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                                                                    EXHIBIT 10.3

                                   ALLOY, INC.

                                       AND

                               MATTHEW C. DIAMOND

                              EMPLOYMENT AGREEMENT

         This Agreement (the "AGREEMENT"), by and between Alloy, Inc. (the
"COMPANY") and Matthew C. Diamond ("EXECUTIVE") is effective as of February 1,
2004 (the "EFFECTIVE DATE"). In consideration of the mutual promises and
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the Company and Executive hereby agree as follows:

         1.       Employment. Subject to the terms and conditions of this
Agreement, the Company will employ Executive, and Executive agrees to serve the
Company, as Chief Executive Officer reporting to the Board of Directors of the
Company (the "BOARD"). Executive shall have the responsibilities, duty and
authority commensurate with the position of Chief Executive Officer customarily
exercised by a person holding such positions in a company of the size and nature
of the Company. The principal location at which Executive will perform such
services will be the Company's corporate headquarters in New York, New York.
Executive shall also be nominated for appointment as a director during each
election held during the Term (as defined below) for directors of the class of
which Executive is a member and shall, upon election, be appointed as Chairman
of the Board.

         2.       Term of Employment. Subject to the terms of this Agreement,
Executive's employment will begin on February 1, 2004 (the "COMMENCEMENT DATE")
and will continue until the third anniversary date of the Commencement Date (the
"INITIAL TERM"), provided that on the third anniversary of the Commencement Date
and each subsequent anniversary of the Commencement Date, the term of
Executive's employment hereunder will be automatically extended for an
additional period of one year (each a "SUBSEQUENT TERM") unless either Executive
or the Company has given written notice at least 120 days prior to the effective
date of such automatic extension that such automatic extension will not occur (a
"NON-RENEWAL NOTICE"). The Initial Term and any Subsequent Term are referred to
herein as the "TERM."

         3.       Compensation.

                  (a)      Base Salary. While Executive is employed hereunder,
the Company will pay Executive a base salary at the annual rate of $400,000 (the
"BASE SALARY"). The Base Salary shall be reviewed by the Compensation Committee
of the Board of the Company (the "COMMITTEE") as soon as practicable after the
end of each fiscal year during the Term, beginning with the fiscal year ending
on January 31, 2005. Based upon such reviews, the Committee annually may
increase, but shall not decrease, the Base Salary by an amount not to exceed ten
percent (10%) of the Base Salary then in effect. Any increase in Base Salary
shall not serve to limit or reduce any other obligation to Executive under this
Agreement. The Base Salary will be payable in substantially equal installments
in accordance with the Company's payroll practices as in effect from time to
time. The Company shall deduct from each such installment all

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amounts required to be deducted or withheld under applicable law or under any
Executive benefit plan in which Executive participate.

                  (b)      Annual Cash Bonus. Beginning with the Company's
fiscal year ending on January 31, 2005, as soon as practicable after the end of
each fiscal year of the Company, the Committee shall review Executive's
performance under this Agreement as part of the Committee's annual review of
Executive's performance in order to determine the appropriate cash bonus
Executive should receive for such year. Executive's annual cash bonus shall be
at a target of no less than fifty percent (50%) of his then current Base Salary
(the "TARGET AMOUNT"), with a maximum annual cash bonus of one hundred percent
(100%) of his then current Base Salary. The actual amount of Executive's annual
bonus, if any, shall be based on the degree to which the Company met its annual
performance objectives (the "PERFORMANCE OBJECTIVES") in the prior fiscal year,
which Performance Objectives shall be established annually by the Committee in
consultation with Executive and the other senior executives of the Company
promptly after the Company's annual budget has been established by the Board;
provided, that such Performance Objectives may thereafter be adjusted to reflect
the actual or contemplated results of any significant corporate events occurring
during such fiscal year. It is the expectation of the Company and Executive that
Executive (i) shall be entitled to receive the Target Amount if the Company
meets the Performance Objectives within an acceptable range as determined by the
Committee, (ii) may receive less than the Target Amount if such Performance
Objectives are not met and (iii) may receive up to the maximum bonus if such
Performance Objectives are exceeded substantially. Executive shall be paid his
annual bonus no later than other senior executives of the Company are paid their
annual bonuses, and in any event not later than thirty (30) days after the
completion of the audit for such fiscal year.

                  (c)      Additional Compensation. Beginning with the Company's
fiscal year ending on January 31, 2005, Executive shall be eligible to receive a
long-term incentive award equal in value to one hundred fifty percent (150%) of
his then current Base Salary (the "LTI TARGET AMOUNT"), with a maximum award
equal in value to two hundred percent (200%) of his then current base salary, in
any event, in annual equity grant value under the appropriate bonus plan of the
Company then in effect, any such award to be made by the Committee within thirty
(30) days after the completion of the audit for the prior fiscal year. All such
awards shall, unless the Executive and Committee otherwise agree, be made so
that two-thirds (-2/3) in value of such grant is made in the form of restricted
stock awards with a three (3) year cliff vesting and one-third (-1/3) in value
shall be made in the form of stock options that shall vest in three equal
installments on each anniversary date of the grant thereof. The Executive shall
be granted awards in the LTI Target Amount at the start of each fiscal year of
the Term, with the actual amount of the long-term incentive awards granted to
Executive to be based on the degree to which the Company met the Performance
Objectives in such fiscal year. It is the expectation of the Company and
Executive that Executive (i) shall be entitled to receive the LTI Target Amount
if the Company meets the Performance Objectives within an acceptable range as
determined by the Committee, (ii) may receive less than the LTI Target Amount if
such Performance Objectives are not met and (iii) may receive up to the maximum
long-term incentive award if such Performance Objectives are exceeded
substantially. Provision shall be made in the restricted stock grants and option
agreements to require Executive to return to the Company the shares of
restricted stock in excess of the number of shares actually awarded and that the
options in excess of the number of options actually awarded shall be cancelled
if the Committee determines that

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Executive has not earned the full LTI Target Amount. In making such equity
grants, the value thereof shall be determined by the Committee in good faith in
accordance with such methodology or methodologies as may be used by it to
determine the equity grants to be made to its senior executives generally;
provided, that the stock price used in making such determination shall be equal
to the greater of (i) the Fair Market Value per share of common stock of the
Company (as such term is defined in the option or incentive plan(s) under which
such award is made) and (ii) the average of the closing sales prices for the
common stock of the Company on its primary trading market in the twenty (20)
trading days prior to the effective date of such equity grant. The remaining
terms of such equity grants, if any, shall be determined by the Committee in
accordance with the terms of the option or incentive plan(s) under which such
grants are made and on a basis consistent with the restricted stock grants
previously awarded to Executive.

                  (d)      General Provisions. All shares of common stock or
other equity securities awarded to Executive pursuant to the preceding
provisions shall be registered on Form S-3, S-8 or any successor from or other
applicable form under the Securities Act of 1933, and the Company shall, subject
to the provisions of the appropriate equity plan or plans under which they are
granted, seek to keep such registration effective at all required times. All
unvested shares and options, if any, granted pursuant to the preceding
subsections shall vest automatically, and the Company's repurchase rights, if
any, shall, unless Executive and the Company otherwise shall agree as of the
date of the grant or award thereof, terminate automatically with respect to, and
without any action on the part of Executive or the Company on the date of a
Change of Control (as defined below).

                  (e)      Change of Control. For purposes of this Agreement, a
"CHANGE OF CONTROL" means that any of the following events has occurred:

                           (A) Any person (as such term is used in Section 13(d)
                  of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"),
                  other than the Company, any Executive benefit plan of the
                  Company or any entity organized, appointed or established by
                  the Company for or pursuant to the terms of any such plan,
                  together with all "affiliates" and "associates" (as such terms
                  are defined in Rule 12b-2 under the Exchange Act) becomes the
                  beneficial owner or owners (as defined in Rule I 3d-3 and
                  13d-5 promulgated under the Exchange Act), directly or
                  indirectly, of more than 50% of the outstanding equity
                  securities of the Company, or otherwise becomes entitled,
                  directly or indirectly, to vote more than 50% of the voting
                  power entitled to be cast at elections for directors ("VOTING
                  POWER") of the Company;

                           (B) A consolidation or merger (in one transaction or
                  a series of related transactions) of the Company pursuant to
                  which the holders of the Company's equity securities
                  immediately prior to such transaction or series of related
                  transactions would not be the holders, directly or indirectly,
                  immediately after such transaction or series of related
                  transactions of more than 50% of the Voting Power of the
                  entity surviving such transaction or series of related
                  transactions;

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                           (C) The sale, lease, exchange or other transfer (in
                  one transaction or a series of related transactions) of all or
                  substantially all of the assets of the Company; or

                           (D) The liquidation or dissolution of the Company or
                  the Company ceasing to do business.

                  (f)      Vacation. Executive will be entitled to paid vacation
in each fiscal year and paid holidays and personal days in accordance with the
Company's policies for its senior executives as in effect from time to time, but
not less than 28 days paid vacation in each calendar year. Accrued unused
vacation may be carried over from year to year, but will be deemed forfeited if
not used within the first fiscal quarter of the succeeding year.

                  (g)      Fringe Benefits. Executive will be entitled to
participate in the same manner as other senior executives of the Company in any
Executive benefit plans which the Company provides or may establish for the
benefit of its senior executives generally (including, without limitation, group
life, disability, medical, dental and other insurance, tax benefit and planning
services, 401(k), retirement, pension, profit-sharing and similar plans)
(collectively, the "FRINGE BENEFITS"), provided that the Fringe Benefits will
not include any stock option or similar plans relating to the grant of equity
securities of the Company.

                  (h)      Reimbursement of Expenses. The Company will reimburse
Executive for all ordinary and reasonable out-of-pocket business expenses that
are incurred by Executive in furtherance of the Company's business in accordance
with the Company's policies with respect thereto as in effect from time to time.

                  (i)      Indemnification. The Company shall indemnify
Executive to the fullest extent permitted by its charter and by-laws and by
applicable law against all costs, charges and expenses, including, without
limitation, attorneys' fees, incurred or sustained by Executive in connection
with any action, suit or proceeding to which Executive may be made a party by
reason of being an officer, director or Executive of the Company. In connection
with the foregoing, Executive shall be covered under all liability insurance
policies that protect other officers of the Company.

                  (j)      Payment Of Professional Fees. The Company shall pay
on Executive's behalf all statements rendered to Executive by Executive's
attorneys, accountants and other advisors for reasonable fees and expenses, up
to a maximum of $10,000, in connection with the negotiation and preparation of
this Agreement. The Company shall pay Executive, on or prior to such date as
Executive shall be required to pay federal, state or local taxes with respect to
the Company's payment of such professional fees, an additional payment (the
"GROSS-UP PAYMENT") in an amount sufficient to fully reimburse Executive with
respect to all federal, state and local taxes with respect to the Company's
payment of such professional fees and with respect to receipt of the Gross-Up
Payment.

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         4.       Termination.

                  (a)      Death Or Disability. This Agreement and the Term
shall terminate automatically upon Executive's death. If the Company determines
in good faith that the Disability of Executive has occurred (pursuant to the
definition of "Disability" set forth below), it may give to Executive written
notice of its intention to terminate Executive's employment. In such event,
Executive's employment with the Company shall terminate effective on the
thirtieth day after receipt by Executive of such notice given at any time after
a period of one hundred twenty (120) consecutive days of Disability or a period
of one hundred eighty (180) days of Disability within any twelve (12)
consecutive months, and, in either case, while such Disability is continuing
("DISABILITY EFFECTIVE DATE"); within the thirty (30) days after such receipt,
Executive shall not have returned to full-time performance of Executive's
duties. For purposes of this Agreement, "DISABILITY" means Executive's inability
to substantially perform his duties hereunder, with reasonable accommodation, as
evidenced by a certificate signed either by a physician mutually acceptable to
the Company and Executive or, if the Company and Executive cannot agree upon a
physician, by a physician selected by agreement of a physician designated by the
Company and a physician designated by Executive; provided, however, that if such
physicians cannot agree upon a third physician within thirty (30) days, such
third physician shall be designated by the American Arbitration Association.
Until the Disability Effective Date, Executive shall be entitled to all
compensation provided for under Section 3 hereof. It is understood that nothing
in this Section 4 shall serve to limit the Company's obligation sunder Section 5
hereof.

                  (b)      By The Company For Cause. The Company may terminate
Executive's employment at any time during the Term immediately for "Cause." For
purposes of this Agreement, "CAUSE" shall mean (i) Executive's conviction of a
felony, either in connection with the performance of his obligations to the
Company or which otherwise materially and adversely affects his ability to
perform such obligations or materially and adversely affects the business
activities, reputation, goodwill or image of the Company, (ii) the willful gross
neglect or malfeasance by Executive in the performance of his duties hereunder
or (iii) Executive's breach in any material respect of any applicable
non-competition and confidentiality agreement between the Company and Executive,
which breach is not cured within any applicable cure period; provided, however,
that for the purposes of determining whether conduct constitutes willful gross
neglect or malfeasance, no act on Executive's part shall be considered "willful"
unless it is done by Executive in bad faith and without reasonable belief that
Executive's action was in the best interests of the Company. Notwithstanding the
foregoing, the Company may not terminate Executive's employment for Cause unless
(i) a determination that Cause exists is made and approved by a majority of the
Board, (ii) Executive is given at least thirty (30) days written notice of the
Board meeting called to make such determination, and (iii) Executive and his
legal counsel are given the opportunity to address such meeting.

                  (c)      By Executive For Good Reason. During the Period of
Employment, Executive's employment hereunder may be terminated by Executive for
Good Reason upon fifteen (15) days' written notice. For purposes of this
Agreement, "GOOD REASON" shall mean the occurrence of any of the following,
without Executive's prior written consent:

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                           (i)      Assignment to Executive of any duties
inconsistent in any material respect with Executive's position (including
status, offices, titles and reporting relationships), authority, duties or
responsibilities as contemplated by Section 1 of this Agreement, or any other
action by the Company which results in a significant diminution in such
position, authority, duties or responsibilities, excluding any isolated and
inadvertent action not taken in bad faith and which is remedied by the Company
within ten (10) days after receipt of notice thereof given by Executive;
provided, that Executive's duties, authority or responsibilities shall not be
deemed to have been reduced solely as a result of the sale, closure or spin-off
by the Company of one or more of its operating divisions or lines of business.

                           (ii)     Any failure by the Company to comply in any
material respect with any of the provisions of Section 3 of this Agreement other
than an isolated and inadvertent failure not committed in bad faith and which is
remedied by the Company within ten (10) days after receipt of notice thereof
given by Executive;

                           (iii)    Executive being required to relocate to a
principal place of employment more than fifty (50) miles from his principal
place of employment with the Company in New York, New York;

                           (iv)     Delivery by the Company of a Non-Renewal
Notice discontinuing the automatic extension provision of Section 2 of this
Agreement;

                           (v)      Failure by the Company to elect Executive to
the position(s), including Board membership, set forth in Section 1, in
compliance with the terms of Section 1;

                           (vi)     Any purported termination by the Company of
Executive's employment otherwise than as expressly permitted by this Agreement;
or

                           (vii)    Failure by the Company to obtain the
assumption of this Agreement by any successor to the Company or any entity that
acquires all or substantially all of the assets of the Company.

                  (d)      Other Than For Cause Or Good Reason. Executive or the
Company may terminate this Agreement for any reason other than for Good Reason
or Cause, respectively, upon thirty (30) days written Notice of Termination (as
defined below) to the Company or Executive, as the case may be. If Executive
terminates the Agreement for any reason, he shall have no liability to the
Company or its subsidiaries or affiliates as a result thereof. If the Company
terminates the Agreement, or if the Agreement terminates because of the death of
Executive, the obligations of the Company shall be as set forth in Section 5
hereof.

                  (e)      Notice Of Termination. Any termination by the Company
or by Executive shall be communicated by a Notice of Termination to the other
party hereto given in accordance with this Agreement. For purposes of this
Agreement, a "NOTICE OF TERMINATION" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail, if necessary, the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated, and (iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice,

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specifies the termination date. The failure by Executive or Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of the basis for termination shall not waive any right of such party
hereunder or preclude such party from asserting such fact or circumstance in
enforcing his or its rights hereunder.

                  (f)      Date Of Termination. "DATE OF TERMINATION" means the
date specified in the Notice of Termination; provided, however, that if
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of Executive or the Disability
Effective Date, as the case may be.

         5.       Severance Compensation.

                  (a)      Definition of Accrued Obligations. For purposes of
this Agreement, "ACCRUED OBLIGATIONS" means (i) the portion of Executive's Base
Salary as has accrued prior to the Date of Termination and that has not yet been
paid, (ii) an amount equal to the value of Executive's accrued unused vacation
days (calculated at the Base Salary), (iii) the amount of any bonus earned and
accrued but not paid as of the Date of Termination, which amount shall include a
pro rata portion of any bonus which would have been earned if such termination
had not occurred and (iv) the amount of any expenses properly incurred by
Executive on behalf of the Company prior to the Date of Termination and not yet
reimbursed.

                  (b)      Death or Disability. If Executive's employment
hereunder is terminated as a result of Executive's death or Disability:

                           (i)      The Company will pay the Accrued Obligations
                  to Executive (or Executive's estate) promptly following such
                  termination.

                           (ii)     The Company will continue to pay Executive
                  (or Executive's estate) an amount equal to the Base Salary at
                  the rate in effect at the date of such termination in
                  accordance with Section 3(a) of this Agreement for the period
                  commencing on the date of such termination and ending three
                  (3) months from the date of termination.

                           (iii)    The Company will continue to provide
                  Executive or Executive's covered beneficiaries with the Fringe
                  Benefits for so long as it is obligated to continue payments
                  equal to the Base Salary pursuant to Section 5(b)(ii) above,
                  limited by and subject to applicable law and the terms of the
                  respective plans or policies.

                  (c)      Termination for Cause or in the Absence of a Good
Reason. If Executive's employment hereunder is terminated either by the Company
for Cause or by Executive in the absence of a Good Reason the Company will pay
the Accrued Obligations to Executive promptly following the Date of Termination.

                  (d)      Termination Without Cause or for a Good Reason. If
Executive's employment hereunder is terminated (1) by the Company without Cause,
(2) by Executive for a Good Reason, (3) by reason of a Non-Renewal Notice by the
Company for reasons that would

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not constitute Cause or (4) by reason of a Non-Renewal Notice by Executive for
reasons that would constitute Good Reason:

                           (i)      The Company will pay the Accrued Obligations
                  to Executive promptly following the Date of Termination.

                           (ii)     The Company will continue to pay Executive
                  an amount equal to the Base Salary at the rate in effect at
                  such Date of Termination in accordance with Section 3(a) of
                  this Agreement for the period commencing on the date of such
                  termination and ending on the later of (A) the first
                  anniversary of the Date of Termination and (B) the date of the
                  end of the then current Term.

                           (iii)    The Company will continue to provide
                  Executive with the Fringe Benefits for so long as it is
                  obligated to continue payments equal to the Base Salary
                  pursuant to Section 4(d)(ii) above, limited by and subject to
                  applicable law and the terms of the respective plans and
                  policies.

                           (iv)     The Company will pay to Executive a cash
                  bonus equal to the prior year's annual cash bonus pursuant to
                  Section 3(b) above.

                           (v)      All options and other equity awards granted
                  or awarded to Executive hereunder or under any other agreement
                  or understanding between Executive and the Company or any
                  affiliate thereof, if any, will immediately vest, and all
                  repurchase rights granted hereunder or thereunder, immediately
                  will lapse.

                           (vi)     If Executive is subject to any excise tax
                  ("EXCISE TAX") on Executive's compensation by the Company
                  whether as a result of payment of any sum or provision of any
                  benefit hereunder or under any agreement between Executive and
                  the Company, the terms of any option agreement, restricted
                  stock grant or other equity compensation agreement or
                  otherwise (including but not limited to excise taxes imposed
                  under Section 4999 of the Code), the Company will then
                  "gross-up" Executive's compensation by making an additional
                  payment to Executive in an amount which, after reduction for
                  any income or excise taxes payable as a result of receiving
                  such additional payment, is equal to the Excise Tax.

                  (e)      No Duty to Mitigate. Notwithstanding any other
provision of this Agreement, (i) Executive will have no obligation to mitigate
Executive's damages for any breach of this Agreement by the Company or for any
termination of this Agreement, whether by seeking employment or otherwise and
(ii) the amount of any benefit due to Executive after the date of such
termination pursuant to this Agreement will not be reduced or offset by any
payment or benefit that Executive may receive from any other source.

                  (f)      Cobra Rights. It is understood that Executive's
rights under this Section 5 are in lieu of all other rights which Executive may
otherwise have had upon termination of employment under this Agreement;
provided, however, that no provision of this Agreement is intended to adversely
affect Executive's rights under the Consolidated Omnibus Budget

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Reconciliation Act of 1985 or any successor thereto or any similar state or
local law, rule or regulation.

         6.       Records. Upon termination of Executive's employment hereunder
for any reason or for no reason, Executive will deliver to the Company any
property of the Company which may be in Executive's possession, including
products, materials, memoranda, notes, records, reports or other documents or
photocopies of the same.

         7.       Insurance. The Company, in its sole discretion, may apply for
and purchase key man life insurance on Executive's life in an amount determined
by the Company with the Company as beneficiary. Executive will submit to any
medical or other examinations and to execute and deliver any applications or
other instruments in writing that are reasonably necessary to effectuate such
insurance.

         8.       Confidentiality and Noncompetition Agreement. Executive
acknowledges and agrees that he has, as a condition of his employment by the
Company, previously executed and delivered to the Company a Confidentiality and
Noncompetition Agreement and further agrees that nothing contained in this
Agreement shall be deemed to modify or affect in any manner any of Executive's
duties or obligations set forth therein.

         9.       General.

                  (a)      Notices. All notices, requests, consents and other
communications hereunder will be in writing, will be addressed to the receiving
party's address set forth below or to such other address as a party may
designate by notice hereunder, and will be either (i) delivered by hand, (ii)
sent by overnight courier, or (iii) sent by registered or certified mail, return
receipt requested, postage prepaid. All notices, requests, consents and other
communications hereunder will be deemed to have been given either (i) if by
hand, at the time of the delivery thereof to the receiving party at the address
of such party set forth above, (ii) if sent by overnight courier, on the next
business day following the day such notice is delivered to the courier service,
or (iii) if sent by registered or certified mail, on the fifth business day
following the day such mailing is made;

         (A)   if to the Company, to:

                           Alloy, Inc.
                           151 West 26th Street, 11th Floor
                           New York, NY 10001
                           Attention:  General Counsel
                           Facsimile:  (212) 244-4311

         (B)   if to Executive, to the address set forth below his name on the
               signature page hereof.

                  (b)      Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior oral or written agreements and
understandings relating to the subject matter hereof. No

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statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Agreement will affect, or be used to interpret,
change or restrict, the express terms and provisions of this Agreement.

                  (c)      Modifications and Amendments. The terms and
provisions of this Agreement may be modified or amended only by written
agreement executed by the parties hereto.

                  (d)      Waivers and Consents. The terms and provisions of
this Agreement may be waived, or consent for the departure therefrom granted,
only by written document executed by the party entitled to the benefits of such
terms or provisions. No such waiver or consent will be deemed to be or will
constitute a waiver or consent with respect to any other terms or provisions of
this Agreement, whether or not similar. Each such waiver or consent will be
effective only in the specific instance and for the purpose for which it was
given, and will not constitute a continuing waiver or consent.

                  (e)      Assignment. The Company may assign its rights and
obligations hereunder to any person or entity that succeeds to all or
substantially all of the Company's business or that aspect of the Company's
business in which Executive is principally involved. Executive may not assign
Executive's rights and obligations under this Agreement without the prior
written consent of the Company.

                  (f)      Benefit. All statements, representations, warranties,
covenants and agreements in this Agreement will be binding on the parties hereto
and will inure to the benefit of the respective successors and permitted assigns
of each party hereto. Nothing in this Agreement will be construed to create any
rights or obligations except among the parties hereto, and no person or entity
will be regarded as a third-party beneficiary of this Agreement.

                  (g)      Governing Law. This Agreement and the rights and
obligations of the parties hereunder will be construed in accordance with and
governed by the law of the State of New York, without giving effect to the
conflict of law principles thereof.

                  (h)      Jurisdiction, Venue and Service of Process. Any legal
action or proceeding with respect to this Agreement that is not subject to
arbitration pursuant to Section 10(i) below will be brought in the courts of New
York State located in New York County, New York or of the United States of
America for the Southern District of New York. By execution and delivery of this
Agreement, each of the parties hereto accepts for itself and in respect of its
property, generally and unconditionally, the exclusive jurisdiction of the
aforesaid courts.

                  (i)      Arbitration. Any controversy, dispute or claim
arising out of or in connection with this Agreement will be settled by final and
binding arbitration to be conducted in New York, New York pursuant to the
national rules for the resolution of employment disputes of the American
Arbitration Association then in effect. The decision or award in any such
arbitration will be final and binding upon the parties and judgment upon such
decision or award may be entered in any court of competent jurisdiction or
application may be made to any such court for judicial acceptance of such
decision or award and an order of enforcement. If any procedural matter is not
covered by the aforesaid rules, the procedural law of the State of New York will
govern.

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                  (j)      Reimbursement Of Legal Expenses. If Executive is
successful, whether in arbitration or litigation, in pursuing any claim or
dispute involving Executive's employment with the Company, including any claim
or dispute relating to (a) this Agreement, (b) termination of Executive's
employment with the Company or (c) the failure or refusal of the Company to
perform fully in accordance with the terms hereof, the Company shall promptly
reimburse Executive for all costs and expenses (including, without limitation,
attorneys' fees) relating solely, or allocable, to such successful claim. In any
other case, Executive and the Company shall each bear all their own respective
costs and attorneys' fees.

                  (k)      Severability. The parties intend this Agreement to be
enforced as written. However, (i) if any portion or provision of this Agreement
is to any extent be declared illegal or unenforceable by a duly authorized court
having jurisdiction, then the remainder of this Agreement, or the application of
such portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, will not be affected thereby, and each
portion and provision of this Agreement will be valid arid enforceable to the
fullest extent permitted by law and (ii) if any provision, or part thereof, is
held to be unenforceable because of the duration of such provision, the
geographic area covered thereby, or other aspect of the scope of such provision,
the court making such determination will have the power to reduce the duration,
geographic area of such provision, or other aspect of the scope of such
provision, and/or to delete specific words and phrases ("blue-penciling"), and
in its reduced or blue-penciled form, such provision will then be enforceable
and will be enforced.

                  (l)      Headings and Captions. The headings and captions of
the various subdivisions of this Agreement are for convenience of reference only
and will in no way modify or affect the meaning or construction of any of the
terms or provisions hereof

                  (m)      No Waiver of Rights, Powers and Remedies. No failure
or delay by a party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto, will operate as
a waiver of any such right, power or remedy of the party. No single or partial
exercise of any right, power or remedy under this Agreement by a party hereto,
nor any abandonment or discontinuance of steps to enforce any such right, power
or remedy, will preclude such party from any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The election of
any remedy by a party hereto will not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement will entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.

                  (n)      Counterparts. This Agreement may be executed in two
or more counterparts, and by different parties hereto on separate counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument.

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<PAGE>

         IN WITNESS THEREOF, Executive has hereunto set his hand and the Company
has caused these presents to be executed in its name and on its behalf as of the
day and year first above written.

                                           Alloy, Inc.

                                           By:      /s/ Peter Graham
                                              ----------------------------------
                                                 Peter Graham
                                                 Director

                                           Executive

                                                    /s/ Matthew C. Diamond
                                           -------------------------------------
                                           Matthew C. Diamond
                                           Address:-----------------------------
                                           -------------------------------------
                                           -------------------------------------

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