, as of the date hereof, no revocation, suspension or cancellation of any such Seller Permit is pending or, to the knowledge of Seller, threatened.

Section 2.10 Purchased Assets; Business

(a) Except as set forth in Section 2.10 of the Seller Disclosure Schedule, Seller has good and valid title to or, in the case of leases and licenses, valid and subsisting leasehold interests or licenses in, all of the tangible Purchased Assets (except for such Purchased Assets disposed of as permitted by Section 4.1 ), in each case free and clear of all Encumbrances, except for Permitted Encumbrances or as set forth in the Financial Statements. Seller does not own or lease any real property.

(b) Since December 19, 2005, the Business has been operated solely by Seller, subject only to the use of Shared Assets. The Purchased Assets constitute all of the assets (other than the Shared Assets) necessary to conduct the Business in the manner in which it has been operated and conducted by Seller in the past year and as it is currently operated and conducted. All of the inventory included in the Purchased Assets is usable and saleable in the ordinary course of business.

Section 2.11 Conveyed Intellectual Property

Section 2.11 of the Seller Disclosure Schedule sets forth a list of all registrations and applications for registration in respect of the Intellectual Property used or held for use by Seller or dELiA*s solely in the conduct of the Business that is owned by Seller, dELiA*s or Alloy. Except as set forth in Section 2.11 of the Seller Disclosure Schedule, (i) Seller owns (beneficially and of record) all right, title and interest in and to all Conveyed Intellectual Property owned by it, free and clear of all Encumbrances, other than Permitted Encumbrances, (ii) Seller has all

 

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proprietary rights in and to all Conveyed Intellectual Property licensed or used by it, free and clear of all Encumbrances, other than Permitted Encumbrances, necessary for the conduct of the Business as the Business is conducted as of the date hereof, (iii) Seller will own as of the Closing Date (beneficially and of record) all right, title and interest in and to the CCS Trademark, the CCS Domain Name, and the CCS Website, free and clear of all Encumbrances, other than Permitted Encumbrances; and (iv) dELiA*s owns a joint right, title and interest in and to the Data, free and clear of all Encumbrances, other than Permitted Encumbrances. Except as set forth on Section 2.11 of the Seller Disclosure Schedule, all of the Intellectual Property, the registrations and applications for registration of which are set forth on Section 2.11 of the Seller Disclosure Schedule, is valid and in full force and effect. To the knowledge of Seller, all of the other rights within the Conveyed Intellectual Property are valid and subsisting. Except as set forth on Section 2.11 of the Seller Disclosure Schedule, there is no Action that is pending or, to Seller’s knowledge, threatened that challenges the rights of Seller, dELiA*s or Alloy in respect of any Conveyed Intellectual Property or the validity, enforceability or effectiveness thereof. None of Seller, dELiA*s or Alloy has received any written communication alleging that the Business has infringed the Intellectual Property rights of any third party and there are no Actions that are pending or, to the knowledge of Seller, threatened against Seller, dELiA*s or Alloy with respect thereto. To the knowledge of Seller, the conduct of the Business does not infringe or otherwise violate the Intellectual Property rights of any third party. Except as set forth in Section 2.11 of the Seller Disclosure Schedule, to the knowledge of Seller, there is no unauthorized use, infringement or misappropriation of the Conveyed Intellectual Property by any third party and there is no Action that is pending or threatened by Seller, dELiA*s or Alloy with respect thereto. Notwithstanding anything to the contrary, this representation shall not limit or restrict the transfer of all right, title and interest in and to (i) the Conveyed Intellectual Property, owned by Seller throughout the world and (ii) any internet domain names associated with the CCS Trademark owned by Seller; provided, however, that neither Selle