Document:

<PAGE>

                                                                    EXHIBIT 10.4

August 12, 2004

Tim Michno
17 Hidden Meadow Lane
New Canaan, CT 06840

Dear Tim:

This will confirm the agreement ("Agreement") between you and Movado Group, Inc
and/or one of its subsidiaries (together, the "Company") concerning certain
terms relating to your continued employment by the Company and the payment of
severance by the Company to you under certain circumstances. You acknowledge
that the option grant and the other obligations undertaken by the Company as set
forth in this Agreement are in addition to any payments or other benefits to
which you are otherwise entitled. Capitalized terms used but not otherwise
defined below or elsewhere in this Agreement, shall have the meaning given such
terms in the Movado Group, Inc. 1996 Stock Incentive Plan, as amended and
restated as of April 8, 2004 ("Plan").

1.    OPTION GRANT. You are hereby granted an option to purchase that number of
      shares of Movado Group, Inc. common stock ("Stock") as set forth on
      Schedule A (attached to and made a part of this Agreement) at a purchase
      price per share equal to the Fair Market Value of the Stock on the date
      that both you and the Company have signed this Agreement ("Effective
      Date").

2.    EMPLOYMENT AT WILL; SEVERANCE. Your employment with the Company is on an
      at-will basis, meaning that you may resign at any time and, likewise, the
      Company has the right to terminate your employment at any time, with or
      without Cause. "Cause" means conviction of a felony committed by you prior
      to termination of your employment with the Company; your knowing violation
      of a material Company policy; your failure to perform any of your material
      obligations hereunder or the material duties of your position with the
      Company; or your gross negligence in the performance of your duties or
      breach of your fiduciary duty to the Company as reasonably determined by
      the Company's Chief Executive Officer. If the Company terminates your
      employment without Cause, it will pay you as severance an amount equal to
      your bi-weekly base salary for a period of 12 months after the date of
      such termination ("Severance Period"); except that no such severance shall
      be due or payable to you if you violate any of the terms of this
      Agreement. All such payments that are due, will be made, net of all
      withholding taxes, on a bi-weekly basis and will be paid to your estate in
      the event of your death during the Severance Period. "Base salary" does
      not include any commission or bonus payments or auto allowance. Any bonus
      or commission payments which are earned and vested prior to your
      resignation, or termination without Cause by the Company, will be paid to
      you in accordance with the terms of any such bonus or commission plan. To
      the extent medical insurance coverage is available following such
      termination through COBRA, but not otherwise provided under the Company's
      disability policies or plans, the Company will pay the costs of such
      insurance for you under COBRA for the Severance Period, or, if

<PAGE>

      shorter, for the maximum period allowed or until you either become
      eligible for Medicare or are employed by another employer which provides
      medical benefits.

3.    TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate your
      employment for Cause and upon such termination, the Company shall be
      released from any and all further obligations under this Agreement, except
      for the obligation to pay accrued base salary, and accrued benefits owing
      to you through the termination date.

4.    NON-COMPETITION. While you are employed by the Company and for a period of
      six (6) months after such employment terminates, whether voluntarily or
      involuntarily, you shall not directly or indirectly in any capacity,
      without the prior written consent of the Chief Executive Officer of the
      Company, which may be granted or withheld in the Company's sole and
      absolute discretion, carry on or engage or participate in the watch or
      jewelry business, in any individual or representative capacity, as a
      principal, for your own account, jointly with others as a partner, joint
      venturer, or shareholder of any other firm, corporation, partnership,
      association, or other entity, or as a consultant, contractor,
      subcontractor or agent or employee of any person, firm, corporation,
      partnership, association or other entity. You acknowledge and agree that
      the contents of this section are fair and reasonable and you waive any
      defenses that you may in the future claim against enforcement hereof on
      the basis of public policy principles, excessive scope, duration or
      geographic coverage or on any other basis. If notwithstanding the
      foregoing, any of the provisions of this section should ever be deemed to
      exceed the scope, time or geographic limitations of applicable law
      regarding covenants not to compete, then such provisions shall be reformed
      to the maximum scope, time or geographic limitations, as the case may be,
      permitted by applicable laws.

5.    NO SOLICITATION. While you are employed by the Company and for a period of
      twelve (12) months after the termination of such employment, whether
      voluntarily or involuntarily, you shall not, directly or indirectly, alone
      or with others, in any capacity, without the prior written consent of the
      Company, which may be granted or withheld in the Company's sole and
      absolute discretion, (a) employ, engage or retain any individual who is
      then an employee of the Company (or who had been an employee of the
      Company within six (6) months prior to the termination of your employment
      with the Company), or solicit, induce or persuade any such individual to
      terminate his or her employment relationship with the Company; or (b)
      request, induce, or advise any client of the Company (which you had reason
      to know was such a client or prospective client of the Company) to
      withdraw, curtail, or cancel any of its business with the Company.

6.    PROPRIETARY INFORMATION.

      6.1 You shall keep secret and retain in strictest confidence, and shall
      not use for the benefit of yourself or others, except in the course of
      performing your duties for the Company, all proprietary and/or
      confidential information, knowledge and data of the Company relating to
      its operations, sales, business or affairs, provided, however, that you
      shall not be restricted with respect to use of information that (i) is or
      becomes public knowledge through no action or default on your part; (ii)
      is disclosed to you by a third party, provided that the third party has
      the lawful right to make such disclosure; (iii) is approved by the Company
      in writing for disclosure to specified third parties; or (iv) is required
      to be disclosed by you pursuant to a court order or applicable rules and
      regulations.

                                       2
<PAGE>

      6.2 You agree that all documents, records, reports, compilations, studies,
      computer files, e-mails and other tangible material containing
      confidential or proprietary information of the Company, whether created by
      you or others, which shall come into your custody or possession, shall be
      and are the exclusive property of the Company to be used by you only in
      the performance of your duties for the Company. All such materials or
      copies thereof and all tangible property of the Company in your custody or
      possession shall be delivered to the Company, upon the earlier of (i) a
      request by the Company or (ii) termination of your employment. After such
      delivery, you shall not retain any such materials or copies thereof or any
      such tangible property.

      6.3 You agree that your obligations not to disclose or to use information
      and materials of the types set forth in this Agreement, and your
      obligation to return materials and tangible property, also extends to such
      types of information, materials and tangible property of customers of the
      Company or suppliers to the Company or other third parties who may have
      disclosed or entrusted the same to the Company or to you, provided,
      however, you shall not be restricted with respect to use of information
      that (i) is or becomes public knowledge through no action or default on
      your part; (ii) is disclosed to you by a third party, provided that the
      third party has the lawful right to make such disclosure; (iii) is
      approved by the Company in writing for disclosure to specified third
      parties; or (iv) is required to be disclosed by you pursuant to a court
      order or applicable rules and regulations.

7.    REMEDIES

      You acknowledge and agree that the Company's remedy at law for a breach or
      threatened breach of the provisions of this Agreement would be inadequate
      and, in recognition of this fact, in the event of a breach or threatened
      breach by you of any provision of this Agreement, it is agreed that, in
      addition to any available remedy at law, the Company shall be entitled to,
      without posting any bond, specific performance, temporary restraining
      order, temporary or permanent injunction, or any other equitable relief or
      remedy which may then be available; provided, however, nothing herein
      shall be deemed to relieve the Company of its burden to prove grounds
      warranting such relief nor preclude you from contesting such grounds or
      facts in support thereof. Nothing herein contained shall be construed as
      prohibiting the Company from pursuing any other remedies available to it
      for such breach or threatened breach hereof.

8.    SEVERABILITY OF AGREEMENT

      The provisions of this Agreement are severable and if any one or more
      provisions are determined to be illegal or otherwise unenforceable, in
      whole or in part, the remaining provisions shall nevertheless be binding
      and enforceable. The parties agree that the covenants set forth herein are
      reasonable. Without limiting the foregoing, it is the intent of the
      parties that the covenants set forth herein be enforced to the maximum
      degree permitted by applicable law. As such, the parties ask that if any
      court of competent jurisdiction were to consider any provision of this
      Agreement to be overly broad based on the circumstances at the time
      enforcement is requested, that such court "blue pencil" the provision and
      enforce the provision to the full extent that such court deems it to be
      reasonable in scope.

9.    APPLICABLE LAW AND CONSENT TO JURISDICTION

                                       3
<PAGE>

      The validity, construction, interpretation, and enforceability of this
      Agreement shall be determined and governed by the laws of the State of New
      Jersey without giving effect to the principles of conflicts of law. For
      the purpose of litigating any dispute that arises under this Agreement,
      the parties hereby consent to exclusive jurisdiction of, and agree that
      such litigation shall be conducted in, any federal or state courts of the
      State of New Jersey. The parties waive their right to trial by jury in any
      action brought by either against the other in connection with any matter
      arising out of this Agreement.

10.   NOTICES

      All notices, requests, demands and other communications hereunder must be
      in writing and shall be deemed to have been duly delivered if delivered by
      hand or received by US Mail:

            If to Company - Movado Group, Inc.
                            650 From Road
                            Paramus, New Jersey 07652
                            Attn: Legal Department

                  or such other address which shall then be its primary U.S.
                  corporate executive offices.

            If to you - at your home address as reflected in the Company's
            payroll records

14.   MISCELLANEOUS

      This Agreement sets forth the entire agreement between the Company and you
      and supersedes any and all prior agreements or understandings, if any,
      between the parties regarding the subject matter of this Agreement. No
      amendment or modification of this agreement shall be valid or effective,
      unless in writing and signed by the parties to this Agreement. The failure
      of either party to enforce any provision of this Agreement shall not be
      construed as a waiver or limitation of that party's right to subsequently
      enforce and compel strict adherence with every provision of this
      Agreement. This Agreement shall become effective on the date first set
      forth above. Headings in this Agreement are used solely for convenience
      and are not to be used in construing or interpreting this Agreement.

                                                          Very truly yours,

                                                          MOVADO GROUP, INC.

                                                   By /s/ Vivian D'Elia
                                                      -----------------------
                                                   Name: Vivian D'Elia
                                                   Title: Sr. V.P. HR
                                                   Date: 8/27/04

Agreed and accepted this
27 day of August, 2004,

/s/ Timothy F. Michno
-----------------------

                                       4
<PAGE>

                                                                      SCHEDULE A

                           TERMS OF OPTION GRANT UNDER
                            1996 INCENTIVE STOCK PLAN
                          ( NONQUALIFIED STOCK OPTION)

      SECTION 1. GRANT OF OPTION.

      1.1 The Company hereby grants you an option (the "Option") to Purchase
20,000 shares of Stock at a purchase price per share equal to the Fair Market
Value per share of the Stock on the Effective Date.

      1.2 The Option granted hereby is intended to be a nonqualified stock
option subject to the provisions of Section 83 of the Internal Revenue Code of
1986, as amended (the "Code"), and is not intended to qualify for special tax
provisions of Code Section 422.

      SECTION 2. EXERCISABILITY.

      2.1 The Option shall become cumulatively exercisable with respect to (a)
one third of the shares of Stock subject thereto (rounded down to the next lower
full share) commencing on the third anniversary of the date hereof, and (b) an
additional third of the shares of Stock subject thereto on each of the next two
following anniversary dates of the date hereof.

      2.2 The Option may at any time and from time to time be exercised in whole
or in part for the shares of Stock subject thereto, within the limitations on
exercisability set forth above.

      2.3 Unless terminated earlier, the unexercised portion of the Option shall
automatically and without notice terminate and become null and void on the tenth
anniversary of the Effective Date.

      2.4 Upon the occurrence of a Change of Control (as defined in the Plan)
prior to the date on which the Option expires, notwithstanding any other
provision of the Plan, each installment of the Option that has not theretofore
vested and become exercisable shall immediately vest and become exercisable;
provided, however, that no installment of the Option may be exercised until six
months after the date of grant.

      SECTION 3. METHOD OF EXERCISE.

      3.1 The Option or any part thereof may be exercised in accordance with the
terms hereof only by giving written notice of exercise to the Company, on a form
to be provided by the

                                       5
<PAGE>

Company for that purpose, and by specifying the number of whole shares of Stock
with respect to which the Option is being exercised. Such notice must be
accompanied by payment of the full purchase price for the number of shares
purchased.

      3.2 Payment of the purchase price shall be made by you to the Company at
the time of exercise as provided in Section 7(b) of the Plan and may be made in
any manner permitted under the Plan. As soon as practicable after the Company
receives payment of the purchase price, subject to the provisions of the Plan,
the Company shall deliver to you a certificate or certificates for the shares of
Stock so purchased.

      SECTION 4. TERMINATION OF EMPLOYMENT

      4.1 Notwithstanding anything to the contrary contained herein, the Option
shall terminate and expire on the day your employment is terminated for Cause.

      4.2 If your employment with the Company terminates by reason of your
voluntary resignation, or the termination of your employment by the Company
without Cause, then the vested portion of the Option may be exercised until the
earlier of (i) 60 days after the date on which the final payment of any salary
or severance (exclusive of any other payments such as commissions , bonuses or
reimbursements for expenses) due to you from the Company is made or (ii) the
date on which the Option terminates or expires in accordance with the provisions
of the Plan and this Agreement (other than this Section 4). The "vested portion"
of the Option shall mean the portion thereof that is exercisable immediately
prior to termination of your employment for any reason.

      4.3 If your employment terminates by reason of your retirement (i) at or
after age 65, or (ii) before the age of 65 but after age 55 provided you have
been employed by the Company for at least 10 years and further subject to the
specific approval of the Committee (including any limitations or conditions the
Committee may, in its discretion, impose which are not inconsistent with the
express terms of the Plan), then the unvested portion of the Option shall
immediately become vested and the Option may be exercised until the earlier of
(a) three years after termination of employment or (b) the date on which the
Option terminates or expires in accordance with the provisions of the Plan and
this Agreement (other than this Section 4). The Committee may in its discretion
determine whether any leave of absence (including short-term or

                                       6
<PAGE>

long-term disability or medical leave) shall constitute a termination of
employment for purposes of this Agreement.

      4.4 If your employment terminates by reason of your (i) permanent
disability (as determined by the Committee) and you have been employed by the
Company for at least ten years, or (ii) death, then, in either case, the
unvested portion shall immediately become vested and the Option shall be
exercisable until the earlier of (a) three years after termination of your
employment by reason of permanent disability or death or (b) the date on which
the Option terminates or expires in accordance with the provisions of the Plan
and this Agreement (other than this Section 4). In the case of your death, the
Option shall be exercisable by the person to whom the Option passes under your
will (or, if applicable, pursuant to the laws of descent and distribution).

      SECTION 5. NON-TRANSFERABILITY.

      No right granted to you under the Plan or this Agreement shall be
assignable or transferable (whether by operation of law or otherwise and whether
voluntarily or involuntarily), other than by will or by laws of descent and
distribution. During your lifetime, all rights granted to you under the Plan or
this Agreement shall be exercisable only by you .

      SECTION 6. NO SHAREHOLDER RIGHTS.

      You shall have no rights as a shareholder of the Company with respect to
any shares subject to the Option until the date of the issuance of a stock
certificate or certificates to you for such shares. Except for the adjustments
made pursuant to Section 13 of the Plan, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued.

      SECTION 7. PLAN PROVISIONS TO PREVAIL.

      This Agreement shall be subject to all of the terms and provisions of the
Plan, which are incorporated hereby and made a part hereof. If there is any
inconsistency between any of the provisions of this Agreement and the Plan, the
provisions of the Plan shall govern.

      SECTION 8. OPTIONEE'S ACKNOWLEDGMENTS.

      By entering into this Agreement you agree and acknowledge that (a) you
have received and read a copy of the Plan and (b) none of the Company, the
Board, the Committee, the

                                       7
<PAGE>

Affiliates (including their respective parents and subsidiaries) and their
respective shareholders, officers, directors, employees, agents and counsel
shall be liable for any action or determination with respect to the Plan or any
award thereunder or this Agreement.

                                      8<PAGE>

                                                                    EXHIBIT 10.1

================================================================================

                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

================================================================================

                       WELLS FARGO RETAIL FINANCE II, LLC

                                   THE LENDER

                                  DELIA*S CORP.

                                THE LEAD BORROWER

                                      FOR:

                             ALLOY MERCHANDISE, LLC

                                SKATE DIRECT, LLC

                                  DELIA*S CORP.

                            DELIA*S OPERATING COMPANY

                             DELIA*S RETAIL COMPANY

                                  THE BORROWERS

                                OCTOBER 14, 2004

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                     Page
<S>                                                                                  <C>
ARTICLE 1: Definitions:.........................................................        5

ARTICLE 2: The Revolving Credit:................................................       29

   2.1   Establishment of Revolving Credit......................................       29
   2.2   Reserves...............................................................       30
   2.3   Eligible Inventory Criteria............................................       31
   2.4   Advances in Excess of Borrowing Base (OverLoans).......................       31
   2.5   Risks of Value of Collateral...........................................       31
   2.6   Lender's Commitment....................................................       32
   2.7   Revolving Credit Loan Requests.........................................       32
   2.8   Making of Revolving Credit Loans.......................................       34
   2.9   The Loan Account.......................................................       35
   2.10  The Revolving Credit Note..............................................       36
   2.11  Payment of The Loan Account............................................       36
   2.12  Interest on Revolving Credit Loans.....................................       37
   2.13  Fees...................................................................       38
   2.14  Lender's Discretion....................................................       39
   2.15  Procedures For Issuance of L/C's.......................................       40
   2.16  Fees For L/C's.........................................................       41
   2.17  Concerning L/C's.......................................................       43
   2.18  Changed Circumstances..................................................       44
   2.19  Designation of Lead Borrower as Borrowers' Agent.......................       45

ARTICLE 3: Conditions Precedent:................................................       46

   3.1   Corporate Due Diligence................................................       46
   3.2   Opinion................................................................       46
   3.3   Officers' Certificates.................................................       46
   3.4   Additional Documents. Satisfaction of Conditions.......................       47
   3.5   Makewhole Agreement By Alloy, Inc......................................       47
   3.6   Cash Management Requirements...........................................       47
   3.7   Representations and Warranties.........................................       47
   3.8   No Borrower In Default.................................................       47
   3.9   No Adverse Change......................................................       47
   3.10  Benefit of Conditions Precedent........................................       48

ARTICLE 4: General Representations, Covenants and Warranties:...................       48

   4.1   Payment and Performance of Liabilities.................................       48
   4.2   Due Organization. Authorization. No Conflicts..........................       48
   4.3   Trade Names............................................................       49
   4.4   Infrastructure.........................................................       50
   4.5   Locations..............................................................       50
   4.6   Lease Amendments. New Stores. Store Closings...........................       51
   4.7   Title to Assets........................................................       53
   4.8   Indebtedness...........................................................       53
</TABLE>

                                     Page 1

<PAGE>

<TABLE>
<S>                                                                                    <C>
   4.9   Insurance..............................................................       55
   4.10  Licenses...............................................................       56
   4.11  Leases.................................................................       56
   4.12  Requirements of Law....................................................       56
   4.13  Labor Relations........................................................       57
   4.14  Maintain Properties....................................................       58
   4.15  Taxes..................................................................       59
   4.16  No Margin Stock........................................................       60
   4.17  ERISA..................................................................       60
   4.18  Hazardous Materials....................................................       61
   4.19  Litigation.............................................................       61
   4.20  Dividends. Investments. Corporate Action...............................       61
   4.21  Loans..................................................................       62
   4.22  Protection of Assets...................................................       62
   4.23  Line of Business.......................................................       62
   4.24  Affiliate Transactions.................................................       62
   4.25  Further Assurances.....................................................       63
   4.26  Adequacy of Disclosure.................................................       64
   4.27  No Restrictions on Liabilities.........................................       65
   4.28  Skate Direct...........................................................       65
   4.29  Other Covenants........................................................       65

ARTICLE 5: Financial Reporting and Performance Covenants:.......................       65

   5.1   Maintain Records.......................................................       65
   5.2   Access to Records......................................................       66
   5.3   Immediate Notice to Lender.............................................       67
   5.4   Borrowing Base Certificate.............................................       68
   5.5   Monthly Reports........................................................       68
   5.6   Annual Reports.........................................................       68
   5.7   Officers' Certificates.................................................       69
   5.8   Inventories, Appraisals, and Audits....................................       70
   5.9   Additional Financial Information. Business Plan........................       72
   5.10  Financial Performance Covenants........................................       72
   5.11  E-Reporting............................................................       73

ARTICLE 6: Use of Collateral:...................................................       73

   6.1   Use of Inventory Collateral............................................       73
   6.2   Inventory Quality......................................................       74
   6.3   Adjustments and Allowances.............................................       74
   6.4   Validity of Accounts...................................................       74
   6.5   Notification to Account Debtors........................................       74

ARTICLE 7: Cash Management. Payment of Liabilities:.............................       74

   7.1   Depository Accounts....................................................       74
   7.2   Credit Card Receipts...................................................       75
   7.3   The Concentration, Blocked, and Operating Accounts ....................       76
   7.4   Proceeds and Collections ..............................................       77
</TABLE>

                                     Page 2

<PAGE>

<TABLE>
<S>                                                                                    <C>
   7.5   Payment of Liabilities.................................................       78
   7.6   The Operating Account..................................................       79

ARTICLE 8: Grant of Security Interest...........................................       79

   8.1   Grant of Security Interest.............................................       79
   8.2   Extent and Duration of Security Interest...............................       80

ARTICLE 9: Lender As Borrower's Attorney-In-Fact:...............................       80

   9.1   Appointment as Attorney-In-Fact........................................       80
   9.2   No Obligation to Act...................................................       81

ARTICLE 10: Events of Default:..................................................       81

   10.1  Failure to Pay the Revolving Credit....................................       82
   10.2  Failure To Make Other Payments.........................................       82
   10.3  Failure to Perform Covenant or Liability (No Grace Period).............       82
   10.4  Failure to Perform Covenant or Liability (Grace Period)................       82
   10.5  Misrepresentation......................................................       82
   10.6  Acceleration of Other Debt. Breach of Lease............................       83
   10.7  Default Under Other Agreements.........................................       83
   10.8  Uninsured Casualty Loss................................................       83
   10.9  Attachment. Judgment. Restraint of Business............................       83
   10.10 Business Failure.......................................................       83
   10.11 Bankruptcy.............................................................       84
   10.12 Indictment - Forfeiture................................................       84
   10.13 Default................................................................       84
   10.14 Termination of Guaranty................................................       84
   10.15 Challenge to Loan Documents............................................       84
   10.16 Change in Control......................................................       84
   10.17 Material Adverse Change................................................       84
   10.18 Excess Availability....................................................       85

ARTICLE 11: Rights and Remedies Upon Default:...................................       85

   11.1  Acceleration...........................................................       85
   11.2  Rights of Enforcement..................................................       85
   11.3  Sale of Collateral.....................................................       85
   11.4  Occupation of Business Location........................................       86
   11.5  Grant of Nonexclusive License..........................................       87
   11.6  Assembly of Collateral.................................................       87
   11.7  Rights and Remedies....................................................       87

ARTICLE 12: Notices:............................................................       87

   12.1  Notice Addresses.......................................................       87
   12.2  Notice Given...........................................................       88

ARTICLE 13: Term:...............................................................       89

   13.1  Termination of Revolving Credit........................................       89
   13.2  Actions On Termination.................................................       89
</TABLE>

                                     Page 3

<PAGE>

<TABLE>
<S>                                                                                   <C>
ARTICLE 14: General:............................................................       90

   14.1  Protection of Collateral...............................................       90
   14.2  Publicity..............................................................       90
   14.3  Successors and Assigns.................................................       90
   14.4  Severability...........................................................       91
   14.5  Amendments.  Course of Dealing.........................................       91
   14.6  Power of Attorney......................................................       92
   14.7  Application of Proceeds................................................       92
   14.8  Increased Costs........................................................       92
   14.9  Costs and Expenses of the Lender.......................................       93
   14.10 Copies and Facsimiles..................................................       94
   14.11 Massachusetts Law......................................................       94
   14.12 Consent to Jurisdiction................................................       94
   14.13 Indemnification........................................................       95
   14.14 Rules of Construction..................................................       95
   14.15 Intent.................................................................       97
   14.16 Participations.........................................................       98
   14.17 Confidentiality........................................................       98
   14.18 Right of Set-Off.......................................................       98
   14.19 Pledges To Federal Reserve Banks.......................................       98
   14.20 Maximum Interest Rate..................................................       99
   14.21 Waivers................................................................       99
   14.22 Merger.................................................................      100
</TABLE>

                                     Page 4

<PAGE>

================================================================================
AMENDED AND RESTATED
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT                   WELLS FARGO RETAIL FINANCE II, LLC
                                                                      THE LENDER
================================================================================

      THIS AGREEMENT is made between Wells Fargo Retail Finance II, LLC (the
"Lender"), a Delaware limited liability company with offices at One Boston Place
- 18th Floor, Boston, Massachusetts 02108, and

      dELiA*s Corp. ( in such capacity, the " LEAD BORROWER"), a Delaware
corporation with its principal executive offices at 435 Hudson Street, New York,
New York 10014, as agent for the following (individually, a "BORROWER" and
collectively, the "BORROWERS"):

      dELiA*s Corp.,

      dELiA*s Operating Company,

      dELiA*s Retail Company,

      each a Delaware corporation with its principal executive offices at 435
Hudson Street, New York, New York 10014, and

      Alloy Merchandise, LLC,

      Skate Direct, LLC,

      each a Delaware limited liability company with its principal executive
offices at 435 Hudson Street, New York, New York 10014, in consideration of the
mutual covenants contained herein and benefits to be derived herefrom,

                                   WITNESSETH:

      WHEREAS, certain of the Borrowers and the Lenders entered into a Loan and
Security Agreement dated as of September 24, 2001 (as amended and in effect, the
"Existing Loan Agreement"); and

      WHEREAS, the Borrowers and the Lender desire to amend and restate the
Existing Loan Agreement in order to, among other things, include those Borrowers
not party to the Existing Loan Agreement and to revise certain terms and
conditions contained therein.

      NOW THEREFORE, it is hereby agreed that the Existing Loan Agreement is
hereby amended and restated in its entirety as follows:

ARTICLE 1: DEFINITIONS:

                                     Page 5

<PAGE>

      As used herein, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:

      "1934 ACT": The Securities Exchange Act of 1934, as amended.

      "ACCOUNT DEBTOR": Has the meaning given that term in the UCC.

      "ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts receivable,
receivables, and rights to payment (whether or not earned by performance) for:
property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of; services rendered or to be rendered; a policy of
insurance issued or to be issued; a secondary obligation incurred or to be
incurred; energy provided or to be provided; for the use or hire of a vessel;
arising out of the use of a credit or charge card or information contained on or
used with that card; winnings in a lottery or other game of chance; and also all
Inventory which gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit; all reclaimed, returned,
rejected or repossessed Inventory (if any) the sale of which gave rise to any
Account.

      "ACH": Automated clearing house.

      "AFFILIATE": With respect to any two Persons, a relationship in which (i)
one holds, directly or indirectly, not less than Twenty Five Percent (25%) of
the capital stock, beneficial interests, partnership interests, or other equity
interests of the other; or (ii) one has, directly or indirectly, the right,
under ordinary circumstances, to vote for the election of a majority of the
directors (or other body or Person who has those powers customarily vested in a
board of directors of a corporation); or (iii) not less than Twenty Five Percent
(25%) of their respective ownership is directly or indirectly held by the same
third Person; or (iv) one directly or indirectly is under the common control of
the other by reason of direct or indirect power to direct or cause the direction
of management and policies of the other (through the ownership of voting
securities, by contract, or on any other basis).

      "APPLICABLE LAW": As to any Person:(i) All statutes, rules, regulations,
orders, or other requirements having the force of law and (ii) all (A) court
orders and injunctions, (B) arbitrator's written decisions, and/or (C) similar
rulings which similar rulings are in writing, in each instance ((i) and (ii)) of
or by any federal, state, municipal, and other governmental authority, or court,
tribunal, panel, or other legislative or administrative body which has or claims
jurisdiction over such Person, or any property of such Person, or of any other
Person for whose conduct such Person would be responsible.

      "APPROVED BANK ISSUER": (x) Any commercial bank organized under the laws
of the United States, any state thereof, the District of Columbia, having
capital and surplus in an aggregate amount not less than $500,000,000 which has
not less than the second highest rating by a nationally recognized credit rating
agency and (y) the Lender (and Affiliates of the Lender).

      "AVAILABILITY": The result of the following:

            (i)   The lesser of

                                     Page 6

<PAGE>

                  (A)   The Credit Limit

                  or

                  (B)   The Borrowing Base

            Minus

            (ii)  The aggregate unpaid balance of the Loan Account.

            Minus

            (iii) The aggregate undrawn Stated Amount of all then outstanding
                  L/C's.

            Minus

            (iv)  The aggregate of the Availability Reserves.

            Minus

            (v)   The Availability Block.

      "AVAILABILITY BLOCK": A permanent "Availability Block" (so-called) in an
amount equal to the greater of: (i) 8.4% of the Borrowing Base, at any time, or
(ii) $1,700,000.00, plus in the case of both (i) and (ii), during the fiscal
months of July, August, October and November (as determined pursuant to the
Retail Calendar (as defined below), the additional sum of $250,000.00.

      "AVAILABILITY RESERVES": Such reserves as the Lender from time to time
determines in the Lender's reasonable discretion as being appropriate to reflect
the impediments to the Lender's ability to realize upon the Collateral. Without
limiting the generality of the foregoing, Availability Reserves may include (but
are not limited to) reserves based on the following:

                  (i)   Rent as provided in Sections 4.5(e) and 4.5(f).

                  (ii)  50% of all Customer Credit Liabilities under 365 days
                        old.

                  (iii) Bank Product Reserves.

                  (iv)  Taxes and other governmental charges, including, ad
                        valorem, personal property, and other taxes which
                        reasonably could be expected to have priority over the
                        Collateral Interests of the Lender in the Collateral.

                  (v)   L/C Landing Costs.

                  (vi)  Self funded insurance premiums to be paid based on the
                        prior three (3) months' premium paid.

                  (vii) Returns, based upon historical return levels.

      "BANK PRODUCT AGREEMENTS" means those certain cash management service
agreements entered into from time to time by the Borrower in connection with any
of the Bank Products.

      "BANK PRODUCT OBLIGATIONS" means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by the Borrower to the
Lender, Wells Fargo Bank, N. A., or any of their Affiliates pursuant to or
evidenced by the Bank Product Agreements and irrespective of whether for the
payment of money, whether direct or indirect,

                                     Page 7

<PAGE>

absolute or contingent, due or to become due, now existing or hereafter arising,
and including all such amounts that the Borrower is obligated to reimburse to
the Lender as a result of the Lender purchasing participations or executing
indemnities or reimbursement obligations with respect to the Bank Products
provided to the Borrower pursuant to the Bank Product Agreements.

      "BANK PRODUCTS" means any service or facility extended to the Borrower by
Wells Fargo Bank, N. A. or any of its Affiliates: (a) credit cards, (b) credit
card processing services, (c) debit cards, (d) purchase cards, (e) ACH
Transactions, (f) cash management, including controlled disbursement, accounts
or services, or (g) hedge agreements.

      "BANK PRODUCT RESERVES" means, as of any date of determination, the amount
of reserves that the Lender has established (based upon Wells Fargo Bank, N.
A.'s or its Affiliate's reasonable determination of the credit exposure in
respect of then extant Bank Products) for Bank Products then provided or
outstanding.

      "BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.

      "BLOCKED ACCOUNT": Any DDA into which the contents of any other DDA is
transferred.

      "BLOCKED ACCOUNT AGREEMENT": An Agreement, in form reasonably satisfactory
to the Lender, which Agreement recognizes the Lender's Collateral Interest in
the contents of the DDA which is the subject of such Agreement and agrees that,
on notice from the Lender, such contents thereafter shall be transferred only to
the Concentration Account (or, with respect to the Concentration Account, to the
Lender's Depository Account).

      "BORROWER" and "BORROWERS": Is defined in the Preamble.

      "BORROWING BASE": The aggregate of the following:

            (i) The result of the lesser of (a) or (b):

                  (a) The product of the Cost of Eligible Inventory (exclusive
                  of Eligible In-Transit Inventory and Eligible L/C Inventory)
                  (net of Inventory Reserves) multiplied by the Inventory
                  Advance Rate.

                         and

                  (b) The product of (i) the NRLV Percentage, times (ii) 85%
                  during the fiscal months of December through June and the
                  fiscal month of September (all as described on the retail
                  calendar attached hereto as Exhibit 1.1 (the "RETAIL
                  CALENDAR")), or 90% during the fiscal months of July through
                  August and the fiscal months of October through November (all
                  as described in the Retail Calendar) each year, times (iii)
                  the Cost of Eligible Inventory (exclusive of Eligible
                  In-Transit Inventory and Eligible L/C Inventory) (net of
                  Inventory Reserves).

            plus,

            (ii) the lesser of (a) or (b):

                                     Page 8

<PAGE>

                  (a) The product of (i) the NRLV Percentage of Eligible
                  In-Transit Inventory, times (ii) 85% during the fiscal months
                  of December through June and the fiscal month of September
                  (all as described in the Retail Calendar) each year, or 90%
                  from the fiscal months of July through August and the fiscal
                  months of October through November (all as described in the
                  Retail Calendar) each year, times (iii) the Cost of Eligible
                  In-Transit Inventory (net of Inventory Reserves). and

                  (b) $1,000,000.00.

            plus,

            (iii) the Cost of Eligible L/C Inventory (net of Inventory
            Reserves), times 50%.

            plus,

            (iv) The lesser of:

                  (x) 25% of the Credit Limit, or

                  (y) The face amount of Eligible Credit Card Receivables
                  multiplied by the Credit Card Advance Rate.

      "BORROWING BASE CERTIFICATE": Is defined in Section 5.4.

      "BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any day
on which banks in Boston, Massachusetts or in New York, New York, generally are
not open to the general public for the purpose of conducting commercial banking
business; or (c) a day on which the principal office of the Lender is not open
to the general public to conduct business.

      "BUSINESS PLAN": The Borrowers' business plan annexed hereto as EXHIBIT
5.10(b) and any revision, amendment, or update of such business plan presented
by the Lead Borrower to the Lender as to which the Lender has provided its
written sign-off. (SEE SECTION 5.9(c) WHICH RELATES TO THE LENDER'S SIGNING OFF
ON A REVISED BUSINESS PLAN IN THE EVENT OF THE REFINANCING OF THE HANOVER
PROPERTY INDEBTEDNESS).

      "CAPITAL LEASE": Any lease which should be capitalized in accordance with
GAAP.

      "CASH EQUIVALENTS": Each of the following, but only to the extent that
Section 4.25 (which relates to further assurances) is satisfied with respect
thereto:

            (a)   Securities issued or directly and fully guaranteed or insured
                  by the United States of America or any agency or
                  instrumentality thereof and entitled to the full faith and
                  credit of the United States of America.

            (b)   Dollar denominated commercial paper issued by any Approved
                  Bank Issuer or by the parent company of any Approved Bank
                  Issuer and commercial paper issued by, or guaranteed by, any
                  Person with a short-term commercial paper rating of at least
                  A-1 or the equivalent thereof by

                                     Page 9

<PAGE>

                  S&P or at least P-1 or the equivalent thereof by Moody's, and
                  in each instance maturing within twelve months after the date
                  of acquisition.

            (c)   Marketable direct obligations issued by any state of the
                  United States of America or any political subdivision of any
                  such state of any public instrumentality thereof maturing
                  within twelve months from the date of acquisition thereof and,
                  at the time of acquisition have one of the two highest ratings
                  obtainable from either S&P or Moody's.

            (d)   Any repurchase agreement entered into with any Approved Bank
                  Issuer which is secured by any obligation of the type
                  described in any of clauses (a) through (c) of this
                  Definition.

            (e)   Investments in money market funds substantially all the assets
                  of which are comprised of securities of the types described in
                  clauses (a) through (d) of this Definition.

      "CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.

      "CHANGE IN CONTROL": The occurrence of any of the following:

            (a)   More than half of the persons who were directors of Alloy,
                  Inc. on the first day of any period consisting of Twelve (12)
                  consecutive calendar months (the first of which Twelve (12)
                  month periods commencing with the first day of the month
                  during which this Agreement was executed), cease to be
                  directors of Alloy, Inc. for any reason other than (i) death
                  or disability or (ii) replacement by individuals whose
                  nomination for election to the relevant board of directors is
                  approved, prior to such election, by a majority of the
                  directors of the relevant board of directors.

            (b)   Any failure of Alloy, Inc. directly or indirectly to own,
                  beneficially and of record, 100% of the capital stock or share
                  capital of all of the Borrowers.

      "CHATTEL PAPER": Has the meaning given that term in the UCC.

      "COLLATERAL": Is defined in Section 8.1.

      "COLLATERAL INTEREST": Any interest in property to secure an obligation,
including, without limitation, a security interest, mortgage, and deed of trust.

      "COLLATERAL INTEREST RESTRICTIONS": Any restriction to the creation of a
Collateral Interest to the extent that such restriction is not made ineffective
by UCC Sections 9-401, 9-407, 9-408, or 9-409.

      "CONCENTRATION ACCOUNT": Is defined in Section 7.3(a)(ii).

                                    Page 10

<PAGE>

      "CONGRESS": Congress Financial Corporation.

      "CONSOLIDATED": When used to modify a financial term, test, statement, or
report, refers to the application or preparation of such term, test, statement
or report (as applicable) based upon the consolidation, in accordance with GAAP,
of the financial condition or operating results of the Borrowers and their
respective subsidiaries.

      "COST": The lower of (a) or (b), where:

            (a)   is the calculated cost of purchases, based upon the Borrowers'
                  accounting practices, known to the Lender, which practices are
                  in effect on the date on which this Agreement was executed as
                  such calculated cost is determined from: invoices received by
                  the Borrowers; the Borrowers' purchase journal; or the
                  Borrowers' stock ledger.

            (b)   is the cost equivalent of the lowest ticketed or promoted
                  price at which the subject Inventory is offered to the public
                  by a Borrower, after all mark-downs (whether or not such price
                  is then reflected on the Borrowers' accounting system), which
                  cost equivalent is determined in accordance with the Lead
                  Borrower's historic accounting method reflecting the
                  Borrowers' historic business practices.

      ("Cost" does not include inventory capitalization costs or other
non-purchase price charges (such as freight) used in the Borrowers' calculation
of cost of goods sold).

      "COSTS OF COLLECTION": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the Lender's
outside attorneys, and all reasonable out-of-pocket costs incurred by the Lender
in the administration of the Liabilities and/or the Loan Documents, including,
without limitation, reasonable costs and expenses associated with travel on
behalf of the Lender, where such costs and expenses are directly or indirectly
related to or in respect of the Lender's: administration and management of the
Liabilities; negotiation, documentation, and amendment of any Loan Document; or
efforts to preserve, protect, collect, or enforce the Collateral, the
Liabilities, and/or the Lender's Rights and Remedies and/or any of the rights
and remedies of the Lender against or in respect of any guarantor or other
person liable in respect of the Liabilities (whether or not suit is instituted
in connection with such efforts). The Costs of Collection are Liabilities, and
at the Lender's option may bear interest at the then effective Prime Rate.

      "CREDIT CARD ADVANCE RATE": 85%

      "CREDIT LIMIT": $20,000,000.00; however, the Lead Borrower may request an
increase to the Credit Limit by $10,000,000.00 to $30,000,000.00 by providing
written notice to the Lender of the Borrowers' request at any time on or before
October 14, 2006, and, the Lead Borrower may request an increase to the Credit
Limit by $10,000,000.00 to $40,000,000.00 by providing written notice to the
Lender of the Borrowers' request at any time on or before October 14, 2006. Upon
receipt of such notice(s) from the Borrowers, and so long as the Borrowers are
not then in Default and/or no Event of Default has theretofore occurred, the
Lender will increase the Credit Limit to $30,000,000.00, or $40,000,000.00, as
applicable.

                                    Page 11

<PAGE>

Upon the implementation of any increase to the Credit Limit, the Borrowers shall
pay to the Lender an incremental origination fee in the amount of .25% of the
amount of the increase.

      "CUSTOMER CREDIT LIABILITY": Gift certificates, customer deposits,
merchandise credits, layaway obligations, frequent shopping programs, and
similar liabilities of any Borrower to its retail customers and prospective
customers.

      "DDA": Any checking or other demand daily depository account maintained by
any Borrower, other than any Exempt DDA.

      "DEFAULT": Any occurrence, circumstance, or state of facts with respect to
a Borrower which (a) is an Event of Default; or (b) would become an Event of
Default if any requisite notice were given and/or any requisite period of time
were to run and such occurrence, circumstance, or state of facts were not
absolutely cured within any applicable grace period.

      "DEPOSIT ACCOUNT": Has the meaning given that term in the UCC and also
includes all demand, time, savings, passbook, or similar accounts maintained
with a bank.

      "DOCUMENTS": Has the meaning given that term in the UCC.

      "DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.

      "EARLY TERMINATION FEE": Is defined in Section 2.13(d).

      "ELIGIBLE CREDIT CARD RECEIVABLES": Under 4 business day accounts due on a
non recourse basis from major credit card processors (which, if due on account
of a private label credit card program, are deemed in the discretion of the
Lender to be eligible).

      "ELIGIBLE IN-TRANSIT INVENTORY": As of the date of determination thereof,
without duplication of other Eligible Inventory, Inventory (a) which has been
shipped from a foreign location for receipt by a Borrower within forty-five (45)
days of the date of determination, but which has not yet been delivered to a
Borrower, (b) for which payment has been made by a Borrower and title has passed
to a Borrower, (c) for which the document of title reflects a Borrower as
consignee (along with delivery to such Borrower of the documents of title with
respect thereto), (d) as to which the Lender has control over the documents of
title which evidence ownership of the subject Inventory (such as, if requested
by the Lender, by the delivery of a customs broker agency agreement,
satisfactory to the Lender), and (e) which otherwise would constitute Eligible
Inventory.

      "ELIGIBLE INVENTORY": All Inventory of the Borrowers which consists of
finished goods held for resale in the ordinary course of the business of the
Borrowers is acceptable to the Lender in the exercise of the Lender's discretion
based on the application of the Eligible Inventory Criteria.

      "ELIGIBLE INVENTORY CRITERIA": At the execution of this Agreement, as set
forth below and subject to resetting as provided in Section 2.3. "Eligible
Inventory" does not include any of the following:

                                    Page 12

<PAGE>

            (a)   Inventory which is not then in compliance with any
                  representation or warranty included in any Loan Document.

            (b)   Inventory in the possession of a contract manufacturer, or in
                  the possession of a third party on consignment or pursuant to
                  a sale on approval or sale or return, or otherwise located at
                  the place of business of a third party at which such party
                  deals in goods of that kind or under other circumstances in
                  which such third party or creditors of such third party may be
                  able to assert rights in the Inventory.

            (c)   Inventory, title to which is evidenced by warehouse receipts
                  or other documents of the title.

            (d)   Inventory which is located at premises other than one then
                  owned or leased by a Borrower.

            (e)   Inventory sold on lay-away or any similar arrangement (subject
                  to a basket of up to $50,000.00 in such Inventory at any one
                  time, the sale of which under such arrangements has not yet
                  been reflected by being relieved from the Borrower's stock
                  ledger).

            (f)   Inventory which is damaged, defective, or otherwise not
                  salable in the ordinary course of business.

            (g)   Inventory which is not similar in type to that which the
                  Borrowers offer for resale in the ordinary course (i) in the
                  businesses in which they were engaged at the execution of this
                  Agreement or (ii) in a business reasonably related thereto.

            (h)   Inventory which consists of packaging and shipping materials.

            (i)   Inventory which consists of supplies used or consumed in any
                  Borrower's business.

            (j)   Inventory which is subject to a Encumbrance (even if such
                  Encumbrance is a Permitted Encumbrance) other than an
                  Encumbrance in favor of the Lender.

            (k)   Inventory which has been sold on a bill and hold basis.

            (l)   Inventory which is not subject to the prior and only perfected
                  security interest in favor of the Lender.

            (m)   Returned Inventory which is not first quality goods being held
                  for resale.

            (n)   Inventory being held to be returned to vendors.

                                    Page 13

<PAGE>

            (o)   Inventory which has been subject to more than one transfer
                  from a Sales Channel to another other than in the ordinary
                  course of business.

      "ELIGIBLE L/C INVENTORY": As of the date of determination thereof, without
duplication of other Eligible Inventory, Inventory (a) not yet delivered to a
Borrower, (b) the purchase of which is supported by a Documentary Letter of
Credit having an expiry within forty-five (45) days of such date of
determination, (c) for which the document of title reflects a Borrower as
consignee (along with delivery to such Borrower of the documents of title with
respect thereto), (d) as to which the Lender has control over the documents of
title which evidence ownership of the subject Inventory (such as, if requested
by the Lender, by the delivery of a customs broker agency agreement,
satisfactory to the Lender), and (e) which otherwise would constitute Eligible
Inventory.

      "EMPLOYEE BENEFIT PLAN": Any employee pension plan, as defined in Section
3(2) of ERISA and covered by Title IV of ERISA.

      "ENCUMBRANCE": Each of the following:

            (a)   A Collateral Interest or agreement to create or grant a
                  Collateral Interest; the interest of a lessor under a Capital
                  Lease; conditional sale or other title retention agreement;
                  sale of accounts receivable or chattel paper; or other
                  arrangement pursuant to which any Person is entitled to any
                  preference or priority with respect to the property or assets
                  of another Person or the income or profits of such other
                  Person; each of the foregoing whether consensual or
                  non-consensual and whether arising by way of agreement,
                  operation of law, legal process or otherwise.

            (b)   The filing, authorized by a Borrower, of any financing
                  statement under the UCC or comparable law of any jurisdiction
                  other than a filing in respect of a lease otherwise permitted
                  by this Agreement.

      "END DATE": The date upon which all of the following conditions are
satisfied: (a) all payment Liabilities described in Section 13.2(a) have been
paid in full; (b) those arrangements concerning L/C's, Bank Products, and Bank
Product Obligations which are described in Section 13.2(b) have been made; and
(c) all obligations of the Lender to make loans and advances and to provide
other financial accommodations to the Borrowers hereunder shall have been
irrevocably terminated.

      "ENVIRONMENTAL LAWS": All of the following:

            (a)   Applicable Law which regulates or relates to, or imposes any
                  standard of conduct or liability on account of or in respect
                  to pollution or protection of the environment, including,
                  without limitation, Hazardous Materials, as are now or
                  hereafter in effect.

            (b)   The common law to the extent that it relates to damage to
                  Persons or property from releases of or exposure to Hazardous
                  Materials.

                                    Page 14

<PAGE>

      "EQUIPMENT": Includes, without limitation, "equipment" as defined in the
UCC, and also all furniture, store fixtures, motor vehicles, rolling stock,
machinery, office equipment, plant equipment, tools, dies, molds, and other
goods, property, and assets which are used and/or were purchased for use in the
operation or furtherance of a Borrower's business, and any and all accessions or
additions thereto, and substitutions therefor.

      "ERISA": The Employee Retirement Income Security Act of 1974, as amended.

      "ERISA AFFILIATE": Any Person which is under common control with a
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes any Borrower and which would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.

      "EVENTS OF DEFAULT": Is defined in Article 10:. An "Event of Default"
shall be deemed to have occurred and to be continuing unless and until that
Event of Default has been duly waived by the Lender or cured by the Borrowers.

      "EXCESS AVAILABILITY": The result of (a) Availability minus (b) all then
past due obligations of the Borrowers, including accounts payable which are
beyond customary trade terms extended to the Borrowers and rent obligations of
the Borrowers which are beyond applicable grace periods, and which are not then
otherwise reflected in the Availability Reserve.

      "EXCLUDED ASSETS" : The following:

            (a)   The Excluded Hanover Property.

            (b)   Any rights or interest in any Leasehold Interest, General
                  Intangible, or Payment Intangible to the extent that the
                  creation of a security interest therein is prohibited by terms
                  by which the relevant Borrower is bound and such restriction
                  is a Collateral Interest Restriction.

            (c)   Trademarks listed on Schedule A to the Security Agreement
                  dated February 24, 2003 entered into between dELiA*s Brand LLC
                  and JLP Daisy LLC (the "Excluded Trademarks").

      "EXCLUDED HANOVER PROPERTY": Equipment, a security interest in which is
created by any Hanover Loan Document, to the extent that the creation of a
security interest therein is subject to a Collateral Interest Restriction.

      "EXEMPT DDA": A depository account maintained by any Borrower, the only
contents of which may be transfers from the Operating Account and actually used
solely (i) for petty cash purposes; or (ii) for payroll.

      "EXISTING LOAN AGREEMENT": Has the meaning set forth in the Recitals
hereto.

      "FIRST FUNDING": The making of the first loan under the Revolving Credit.

                                    Page 15

<PAGE>

      "FISCAL": When followed by "month" or "quarter", the relevant fiscal
period based on the Borrowers' fiscal year and accounting conventions. When
followed by reference to a specific year, the fiscal year which ends in a month
of the year to which reference is being made (e.g. if the Borrowers' fiscal year
ends in January 2004 reference to that year would be to the Borrowers' "Fiscal
2004").

      "FIXTURES": Has the meaning given that term in the UCC.

      "GAAP": Principles which are consistent with those promulgated or adopted
by the Financial Accounting Standards Board and its predecessors (or successors)
in effect and applicable to that accounting period in respect of which reference
to GAAP is being made.

      "GENERAL INTANGIBLES": Includes, without limitation, "general intangibles"
as defined in the UCC; and also all: rights to payment for credit extended;
deposits; amounts due to any Borrower; credit memoranda in favor of any
Borrower; warranty claims; tax refunds and abatements; insurance refunds and
premium rebates; all means and vehicles of investment or hedging, including,
without limitation, options, warrants, and futures contracts; records; customer
lists; telephone numbers; goodwill; causes of action; judgments; payments under
any settlement or other agreement; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission; licenses;
franchises; license agreements (other than those relating to Excluded Assets),
including all rights of any Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any governmental
authority; patents, patent applications, patents pending, and other intellectual
property (other than those relating to Excluded Assets); internet addresses and
domain names; developmental ideas and concepts; proprietary processes;
blueprints, drawings, designs, diagrams, plans, reports, and charts; catalogs;
manuals; technical data; computer software programs (including the source and
object codes therefor), computer records, computer software, rights of access to
computer record service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductors chips and printouts; trade secrets rights,
copyrights, mask work rights and interests, and derivative works and interests;
user, technical reference, and other manuals and materials; trade names,
trademarks, service marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general intangible property of any
Borrower in the nature of intellectual property; proposals; cost estimates, and
reproductions on paper, or otherwise, of any and all concepts or ideas, and any
matter related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced, sold, or
leased, by any Borrower or credit extended or services performed, by any
Borrower, whether intended for an individual customer or the general business of
any Borrower, or used or useful in connection with research by any Borrower.

      "GOODS": Has the meaning given that term in the UCC, and also includes all
things movable when a security interest therein attaches and also all computer
programs embedded in goods and any supporting information provided in connection
with a transaction relating to the program if (i) the program is associated with
the goods in such manner that it customarily is considered part of the goods or
(ii) by becoming the owner of the goods, a Person acquires a right to use the
program in connection with the goods.

                                    Page 16

<PAGE>

      "GUARANTOR'S DEFAULT": The occurrence of (a) any event described in
Section 10.11 (which relates to bankruptcy) with respect to any guarantor of the
Liabilities, or Alloy, Inc., or (b) any "Event of Default" within the meaning of
any instrument which secures the guaranty of the Liabilities by such guarantor.

      "HANOVER PROPERTY": The land, with the buildings thereon located in Penn
Township, York County, Pennsylvania and known for street numbering purposes as
348 Poplar Street, Hanover, Pennsylvania 17331.

      "HANOVER PROPERTY INDEBTEDNESS": Indebtedness of dELiA*s Distribution
Company to Allfirst Bank arising pursuant to the Hanover Property Loan Documents
as in effect on the date hereof or any refinancing thereof, provided, that, each
of the following conditions is satisfied:

            (a)   The principal amount of such Indebtedness does not exceed
                  $3,000,00.00, less the aggregate amount of all repayments,
                  repurchases or redemptions, whether optional or mandatory in
                  respect thereof, plus interest thereon at the rate provided
                  for in the Hanover Property Loan Documents as in effect on the
                  date of this Agreement.

            (b)   Such Indebtedness is not secured by any assets or properties
                  of any Borrower other than the Hanover Property.

      "HANOVER PROPERTY LOAN DOCUMENTS": The following, each dated August 6,
1999 (as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced) , which, except for the instrument
described in clause (f) of this Definition is between dELiA*s Distribution
Company and Allfirst Bank or in favor of Allfirst Bank:

            (a)   Construction Loan Agreement.

            (b)   Open-End Construction /Permanent Loan Mortgage and Security
                  Agreement with respect to the Hanover Property.

            (c)   Equipment Security Agreement with respect to the equipment and
                  fixtures located at the Hanover Property.

            (d)   Collateral Assignment of Agreements Affecting Real Estate.

            (e)   Assignment of Leases and Rents

            (f)   Suretyship Agreement, dated August 6, 1999, by dELiA*s Corp.
                  in favor of Allfirst Bank.

      "HAZARDOUS MATERIALS": Any (a) substance which is defined or regulated as
a hazardous material in or under any Environmental Law and (b) oil in any
physical state in amounts or concentrations which are regulated under any
Environmental Law.

                                    Page 17

<PAGE>

      "INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:

            (a)   In respect of money borrowed (including any indebtedness which
                  is non-recourse to the credit of such Person but which is
                  secured by an Encumbrance on any asset of such Person, but
                  only to the extent of the greater or the market or net book
                  value of such asset) whether or not evidenced by a promissory
                  note, bond, debenture or other written obligation to pay
                  money.

            (b)   In connection with any letter of credit or acceptance
                  transaction (including, without limitation, the face amount of
                  all letters of credit and acceptances issued for the account
                  of such Person or reimbursement on account of which such
                  Person would be obligated).

            (c)   In connection with the sale or discount of accounts receivable
                  or chattel paper of such Person.

            (d)   On account of deposits or advances.

            (e)   As lessee under Capital Leases.

            (f)   In connection with any sale and leaseback transaction.

      "Indebtedness" also includes:

      (x) Indebtedness of others secured by an Encumbrance on any asset of such
Person, whether or not such Indebtedness is assumed by such Person (except that,
if such Indebtedness is non-recourse to such Person, it shall be deemed
"Indebtedness" within the meaning of this Definition only to the extent of the
greater of the market or net book value of such assets).

      (y) Any guaranty, endorsement, suretyship or other undertaking pursuant to
which that Person may be liable on account of any obligation of any third party
except for endorsements of instruments for deposit or collection or standard
contractual indemnities entered into, in each instance, in the ordinary course
of business.

      (z) The Indebtedness of a partnership or joint venture for which such
Person is liable as a general partner or joint venturer.

      "Indebtedness" does not include any obligation which is payable solely
with shares of the Lead Borrower's common stock.

      "INDEMNIFIED PERSON": Is defined in Section 14.13.

      "INSTRUMENTS": Has the meaning given that term in the UCC.

      "INTEREST PAYMENT DATE": With reference to:

                                    Page 18

<PAGE>

      Each LIBOR Loan: The last day of the Interest Period relating thereto; the
Termination Date; and the End Date.

      Each Prime Rate Loan: The first day of each month; the Termination Date;
and the End Date.

      "INTEREST PERIOD": The following:

            (a)   With respect to each LIBOR Loan: Subject to Subsection (c),
                  below, the period commencing on the date of the making or
                  continuation of, or conversion to, the subject LIBOR Loan and
                  ending one, two, or three months thereafter, as the Lead
                  Borrower may elect by notice (pursuant to Section 2.7) to the
                  Lender.

            (b)   With respect to each Prime Rate Loan: Subject to Subsection
                  (c), below, the period commencing on the date of the making or
                  continuation of or conversion to such Prime Rate Loan and
                  ending on that date (i) as of which the subject Prime Rate
                  Loan is converted to a LIBOR Loan, as the Lead Borrower may
                  elect by notice (pursuant to Section 2.7) to the Lender, or
                  (ii) on which the subject Prime Rate Loan is paid by the
                  Borrowers.

            (c)   The setting of Interest Periods is in all instances subject to
                  the following:

                  (i)   Any Interest Period for a Prime Rate Loan which would
                        otherwise end on a day which is not a Business Day shall
                        be extended to the next succeeding Business Day.

                  (ii)  Any Interest Period for a LIBOR Loan which would
                        otherwise end on a day that is not a Business Day shall
                        be extended to the next succeeding Business Day, unless
                        that succeeding Business Day is in the next calendar
                        month, in which event such Interest Period shall end on
                        the last Business Day of the month during which the
                        Interest Period ends.

                  (iii) Subject to Subsection (iv), below, any Interest Period
                        applicable to a LIBOR Loan, which Interest Period begins
                        on a day for which there is no numerically corresponding
                        day in the calendar month during which such Interest
                        Period ends, shall end on the last Business Day of the
                        month during which that Interest Period ends.

                  (iv)  Any Interest Period which would otherwise end after the
                        Termination Date shall end on the Termination Date.

                  (v)   The number of Interest Periods in effect at any one time
                        is subject to Section 2.12(d) hereof.

                                    Page 19

<PAGE>

      "INVENTORY": Includes, without limitation, "inventory" as defined in the
UCC and also all: (a) Goods which are leased by a Person as lessor; are held by
a Person for sale or lease or to be furnished under a contract of service; are
furnished by a Person under a contract of service; or consist of raw materials,
work in process, or materials used or consumed in a business; (b) Goods of said
description in transit; (c) Goods of said description which are returned,
repossessed and rejected; (d) packaging, advertising, and shipping materials
related to any of the foregoing; (e) all names, marks, and General Intangibles
affixed or to be affixed or associated thereto; and (f) Documents and Documents
of Title which represent any of the foregoing.

      "INVENTORY ADVANCE RATE": The Inventory Advance Rates set forth in the
grid below, or such greater or lesser percentage as the Lender may determine
from time to time, in the Lender's reasonable and exclusive discretion, based
upon the most recent appraisal of the Borrowers' Inventory.

<TABLE>
<CAPTION>
       PERIOD                INVENTORY ADVANCE RATE
       ------                ----------------------
<S>                          <C>
June                                    59%
July - August                           62%
September                               55%
October                                 65%
November                                65%
December 1-15                           65%
December 16 - May                       53%
</TABLE>

      "INVENTORY RESERVES": Such Reserves as may be established from time to
time by the Lender in the Lender's reasonable discretion with respect to the
determination of the saleability, at retail, of the Eligible Inventory or which
reflect such other factors as affect the market value of the Eligible Inventory.

      "INVESTMENT PROPERTY": Has the meaning given that term in the UCC.

      "ISSUER": The issuer of any L/C.

      "L/C": Any letter of credit, the issuance of which is procured by the
Lender for the account of any Borrower and any acceptance made on account of
such letter of credit.

      "L/C LANDING COSTS": To the extent not included in the Stated Amount of an
L/C, customs, duty, freight, and other out-of-pocket costs and expenses which
will be expended to "land" the Inventory, the purchase of which is supported by
such L/C.

                                    Page 20

<PAGE>

      "LEASE": Any lease or other agreement, no matter how styled or structured,
pursuant to which a Borrower is entitled to the use or occupancy of any space.

      "LEASEHOLD INTEREST": Any interest of a Borrower as lessee under any
Lease.

      "LENDER": Is defined in the Preamble to this Agreement.

      "LENDER'S DEPOSITORY ACCOUNT": Is defined in Section 7.3(a)(iii).

      "LENDER'S RIGHTS AND REMEDIES": Is defined in Section 11.7.

      "LETTER-OF-CREDIT RIGHT": Has the meaning given that term in the UCC and
also refers to any right to payment or performance under an L/C, whether or not
the beneficiary has demanded or is at the time entitled to demand payment or
performance.

      "LIABILITIES": Includes, without limitation, the following:

                  (i)   Any and all direct and indirect liabilities, debts, and
                        obligations of each Borrower to the Lender.

                  (ii)  Any and all direct and indirect liabilities, debts, and
                        obligations of each Borrower to any Affiliate of the
                        Lender, each of every kind, nature, and description
                        which arises under any Loan Document.

                  (iii) Each obligation to repay any loan, advance,
                        indebtedness, note, obligation, overdraft, or amount now
                        or hereafter owing by any Borrower to the Lender
                        (including all future advances whether or not made
                        pursuant to a commitment by the Lender), whether or not
                        any of such are liquidated, unliquidated, primary,
                        secondary, secured, unsecured, direct, indirect,
                        absolute, contingent, or of any other type, nature, or
                        description, or by reason of any cause of action which
                        the Lender may hold against any Borrower.

                  (iv)  All notes and other obligations of each Borrower now or
                        hereafter assigned to or held by the Lender, each of
                        every kind, nature, and description.

                  (v)   All interest, fees, and charges and other amounts which
                        may be charged by the Lender to any Borrower and/or
                        which may be due from any Borrower to the Lender from
                        time to time.

                  (vi)  All Bank Product Obligations.

                  (vii) All costs and expenses incurred or paid by the Lender in
                        respect of any agreement between any Borrower and the
                        Lender or instrument furnished by any Borrower to the
                        Lender (including, without limitation, Costs of
                        Collection, attorneys' reasonable fees, and all court
                        and litigation costs and expenses).

                                    Page 21

<PAGE>

                 (viii) Any and all covenants of each Borrower to or with the
                        Lender and any and all obligations of each Borrower to
                        act or to refrain from acting in accordance with any
                        agreement between that Borrower and the Lender or
                        instrument furnished by that Borrower to the Lender.

      "LIBOR BUSINESS DAY": Any day which is both a Business Day and a day on
which banks are open for dealings in dollar deposits in the London interbank
market.

      "LIBOR LOAN": Any Revolving Credit Loan which bears interest at a LIBOR
Rate.

      "LIBOR MARGIN": 225 basis points.

      "LIBOR OFFER RATE": That rate of interest (rounded upwards, if necessary,
to the next 1/100 of 1%) determined by the Lender in good faith (which shall be
presumed) to be the average prevailing rate per annum at which deposits on U.S.
Dollars are offered to Wells Fargo Bank, N.A., by first-class banks in the LIBOR
market in which Wells Fargo Bank, N.A. participates at or about 10:00AM (Boston
Time) Two (2) LIBOR Business Days before the first day of the Interest Period
for the subject LIBOR Loan, for a deposit approximately in the amount of the
subject loan for a period of time approximately equal to such Interest Period.

      "LIBOR RATE": That per annum rate which is the aggregate of the LIBOR
Offer Rate plus the LIBOR Margin except that, in the event that the Lender
determines in good faith (which shall be presumed) that the Lender is subject to
the Reserve Percentage, the "LIBOR Rate" shall mean, with respect to any LIBOR
Loans then outstanding (from the date on which that Reserve Percentage first
became applicable to such loans), and with respect to all LIBOR Loans thereafter
made (but only so long as the Reserve Percentage continues to apply to such
LIBOR Loans), an interest rate per annum equal the sum of (a) plus (b), where:

            (a)   is the decimal equivalent of the following fraction:

      LIBOR Offer Rate

      1 minus Reserve Percentage

                  (i)   is the applicable LIBOR Margin.

      "LOAN ACCOUNT": Is defined in Section 2.9.

      "LOAN DOCUMENTS": All of the following:

            (a)   This Agreement and each other instrument or document from time
                  to time executed and/or delivered to the Lender in connection
                  with the arrangements contemplated hereby.

            (b)   Each instrument or document from time to time executed and/or
                  delivered in connection with or in furtherance of the
                  arrangements

                                    Page 22

<PAGE>

                  contemplated hereby with or to any Affiliate of the Lender,
                  including, without limitation, cash management services,
                  letter of credit services, or interest rate protection
                  provided by any Affiliate of the Lender, including any Bank
                  Product Agreements, as each may be amended from time to time.

      "MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to accounting
periods subsequent to the Borrowers' fiscal year most recently completed prior
to the execution of this Agreement, which change has a material effect on the
Borrowers' Consolidated financial condition or operating results, as reflected
on financial statements and reports prepared by or for the Borrowers, when
compared with such condition or results as if such change had not taken place or
where preparation of the Borrowers' statements and reports in compliance with
such change results in the breach of a financial performance covenant imposed
pursuant to Section 5.10 where such a breach would not have occurred if such
change had not taken place or visa versa.

      "MATURITY DATE": October 14, 2007.

      "MATERIAL ADVERSE CHANGE": Any event, fact, circumstance, change in, or
effect, on the business of the Borrowers, when taken as a whole, which,
individually or in the aggregate or on a cumulative basis with any other
circumstances, changes in, or effects on, the Borrowers or the Collateral,
constitutes any of the following:

            (a)   A material adverse change in the business, operations, results
                  of operations, assets, liabilities, or condition (financial or
                  otherwise) of the Borrowers (when taken as a whole),
                  including, without limitation, a material adverse change in
                  the business, operations, results, assets, liabilities or
                  condition since the date of the latest financial information
                  supplied pursuant to this Agreement or at any time when
                  compared to the Business Plan.

            (b)   The material impairment of the Borrowers' ability to perform
                  their obligations under the Loan Documents or of the Lender's
                  ability to enforce the Liabilities or to realize on any of the
                  Collateral.

            (c)   A material adverse effect on the value of the Collateral or
                  the amount which the Lender likely would receive (after giving
                  consideration to delays in payment and costs of enforcement).

            (d)   A material impairment to the priority of the Lender's
                  Collateral Interests in the Collateral.

      "MATERIAL ADVERSE EFFECT": A result, consequence, or outcome with respect
to the Borrowers, taken as a whole which constitutes a Material Adverse Change.

      "MOODY'S": Moody's Corporation.

                                    Page 23

<PAGE>

      "NRLV": The product of (a) the Cost of Eligible Inventory (net of
Inventory Reserves) multiplied by (b) the NRLV Percentage. ("NRLV" refers to
"net retail liquidation value").

      "NRLV PERCENTAGE": The percentage of the Cost value of the Borrowers'
Eligible Inventory that is estimated to be recoverable in an orderly liquidation
of such Eligible Inventory, net of liquidation expenses, as determined from time
to time by the Lender in its reasonable discretion based upon the most recent
appraisal obtained by the Lender.

      "OPERATING ACCOUNT": Is defined in Section 7.3.

      "OVERLOAN": A loan, advance, or providing of credit support (such as the
issuance of any L/C) to the extent that, immediately after its having been made,
Availability is less than zero.

      "PAYMENT INTANGIBLE": Has the meaning given that term in the UCC and also
refers to any general intangible under which the Account Debtor's primary
obligation is a monetary obligation.

      "PERMITTED DISTRIBUTIONS": Each of the following:

            (a)   The payment of any dividend by any Borrower or any subsidiary
                  of a Borrower to another Borrower.

            (b)   The payment, by the Lead Borrower on account of stock option
                  plans and stock appreciation rights programs of the Lead
                  Borrower and repurchase options for common stock of the Lead
                  Borrower upon the termination of employment, death, permanent
                  disability or retirement of its employees, directors,
                  management or consultants, provided, that, as to any such
                  repurchase, each of the following conditions is satisfied:

                  (i)   As of the date of the payment for such repurchase and
                        after giving effect thereto, no Borrower is in Default.

                  (ii)  Such repurchase is paid for with funds legally available
                        therefor or solely in common stock of the Lead Borrower.

                  (iii) Such repurchase shall not violate any Applicable Law or
                        the terms of any indenture, agreement or undertaking to
                        any Borrower is a party or by which any Borrower or its
                        property are bound.

                  (iv)  The aggregate amount of all payments for such repurchase
                        in any Fiscal year does not exceed $250,000.00.

            (c)   Payment of any Borrower's Indebtedness with capital stock of
                  the Lead Borrower.

                                    Page 24

<PAGE>

            (d)   The payment of any dividends or making of any distributions by
                  any Borrower or any subsidiary of a Borrower to Alloy, Inc. so
                  long as, as of the date of such dividend or distribution each
                  of the following conditions is satisfied:

                  (i)   As of the date of the payment of such dividend or making
                        of such distribution, and after giving effect thereto,
                        no Borrower is in Default;

                  (ii)  As of the date of the payment of such dividend or making
                        of such distribution, and after giving effect thereto,
                        Excess Availability is not less than $2,500,000.00; and

                  (iii) Such dividend is paid or distribution is made with funds
                        legally available therefore.

      "PERMITTED ENCUMBRANCES": The following:

            (a)   Inchoate liens for unpaid taxes that either (i) are not yet
                  due and payable or (ii) are being contested in good faith by
                  any Borrower (or subsidiary thereof) to the extent permitted
                  by Section 4.15.

            (b)   The interests of lessors under operating leases of personal
                  property.

            (c)   Encumbrances arising by operation of law in favor of
                  warehousemen, landlords, carriers, mechanics, materialmen,
                  laborers, or suppliers, incurred in the ordinary course of
                  business of any Borrower and not in connection with the
                  borrowing of money.

            (d)   Encumbrances arising from deposits made in connection with
                  obtaining worker's compensation or other unemployment
                  insurance.

            (e)   Encumbrances or deposits to secure performance bids, tenders,
                  or leases (to the extent permitted under this Agreement),
                  incurred in the ordinary course of business of Borrower and
                  not in connection with the borrowing of money.

            (f)   Encumbrances arising by reason of security for surety or
                  appeal bonds in the ordinary course of business of any
                  Borrower.

            (g)   Encumbrances of or resulting from any judgment or award to the
                  extent that such judgment or award does not constitute an
                  Event of Default (as to which, see Section 10.9)

            (h)   Encumbrances with respect to easements, zoning restrictions,
                  rights-of-way, restrictions, minor defects or irregularities
                  in title and other similar charges or encumbrances not
                  interfering in any material respect with the

                                    Page 25

<PAGE>

                  ordinary conduct of the business of any Borrower or any of its
                  subsidiaries.

            (i)   Encumbrances of licensors under any license permitted by this
                  Agreement.

            (j)   The interests of any mortgagee of real estate, all or a part
                  thereof of which is leased by a Borrower.

            (k)   Restrictions on assignments of Leases, to the extent that such
                  restrictions do not constitute Collateral Interest
                  Restrictions.

            (l)   Purchase money security interests in Equipment which solely
                  secures Permitted Indebtedness, in an amount not to exceed
                  $500,000.00 in aggregate principal amount at any time
                  outstanding.

            (m)   The security interests in favor of the landlord thereof
                  created by those Leases described on EXHIBIT 4.5, annexed
                  hereto.

      "PERMITTED INDEBTEDNESS": The following:

            (a)   The Hanover Property Indebtedness.

            (b)   Indebtedness of any Borrower to any other Borrower or to
                  Alloy, Inc., provided, that, the Indebtedness arising pursuant
                  to such loan or advance shall not be evidenced by a promissory
                  note or other instrument, unless the originals of all notes or
                  other instruments are delivered to Lender to hold as part of
                  the Collateral, with such endorsement and/or assignment by the
                  payee of such notes as Lender may require, and provided
                  further that any indebtedness to Alloy, Inc. shall be subject
                  to the Subordination Agreement.

            (c)   Indebtedness arising pursuant to guarantees by one or more
                  Borrowers (or any subsidiary thereof) of (i) any Indebtedness
                  of another Borrower, which Indebtedness is permitted by
                  Section 4.8 or (ii) any Leases or other contractual
                  obligations of another Borrower, which Lease or other
                  contractual obligation is permitted by this Agreement.

            (d)   The Indebtedness set forth on EXHIBIT 4.8 , annexed hereto.

            (e)   Purchase money Indebtedness (including Capital Leases), not to
                  exceed $250,000.00 outstanding in the aggregate at any one
                  time.

      "PERMITTED INVESTMENTS": Each of the following, but only to the extent
that Section 4.25 (which relates to further assurances) is satisfied with
respect thereto:

            (a)   Cash Equivalents.

                                    Page 26

<PAGE>

            (b)   Lead Borrower's holding of equity interests in the other
                  Borrowers and other subsidiaries.

            (c)   Receivables owing to Borrower, if created or acquired in the
                  ordinary course of business and payable or dischargeable in
                  accordance with customary trade terms (including the dating of
                  receivables) of such Borrower.

            (d)   Equity securities and debt obligations received in connection
                  with the bankruptcy or reorganization of suppliers and
                  customers and in settlement of delinquent obligations of, and
                  other disputes with, customers and suppliers arising in the
                  ordinary course of business.

            (e)   Each of the following, but only if entered into in the
                  ordinary course of business and for bona fide business (and
                  not speculative) purposes:

                  (i)   Interest rate protection agreements entered into to
                        protect against fluctuations in interest rates in
                        respect of the Liabilities.

                  (ii)  Other hedging agreements with respect to currencies in
                        which a Borrower transacts business.

            (f)   Investments extant on the date of this Agreement and listed on
                  EXHIBIT 4.20 annexed hereto (but not any additions thereto or
                  replacements thereof).

            (g)   Investments of the types extant on the date of this Agreement,
                  listed on EXHIBIT 4.20 annexed hereto, and held in the
                  securities account maintained by Chase H&Q, a division of
                  Chase Securities Inc., and any additions or replacements
                  thereto.

            (h)   Investments in licensing and branding joint ventures, provided
                  that (i) the revenues which are generated therefrom are
                  treated as Receipts; (ii) such joint ventures do not have a
                  material adverse effect on the Lender's ability to realize on
                  the Collateral; (iii) total Cash Equivalents, Inventory
                  (valued at Cost), and Equipment (at net book value)
                  contributed to such joint ventures does not exceed
                  $1,000,000.00; and (iv) no making of any such contribution
                  results in a breach of Excess Availability.

            (i)   Intercompany loans and advances by any Borrower to any other
                  Borrower to the extent permitted by Section 4.8.

            (j)   Loans and advances by any Borrower to the extent permitted by
                  Section 4.24.

      "PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or entity.

                                    Page 27

<PAGE>

      "PROCEEDS": Includes, without limitation, "Proceeds" as defined in the UCC
and each type of property described in Section 8.1 hereof.

      "RECEIPTS": All cash, cash equivalents, money, checks, credit card slips,
receipts which constitute any of the following: (a) Proceeds from any sale of
the Collateral; (b) the net proceeds of any investment by a third party in any
of the Borrowers; (c) the proceeds of any Indebtedness (other than under the
Revolving Credit); and (d) proceeds which arise other than from ordinary
business operations (such as, by way of illustration, tax refunds and
condemnation awards).

      "RECEIVABLES COLLATERAL": That portion of the Collateral which consists of
Accounts, Accounts Receivable, General Intangibles, Chattel Paper, Instruments,
Documents of Title, Documents, Investment Property, Payment Intangibles,
Letter-of-Credit Rights, bankers' acceptances, and all other rights to payment.

      "PRIME RATE": The Prime Rate announced from time to time by Wells Fargo
Bank, N.A. (or any successor in interest to Wells Fargo Bank, N.A.). In the
event that said bank (or any such successor) ceases to announce such a rate,
"Prime Rate" shall refer to that rate or index announced or published from time
to time as the Lender, in good faith, designates as the functional equivalent to
said Prime Rate. Any change in "Prime Rate" shall be effective, for purposes of
the calculation of interest due hereunder, when such change is made effective
generally by the bank on whose rate or index "Prime Rate" is being set.

      "PRIME RATE LOAN": Each Revolving Credit Loan while bearing interest at
the Prime Rate.

      "REQUIREMENTS OF LAW": As to any Person:

            (a)   Applicable Law.

            (b)   That Person's organizational documents.

            (c)   That Person's by-laws and/or other instruments which deal with
                  corporate or similar governance, as applicable.

      "RESERVE PERCENTAGE": The decimal equivalent of that rate applicable to
the Lender under regulations issued from time to time by the Board of Governors
of the Federal Reserve System for determining the maximum reserve requirement of
the Lender with respect to "Eurocurrency liabilities" as defined in such
regulations. The Reserve Percentage applicable to a particular LIBOR Loan shall
be based upon that in effect during the subject Interest Period, with changes in
the Reserve Percentage which take effect during such Interest Period to take
effect (and to consequently change any interest rate determined with reference
to the Reserve Percentage) if and when such change is applicable to such loans.

      "RESERVES": The following: Availability Reserves and Inventory Reserves.

      "REVOLVING CREDIT": Is defined in Section 2:.

                                    Page 28

<PAGE>

      "REVOLVING CREDIT LOANS": Loans made under the Revolving Credit, except
that where the term "Revolving Credit Loan" is used with reference to available
interest rates applicable to the loans under the Revolving Credit, it refers to
so much of the unpaid principal balance of the Loan Account as bears the same
rate of interest for the same Interest Period. (See Section 2.12).

      "REVOLVING CREDIT NOTE": Is defined in Section 2.10.

      "S&P": Standard & Poors, a division of the McGraw Hill Companies.

      "SALES CHANNEL": Any of the following, as the context requires: (a) a
premier store; (b) an outlet store; or (c) sales through a Borrower's catalogue
or internet operations.

      "SEC": The Securities and Exchange Commission.

      "STATED AMOUNT": The maximum amount for which an L/C may be honored.

      "STORE": (When used as a noun) A location at which any Borrower maintains
Inventory for retail sale to the public from that location.

      "SUBORDINATION AGREEMENT": That certain Subordination and Intercreditor
Agreement dated as of June 4, 2004 by and among Alloy, Inc., dELiA*s Corp., and
Wells Fargo Retail Finance II, LLC, as amended by that certain First Amendment
to Subordination and Intercreditor Agreement dated as of October 14, 2004.

      "SUPPORTING OBLIGATION": Has the meaning given that term in the UCC and
also refers to any Letter-of-Credit Right or secondary obligation which supports
the payment or performance of an Account, Chattel Paper, a Document, a General
Intangible, an Instrument, or Investment Property.

      "TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10.11, below; or (c) the Lender's
notice to the Lead Borrower setting the Termination Date on account of the
occurrence of any Event of Default other than as described in Section 10.11,
below; (d) that date of which not less than fifteen (15) days irrevocable prior
written notice is provided by the Lead Borrower to the Lender; or (e) that date
set by the Lead Borrower or the Lender as provided herein

      "UCC": The Uniform Commercial Code as in effect from time to time in
Massachusetts.

      "UNUSED LINE FEE": Is defined in Section 2.13(c).

ARTICLE 2: THE REVOLVING CREDIT:

      2.1 ESTABLISHMENT OF REVOLVING CREDIT

            (a)   The Lender hereby establishes a revolving line of credit (the
                  "REVOLVING CREDIT") in the Borrowers' favor pursuant to which
                  the Lender, subject to, and in accordance with, this
                  Agreement, shall make loans and

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                  advances and otherwise provide financial accommodations to and
                  for the account of the Borrowers as provided herein.

            (b)   Loans, advances, and financial accommodations under the
                  Revolving Credit shall be made with reference to the Borrowing
                  Base and shall be subject to Availability. The Borrowing Base
                  and Availability shall be determined by the Lender by
                  reference to Borrowing Base Certificates furnished as provided
                  in Section 5.4, below, and shall be subject to the following:

                  (i)   The Cost of Eligible Inventory will be determined in a
                        manner consistent with current tracking practices, based
                        on the Borrowers' stock ledger inventory.

                  (ii)  The NRLV Percentage shall be determined in accordance
                        with the Definition of that term.

                  (iii) The proceeds of borrowings under the Revolving Credit
                        shall be used solely in accordance, in all material
                        respects, with the Business Plan for the Borrowers'
                        general corporate purposes, including for working
                        capital and Capital Expenditures, all solely to the
                        extent permitted by this Agreement. No proceeds of a
                        borrowing under the Revolving Credit may be used, nor
                        shall any be requested, with a view towards the
                        accumulation of any general fund or funded reserve of
                        the Borrowers other than in the ordinary course of the
                        Borrowers' business and consistent with the provisions
                        of this Agreement.

      2.2 RESERVES.

            (a)   The only reserves, at the execution of this Agreement, are as
                  follows:

                  (i)   Availability Reserve for rent as provided in Sections
                        4.5(e) and 4.5(f).

                  (ii)  Inventory Reserves:

                        (A)   100% of the Cost of all Eligible Inventory located
                              at any location the landlord of which has been
                              granted a security interest in the personal
                              property of any Borrower, which landlord has not
                              subordinated to the security interests created
                              herein by an instrument which is reasonably
                              satisfactory to the Lender.

                        (B)   Return to vendor and damaged goods.

                        (C)   Discrepancy store Inventory.

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                        (D)   Shrinkage, initially in the amount of $50,000.00
                              plus 1.2% of the Borrowers' retail sales since the
                              date of the last physical inventory, assuming the
                              physical to book adjustment has been made.

                  (iii) The Lender may, in its reasonable and exclusive
                        discretion from time to time, increase then existing
                        Availability Reserves and Inventory Reserves and/or
                        establish additional Availability Reserves and Inventory
                        Reserves, in such amounts as the Lender deems
                        appropriate based upon the then existing facts,
                        circumstances, or factors that the Lender, in its
                        reasonable and exclusive discretion, deems relevant
                        relating to both the Borrowers, as a whole, and the
                        additional Reserve being established. Any such Reserve
                        shall take effect on the Business Day after notice
                        thereof has been provided by the Lender to the Borrower.

      2.3 ELIGIBLE INVENTORY CRITERIA.

            (a)   The Lender may reset the Eligible Inventory Criteria from time
                  to time to reflect facts, events, conditions, or circumstances
                  which the Lender determines in the exercise of the Lender's
                  discretion could reasonably be expected to adversely affect
                  the saleability of Inventory, but only where such facts,
                  events, conditions or circumstances either:

                  (i)   Come into existence after the date of this Agreement; or

                  (ii)  are extant at the execution of this Agreement and of
                        which the Lender does not have knowledge.

      2.4 ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)

            (a)   The Lender does not have any obligation to make any loan or
                  advance, or otherwise to provide any credit to or for the
                  benefit of the Borrowers where the result of such loan,
                  advance, or credit is an OverLoan.

            (b)   The Lender's providing of an OverLoan on any one occasion does
                  not affect the obligations of each Borrower hereunder
                  (including each Borrower's obligation to immediately repay any
                  amount which otherwise constitutes an OverLoan) nor obligate
                  the Lender to do so on any other occasion.

                              2.5 RISKS OF VALUE OF COLLATERAL. The Lender's
reference to a given asset in connection with the making of loans, credits, and
advances and the providing of financial accommodations under the Revolving
Credit and/or the monitoring of compliance with the provisions hereof shall not
be deemed a determination by the Lender relative to the actual value of the
asset in question. All risks concerning the value of the Collateral are and
remain upon the Borrowers. All

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Collateral secures the prompt, punctual, and faithful performance of the
Liabilities whether or not relied upon by the Lender in connection with the
making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.

2.6 LENDER'S COMMITMENT. Subject to the provisions of this Agreement, the Lender
shall make a loan or advance under the Revolving Credit and shall endeavor to
have an L/C issued for the account of any of the Borrowers, in each instance if
duly and timely requested by the Lead Borrower as provided herein provided that:

            (a)   No OverLoan is then outstanding and none will result
                  therefrom.

            (b)   No Borrower is then in Default and none will thereby become in
                  Default.

2.7 REVOLVING CREDIT LOAN REQUESTS.

            (a)   Requests for loans and advances under the Revolving Credit or
                  for the continuance or conversion of an interest rate
                  applicable to a Revolving Credit Loan may be requested by the
                  Lead Borrower pursuant to the procedures set forth below, it
                  being understood, however, that the Lender, from time to time
                  may alter and adjust such procedures reasonably and on not
                  less than five (5) Business Days prior written notice (in
                  reasonable detail as to the manner of such alteration or
                  adjustment) to the Lead Borrower.

            (b)   Subject to the provisions of this Agreement, the Lead Borrower
                  may request a Revolving Credit Loan and elect an interest rate
                  and Interest Period to be applicable to that Revolving Credit
                  Loan by giving notice to the Lender by no later than the
                  following:

                  (i)   If such Revolving Credit Loan is to be or is to be
                        converted to a Prime Rate Loan: By 11:30AM on the
                        Business Day on which the subject Revolving Credit Loan
                        is to be made or is to be so converted. Prime Rate Loans
                        requested by the Lead Borrower, other than those
                        resulting from the conversion of a LIBOR Loan, shall not
                        be less than $10,000.00.

                  (ii)  If such Revolving Credit Loan is to be, or is to be
                        continued as, or converted to, a LIBOR Loan: By 1:00PM
                        Three (3) LIBOR Business Days before the commencement of
                        any new Interest Period or the end of the then
                        applicable Interest Period. LIBOR Loans and conversions
                        to LIBOR Loans shall each be not less than $1,000,000.00
                        and in increments of $500,000.00 in excess of such
                        minimum.

                  (iii) Any LIBOR Loan which matures while any Borrower is in
                        Default shall be converted, at the option of the Lender,
                        to a Prime

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                        Rate Loan notwithstanding any notice from the Lead
                        Borrower that such Loan is to be continued as a LIBOR
                        Loan.

            (c)   Any request for a Revolving Credit Loan or for the continuance
                  or conversion of an interest rate applicable to a Revolving
                  Credit Loan which is made after the applicable deadline
                  therefor, as set forth above, shall be deemed to have been
                  made at the opening of business on the then next Business Day
                  or LIBOR Business Day, as applicable.

            (d)   L/C's for the account of the Borrowers as provided in Section
                  2.15.

            (e)   The Lender may rely on any request for a loan or advance, or
                  other financial accommodation under the Revolving Credit which
                  the Lender, in good faith, believes to have been made by a
                  Person duly authorized to act on behalf of the Lead Borrower
                  and may decline to make any such requested loan or advance, or
                  issuance, or to provide any such financial accommodation
                  pending the Lender's being furnished with such documentation
                  concerning that Person's authority to act as reasonably may be
                  satisfactory to the Lender.

            (f)   A request by the Lead Borrower for a loan or advance, or other
                  financial accommodation under the Revolving Credit shall be
                  irrevocable and shall constitute certification by each
                  Borrower that as of the date of such request, each of the
                  following is true and correct:

                  (i)   There has been no Material Adverse Change in the
                        Borrowers' financial condition from the most recent
                        financial information (taken as a whole) furnished
                        Lender pursuant to this Agreement.

                  (ii)  All or a portion of any loan or advance so requested
                        will be set aside by the Borrowers to cover the
                        Borrowers' obligations for sales tax on account of sales
                        since the then most recent borrowing pursuant to the
                        Revolving Credit.

                  (iii) Each representation which is made herein or in any of
                        the Loan Documents is then true and complete in all
                        material respects as of and as if made on the date of
                        such request.

                  (iv)  Unless accompanied by a written Certificate of the Lead
                        Borrower's Chief Executive Officer, President or its
                        Chief Financial Officer that a Borrower is in Default,
                        and describing (in reasonable detail) the facts and
                        circumstances thereof and the steps (if any) being taken
                        to remedy such condition, that no Borrower is or if a
                        Borrower is in Default.

            (g)   If, at any time or from time to time, any Borrower is in
                  Default:

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<PAGE>

            (i)   The Lender may suspend the Revolving Credit immediately, in
                  which event, the Lender shall not be obligated, during such
                  suspension, to make any loans or advance, or to provide any
                  financial accommodation hereunder or to seek the issuance of
                  any L/C.

            (ii)  The Lender may suspend the right of the Lead Borrower to
                  request any LIBOR Loan or to convert any Prime Rate Loan to a
                  LIBOR Loan.

      2.8 MAKING OF REVOLVING CREDIT LOANS

            (a)   A loan or advance under the Revolving Credit shall be made by
                  the transfer of the proceeds of such loan or advance to the
                  Operating Account or as otherwise instructed by the Lead
                  Borrower.

            (b)   A loan or advance shall be deemed to have been made under the
                  Revolving Credit (and the Borrowers shall be indebted to the
                  Lender for the amount thereof immediately) at the following:

                  (i)   The Lender's initiation of the transfer of the proceeds
                        of such loan or advance in accordance with the Lead
                        Borrower's wire instructions (if such loan or advance is
                        of funds requested by the Lead Borrower).

                  (ii)  The charging of the amount of such loan to the Loan
                        Account in accordance with this Agreement (in all other
                        circumstances).

            (c)   Except as provided in Section (d), there shall not be any
                  recourse to or liability of the Lender on account of the
                  following:

                  (i)   Any reasonable delay in the making of any loan or
                        advance requested under the Revolving Credit.

                  (ii)  Any delay by any bank or other depository institution in
                        treating the proceeds of any such loan or advance as
                        collected funds.

                  (iii) Any delay in the receipt, and/or any loss, of funds
                        which constitutes a loan or advance under the Revolving
                        Credit, the wire transfer of which was properly
                        initiated by the Lender in accordance with wire
                        instructions provided to the Lender by the Lead Borrower
                        (written confirmation of the initiation of which is
                        provided by the Lender to the Lead Borrower on request
                        of the Lead Borrower).

            (d)   Section (c) shall not relieve the Lender from recourse or
                  liability on account of an act or failure to act where there
                  is a specific finding in a judicial proceeding by a court of
                  competent jurisdiction (in which the

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<PAGE>

                  Lender has been given an opportunity to be heard), from which
                  finding no further appeal is available, that the Lender had
                  acted in actual bad faith or in a grossly negligent manner or
                  in wilful misconduct.

      2.9 THE LOAN ACCOUNT

            (a)   An account ("LOAN ACCOUNT") shall be opened on the books of
                  the Lender in which a record shall be kept of all loans and
                  advances made under the Revolving Credit.

            (b)   The Lender shall also keep a record (either in the Loan
                  Account or elsewhere, as the Lender may from time to time
                  elect) of all interest, fees, service charges, costs,
                  expenses, and other debits owed to the Lender on account of
                  the Liabilities and of all credits against such amounts so
                  owed.

            (c)   The Lender shall provide the Lead Borrower, monthly, with a
                  statement of the Loan Account.

            (d)   All credits against the Liabilities shall be conditional upon
                  final payment to the Lender of the items giving rise to such
                  credits. The amount of any item credited against the
                  Liabilities which is charged back against the Lender for any
                  reason or is not so paid shall be a Liability and shall be
                  added to the Loan Account, whether or not the item so charged
                  back or not so paid is returned.

            (e)   Except as otherwise provided herein, all fees, service
                  charges, costs, and expenses for which any Borrower is
                  obligated hereunder are payable on demand. In the event that
                  the Lead Borrower prevails in any dispute of the amount of any
                  such fee, service charge, cost, or expense, the Lender shall
                  refund any interest which accrued on any amount paid over to
                  that Borrower in consequence of the resolution of such
                  dispute.

            (f)   In the determination of Availability, the Lender may deem
                  fees, service charges, accrued interest, and other payments
                  which will be due and payable between the date of such
                  determination and the first day of the then next succeeding
                  month as having been advanced under the Revolving Credit
                  whether or not such amounts are then due and payable.

            (g)   The Lender, without the request of the Lead Borrower, may
                  advance under the Revolving Credit any interest, fee, service
                  charge, or other payment to which Lender is entitled from any
                  Borrower pursuant hereto and may charge the same to the Loan
                  Account notwithstanding that an OverLoan may result thereby
                  and shall provide notice of such advance to the Lead Borrower.
                  Such action on the part of the Lender shall not constitute a
                  waiver of the Lender's rights and each Borrower's obligations
                  under Section 2.11(b). Any amount which is added to the

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<PAGE>

                  principal balance of the Loan Account as provided in this
                  Section (g) shall bear interest at the interest rate then and
                  thereafter applicable to Prime Rate Loans.

            (h)   Any statement rendered by the Lender to the Lead Borrower
                  concerning the Liabilities shall be considered correct and
                  accepted by each Borrower and shall be conclusively binding
                  upon each Borrower unless the Lead Borrower provides the
                  Lender with written objection thereto within twenty (20) days
                  from the mailing of such statement, which written objection
                  shall indicate, with reasonable particularity, the reason for
                  such objection. The Loan Account and the Lender's books and
                  records concerning the loan arrangement contemplated herein
                  and the Liabilities shall be prima facie evidence and proof of
                  the items described therein absent manifest error.

      2.10 THE REVOLVING CREDIT NOTE. The Borrowers' obligation to repay loans
      and advances under the Revolving Credit, with interest as provided herein,
      shall be evidenced by a note (the "Revolving Credit Note") in the form of
      EXHIBIT 2.10, annexed hereto, executed by each Borrower. Neither the
      original nor a copy of the Revolving Credit Note shall be required,
      however, to establish or prove any Liability.

      2.11 PAYMENT OF THE LOAN ACCOUNT.

            (a)   The Borrowers may repay all or any portion of the principal
                  balance of the Loan Account from time to time until the
                  Termination Date.

            (b)   The Borrowers, without notice or demand from the Lender shall
                  pay the Lender that amount, from time to time, which is
                  necessary so that there is no OverLoan outstanding.

            (c)   The Borrowers shall repay that amount described in Section
                  13.2(a) on the Termination Date.

            (d)   The Lender shall cause the application of payments (if any),
                  pursuant to Sections (a) and (b) in the following order:

                  (i)   LIBOR Loans which are then maturing.

                  (ii)  Prime Rate Loans.

                  (iii) LIBOR Loans which have not then matured.

            (e)   The Borrowers shall indemnify the Lender and hold the Lender
                  harmless from and against any actual loss, cost or expense
                  (including loss of anticipated profits and amounts payable by
                  the Lender on account of "breakage fees" (so-called)) which
                  the Lender sustains or incurs (including, without limitation,
                  by virtue of acceleration after the occurrence of any Event of
                  Default) as a consequence of the following:

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<PAGE>

                  (i)   Default by any Borrower in payment of the principal
                        amount of or any interest on any LIBOR Loan as and when
                        due and payable, including any such loss or expense
                        arising from interest or fees payable by the Lender in
                        order to maintain its LIBOR Loans.

                  (ii)  Default by any Borrower in making a borrowing or
                        conversion after the Lead Borrower has given (or is
                        deemed to have given) a request for a Revolving Credit
                        Loan or a request to convert a Revolving Credit Loan
                        from one applicable interest rate to another.

                  (iii) The making of any payment on a LIBOR Loan or the making
                        of any conversion of any such Loan to a Prime Rate Loan
                        on a day that is not the last day of the applicable
                        Interest Period with respect thereto.

      2.12 INTEREST ON REVOLVING CREDIT LOANS.

            (a)   Each Revolving Credit Loan shall bear interest at the Prime
                  Rate unless timely notice is given (as provided in Section
                  2.7) that the subject Revolving Credit Loan (or a portion
                  thereof) is, or is to be converted to, a LIBOR Loan.

            (b)   Each Revolving Credit Loan which consists of a LIBOR Loan
                  shall bear interest at the applicable LIBOR Rate.

            (c)   Subject to, and in accordance with, the provisions of this
                  Agreement, the Lead Borrower may cause all or a part of the
                  unpaid principal balance of the Loan Account which bears
                  interest at the Prime Rate to bear interest at a LIBOR Rate as
                  specified from time to time by the Lead Borrower.

            (d)   The Lead Borrower shall not select, renew, or convert any
                  interest rate for a Revolving Credit Loan such that there are
                  more than four (4) LIBOR Rates applicable to the Revolving
                  Credit Loans at any one time.

            (e)   The Borrowers shall pay accrued and unpaid interest on each
                  Revolving Credit Loan in arrears as follows:

                  (i)   On the applicable Interest Payment Date for that
                        Revolving Credit Loan.

                  (ii)  On the Termination Date and on the End Date.

                  (iii) Following the occurrence of any Event of Default, with
                        such frequency as may be determined by the Lender.

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<PAGE>

            (f)   Following the occurrence, and during the continuance, of any
                  Event of Default (and whether or not the Lender exercises the
                  Lender's rights on account thereof), all Revolving Credit
                  Loans shall bear interest, at the option of the Lender at a
                  rate which is the aggregate of the rate applicable to Prime
                  Rate Loans, plus Two Percent (2%) per annum.

      2.13 FEES.

            (a)   Origination Fee: In consideration of the commitment to make
                  loans and advances to the Borrowers under the Revolving
                  Credit, and to maintain sufficient funds available for such
                  purpose, there has been earned and the Borrowers shall pay to
                  the Lender, at the execution of this Agreement, an origination
                  fee of $50,000,00.

            (b)   Collateral Monitoring Fee: The Borrowers shall pay to the
                  Lender, a Collateral Monitoring Fee in the amount of $1,500.00
                  per month on the first day of each calendar month until all
                  Liabilities have been irrevocably paid in full.

            (c)   Unused Line Fee: In addition to any other fee to be paid by
                  the Borrowers on account of the Revolving Credit, the
                  Borrowers shall pay the Lender an Unused Line Fee of 0.25% per
                  annum of the average difference, during the month just ended
                  (or relevant period with respect to the payment being made on
                  the Termination Date) between the Credit Limit and the
                  aggregate of the unpaid principal balance of the Loan Account
                  and the undrawn Stated Amount of L/C's outstanding during the
                  relevant period. The Unused Line Fee shall be paid in arrears,
                  on the first day of each month after the execution of this
                  Agreement and on the Termination Date.

            (d)   Early Termination Fee: (i) In the event that the Termination
                  Date occurs, for any reason, prior to October 14, 2006, the
                  Borrower shall pay to the Lender the "EARLY TERMINATION FEE"
                  in respect of amounts which are or become payable by reason
                  thereof equal to $250,000.00.

                  (ii) The Lender and the Borrower agree and acknowledge that
                  the Lender will have suffered damages on account of the early
                  termination of the Revolving Credit and that, in view of the
                  difficulty in ascertaining the amount of such damages, the
                  Early Termination Fee constitutes reasonable compensation and
                  liquidated damages to compensate the Lender on account
                  thereof.

                  (iii) Notwithstanding the foregoing, if the Termination Date
                  occurs as a result of a refinancing of the Liabilities by the
                  Borrower with another commercial lender with proceeds of a
                  credit facility containing terms and conditions which clearly
                  and objectively afford the Borrowers greater borrowing
                  availability and better economic terms on average than those

                                    Page 38

<PAGE>

                  provided by the Lender hereunder, and Lender has declined the
                  opportunity to provide such financing on the terms offered by
                  such commercial lender, then no Early Termination Fee shall be
                  due or payable.

            (e)   Pass Through of Fees Incurred by Lender: In addition to any
                  other payments to be made by the Borrowers to the Lenders, the
                  Borrowers shall reimburse the Lender for the following:

                  (i)   The actual charges paid or incurred by the Lender for
                        each appraisal of the Collateral performed by personnel
                        employed or retained by the Lender.

                  (ii)  The actual charges paid or incurred by the Lender for
                        each financial analysis and examination (i.e., audits)
                        of any of the Borrowers performed by personnel employed
                        or retained by the Lender.

                  (iii) The actual charges paid or incurred by the Lender if it
                        elects to employ or retain the services of one or more
                        third Persons to perform legal investigation,
                        documentation financial analysis and examinations (i.e.,
                        audits) of any of the Borrowers or to appraise the
                        Collateral.

            (f)   Additional Fees: In addition to any other right to which the
                  Lender is then entitled on account thereof, the Lender may
                  assess an additional fee payable by the Borrowers on account
                  of the accommodation of Lender to the Borrowers' request that
                  the Lender depart or dispense with one or more of the
                  administrative provisions of this Agreement.

            (g)   Concerning Fees: The Borrowers shall not be entitled to any
                  credit, rebate or repayment of any fee earned by the Lender
                  pursuant to this Agreement or any Loan Document
                  notwithstanding any termination of this Agreement or
                  suspension or termination of the Lender's obligation to make
                  loans and advances hereunder.

      2.14 LENDER'S DISCRETION.

            (a)   Each reference in the Loan Documents to the exercise of
                  discretion or the like by the Lender shall be to the Lender's
                  exercise of its judgment, in good faith (which shall be
                  presumed), based upon the Lender's consideration of any such
                  factors as the Lender, taking into account information of
                  which the Lender then has actual knowledge, believes:

                  (i)   Will or reasonably could be expected to materially
                        adversely affect the value of the Collateral, the
                        enforceability of the Lender's Collateral Interests
                        therein, or the amount which the Lender would likely
                        realize therefrom (taking into account delays

                                    Page 39

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                        which may possibly be encountered in the Lender's
                        realizing upon the Collateral and likely Costs of
                        Collection).

                  (ii)  Reasonably indicates that any report or financial
                        information delivered to the Lender by or on behalf of
                        any Borrower is incomplete, inaccurate, or misleading in
                        any material manner or was not prepared in accordance
                        with the requirements of this Agreement.

                  (iii) Reasonably suggests an increase in the likelihood that
                        any Borrower will become the subject of a bankruptcy or
                        insolvency proceeding.

                  (iv)  Reasonably suggests that any Borrower is in Default.

            (b)   In the exercise of such judgement described in Section (a),
                  the Lender also may take into account any of the following
                  factors:

                  (i)   Those included in, or tested by, the definitions of
                        "Eligible Inventory" and "Cost".

                  (ii)  The current financial and business climate of the
                        industry in which each Borrower competes (having regard
                        for that Borrower's position in that industry).

                  (iii) General macroeconomic conditions which have a material
                        effect on the Borrowers' cost structure.

                  (iv)  Material changes in or to the mix of the Borrowers'
                        Inventory.

                  (v)   Seasonality with respect to the Borrowers' Inventory and
                        patterns of retail sales.

                  (vi)  Such other factors as the Lender reasonably determines
                        as having a material bearing on credit risks associated
                        with the providing of loans and financial accommodations
                        to the Borrowers.

            (c)   The burden of establishing the failure of the Lender to have
                  acted in a reasonable manner in the Lender's exercise of such
                  discretion or its not having acted in good faith in the
                  determination of a particular fact or circumstance, shall be
                  the Borrowers'.

      2.15 PROCEDURES FOR ISSUANCE OF L/C'S.

            (a)   The Lead Borrower may request that the Lender cause the
                  issuance by the Issuer of L/C's for the account of any
                  Borrower. Each such request shall be in such manner as may
                  from time to time reasonably be acceptable to the Lender.

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<PAGE>

            (b)   The Lender will endeavor to cause the issuance of any L/C so
                  requested by the Lead Borrower, provided that , at the time
                  that the request is made, the Revolving Credit has not been
                  suspended as provided in Section 2.7(g) and if so issued:

                  (i)   The aggregate Stated Amount of all L/C's then
                        outstanding, does not exceed $10,000,000.00.

                  (ii)  Except as provided in Section (iii), the expiry of the
                        L/C is not later than the earlier of Thirty (30) days
                        prior to the Maturity Date or the following:

                        (A)   Standby's: One (1) year from initial issuance
                              (without regard to any evergreen feature).

                        (B)   Documentary's: Ninety (90) days from issuance.

                  (iii) If the expiry of an L/C is later than the Maturity Date,
                        it is 103% cash collateralized at its issuance.

                  (iv)  An OverLoan will not result from the issuance of the
                        subject L/C.

            (c)   Each Borrower shall execute such documentation to apply for
                  and support the issuance of an L/C as may be required by the
                  Issuer generally for the issuance of like kinds of L/C's.

            (d)   There shall not be any recourse to, nor liability of, the
                  Lender on account of

                  (i)   Any delay or refusal by an Issuer to issue an L/C;

                  (ii)  Any action or inaction of an Issuer on account of or in
                        respect to, any L/C.

            (e)   The Borrowers shall reimburse the Issuer for the amount of any
                  honoring of a drawing under an L/C on the same day on which
                  such honoring takes place. The Lender, without the request of
                  any Borrower, may advance under the Revolving Credit (and
                  charge to the Loan Account) the amount of any honoring of any
                  L/C and other amount for which any Borrower, the Issuer, or
                  the Lender becomes obligated on account of, or in respect to,
                  any L/C. Such advance shall be made whether or not any
                  Borrower is in Default or such advance would result in an
                  OverLoan. Such action shall not constitute a waiver of the
                  Lender's rights under Section 2.11(b) hereof.

      2.16 FEES FOR L/C'S.

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            (a)   The Borrowers shall pay to the Lender a fee, on account of
                  L/C's, the issuance of which had been procured by the Lender,
                  monthly in arrears, and on the Termination Date and on the End
                  Date, equal to 10 basis points of the weighted average Stated
                  Amount of all L/C's outstanding during the period in respect
                  of which such fee is being paid except that, following the
                  occurrence and during the continuance of any Event of Default,
                  such fee shall be increased by 20 basis points.

            (b)   In addition to the fee to be paid as provided in Subsection
                  (a), above, the Borrowers shall pay to the Lender (or to the
                  Issuer, if so requested by Lender), on demand, all issuance,
                  processing, negotiation, amendment, and administrative fees
                  and other amounts then generally charged by the Issuer on
                  account of, or in respect to, any L/C.

            (c)   If any change in Applicable Law after the date of this
                  Agreement shall either:

                  (i)   impose, modify or deem applicable any reserve, special
                        deposit or similar requirements against letters of
                        credit heretofore or hereafter issued by any Issuer or
                        with respect to which the Lender or any Issuer has an
                        obligation to lend to fund drawings under any L/C; or

                  (ii)  impose on any Issuer any other condition or requirements
                        relating to any such letters of credit;

      and the result of any event referred to in Section (i) or (ii), above,
shall be to increase the cost to the Lender or to any Issuer of issuing or
maintaining any L/C (which increase in cost shall be the result of such Issuer's
reasonable allocation among the Lender's or Issuer's letter of credit customers
of the aggregate of such cost increases resulting from such events), then,
subject to Section (d), upon demand by the Lender and delivery by the Lender to
the Lead Borrower of a certificate of an officer of the Lender or the subject
Issuer describing such change in Applicable Law or interpretation thereof, its
effect on the Lender or such Issuer, and the basis for determining such
increased costs and their allocation, the Borrowers shall immediately pay to the
Lender, from time to time as specified by the Lender, such amounts as shall be
sufficient to compensate the Lender or the subject Issuer for such increased
cost. The Lender's or any Issuer's determination of costs incurred under Section
(i) or (ii), above, and the allocation, if any, of such costs among the
Borrowers and other similarly situated letter of credit customers of the Lender
or such Issuer, if done in good faith and made on an equitable basis and in
accordance with such officer's certificate, shall be conclusive and binding on
the Borrowers.

            (d)   The Borrowers shall be required to compensate the Lender
                  pursuant to Section (c)

                  (i)   only if the Lender provides the Lead Borrower with
                        notice thereof within ninety (90) days after the Lender
                        has received actual notice

                                    Page 42

<PAGE>

                        of the occurrence of the relevant circumstances which
                        gives rise to the Borrower's obligation to do so; and

                  (ii)  only to the extent that the Lender imposes a like such
                        compensation obligation on other of its customers who
                        are similarly situated to the Borrowers in respect of
                        any increased costs described in Section (c).

      2.17 CONCERNING L/C'S.

            (a)   None of the Issuer, the Issuer's correspondents, the Lender or
                  any advising, negotiating, or paying bank with respect to any
                  L/C shall be responsible in any way for:

                  (i)   The performance by any beneficiary under any L/C of that
                        beneficiary's obligations to any Borrower.

                  (ii)  The form, sufficiency, correctness, genuineness,
                        authority of any person signing; falsification; or the
                        legal effect of; any documents called for under any L/C
                        if (with respect to the foregoing) such documents on
                        their face appear to be in order.

            (b)   The Issuer may honor, as complying with the terms of any L/C
                  and of any drawing thereunder, any drafts or other documents
                  otherwise in order, but signed or issued by an administrator,
                  executor, conservator, trustee in bankruptcy, debtor in
                  possession, assignee for the benefit of creditors, liquidator,
                  receiver, or other legal representative of the party
                  authorized under such L/C to draw or issue such drafts or
                  other documents.

            (c)   Unless otherwise agreed to, in the particular instance, each
                  Borrower hereby authorizes any Issuer to:

                  (i)   Select an advising bank, if any.

                  (ii)  Select a paying bank, if any.

                  (iii) Select a negotiating bank.

            (d)   All directions, correspondence, and funds transfers relating
                  to any L/C are at the risk of the Borrowers. The Issuer shall
                  have discharged the Issuer's obligations under any L/C which,
                  or the drawing under which, includes payment instructions, by
                  the initiation of the method of payment called for in, and in
                  accordance with, such instructions (or by any other
                  commercially reasonable and comparable method). Neither the
                  Lender nor the Issuer shall have any responsibility for any
                  inaccuracy, interruption, error, or delay in transmission or
                  delivery by post, telegraph or cable, or for any inaccuracy of
                  translation.

                                    Page 43

<PAGE>

            (e)   Lender's and the Issuer's rights, powers, privileges and
                  immunities specified in or arising under this Agreement are in
                  addition to any heretofore or at any time hereafter otherwise
                  created or arising, whether by statute or rule of law or
                  contract.

            (f)   Except to the extent otherwise expressly provided hereunder or
                  agreed to in writing by the Issuer and the Lead Borrower,
                  documentary L/C's will be governed by the Uniform Customs and
                  Practice for Documentary Credits, International Chamber of
                  Commerce, Publication No. 500, and standby L/C's will be
                  governed by International Standby Practices ISP98 (adopted by
                  the International Chamber of Commerce on April 6, 1998) and
                  any respective subsequent revisions thereof.

            (g)   The obligations of the Borrowers under this Agreement with
                  respect to L/C's are absolute, unconditional, and irrevocable
                  and shall be performed strictly in accordance with the terms
                  hereof under all circumstances, whatsoever including, without
                  limitation, the following:

                  (i)   Any lack of validity or enforceability or restriction,
                        restraint, or stay in the enforcement of this Agreement,
                        any L/C, or any other agreement or instrument relating
                        thereto.

                  (ii)  Any Borrower's consent to any amendment or waiver of, or
                        consent to the departure from, any L/C.

                  (iii) The existence of any claim, set-off, defense, or other
                        right which any Borrower may have at any time against
                        the beneficiary of any L/C.

                  (iv)  Any good faith honoring of a drawing under any L/C,
                        which drawing possibly could have been dishonored based
                        upon a strict construction of the terms of the L/C.

      2.18 CHANGED CIRCUMSTANCES.

            (a)   The Lender may advise the Lead Borrower that the Lender has
                  made the good faith determination (which determination shall
                  be final and conclusive) of any of the following:

                  (i)   Adequate and fair means do not exist for ascertaining
                        the rate for LIBOR Loans.

                  (ii)  The continuation of or conversion of any Revolving
                        Credit Loan to a LIBOR Loan has been made impracticable
                        or unlawful by the occurrence of a contingency that
                        materially and adversely affects the applicable market
                        or the compliance by the Lender in good faith with any
                        Applicable Law.

                                    Page 44

<PAGE>

                  (iii) The indices on which the interest rates for LIBOR Loans
                        are based shall no longer represent the effective cost
                        to the Lender for U.S. dollar deposits in the London
                        interbank market for deposits in which it regularly
                        participates.

            (b)   In the event that the Lender advises the Lead Borrower of an
                  occurrence described in Section (a), then, until the Lender
                  notifies the Lead Borrower that the circumstances giving rise
                  to such notice no longer apply (which notice the Lender shall
                  give promptly after it has knowledge thereof):

                  (i)   The obligation of the Lender to make loans of the type
                        affected by such changed circumstances or to permit the
                        Lead Borrower to select the affected interest rate as
                        otherwise applicable to any Revolving Credit Loans shall
                        be suspended.

                  (ii)  Any notice which the Lead Borrower had given the Lender
                        with respect to any LIBOR Loan, the time for action with
                        respect to which has not occurred prior to the Lender's
                        having given notice pursuant to Section (a), shall be
                        deemed at the option of the Lender to not having been
                        given.

      2.19 DESIGNATION OF LEAD BORROWER AS BORROWERS' AGENT.

            (a)   Each Borrower hereby irrevocably designates and appoints the
                  Lead Borrower as that Borrower's agent to obtain loans and
                  advances under the Revolving Credit, the proceeds of which
                  shall be available to each Borrower for those uses as those
                  set forth in Section 2.1(b)(iii). As the disclosed principal
                  for its agent, each Borrower shall be obligated to the Lender
                  on account of loans and advances so made under the Revolving
                  Credit as if made directly by the Lender to that Borrower,
                  notwithstanding the manner by which such loans and advances
                  are recorded on the books and records of the Lead Borrower and
                  of any Borrower.

            (b)   Each Borrower recognizes that credit available to it under the
                  Revolving Credit is in excess of and on better terms than it
                  otherwise could obtain on and for its own account and that one
                  of the reasons therefor is its joining in the credit facility
                  contemplated herein with all other Borrowers. Consequently,
                  each Borrower hereby assumes and agrees to discharge all
                  Liabilities of each of the other Borrowers as if that Borrower
                  so assuming and agreeing was each of the other Borrowers.

            (c)   The Lead Borrower shall act as a conduit for each Borrower
                  (including itself, as a "Borrower") on whose behalf the Lead
                  Borrower has requested a Revolving Credit Loan.

                                    Page 45

<PAGE>

            (d)   The proceeds of each loan and advance provided under the
                  Revolving Credit which is requested by the Lead Borrower shall
                  be deposited into the Operating Account or as otherwise
                  indicated by the Lead Borrower. The Lead Borrower shall cause
                  the transfer of the proceeds thereof to the (those)
                  Borrower(s) on whose behalf such loan and advance was
                  obtained. The Lender shall not have any obligation to see to
                  the application of such proceeds.

ARTICLE 3: CONDITIONS PRECEDENT:

      As a condition to the First Funding, each of the documents respectively
described in Sections 3.1 through and including 3.3, (each in form and substance
reasonably satisfactory to the Lender) shall have been delivered to the Lender,
and the conditions respectively described in Sections 3.7 through and including
3.9, shall have been satisfied:

      3.1 CORPORATE DUE DILIGENCE.

            (a)   Certificates of corporate good standing for each Borrower,
                  respectively issued by the Secretary of State for the state in
                  which that Borrower is incorporated.

            (b)   Certificates of due qualification, in good standing, issued by
                  the Secretary(ies) of State of each State in which the nature
                  a Borrower's business conducted or assets owned could
                  reasonably be expected to require such qualification.

            (c)   Certificates of each Borrower's Secretary of the due adoption,
                  continued effectiveness, and setting forth the texts of, each
                  corporate resolution adopted in connection with the
                  establishment of the loan arrangement contemplated by the Loan
                  Documents and attesting to the true signatures of each Person
                  authorized as a signatory to any of the Loan Documents.

      3.2 OPINION. An opinion of counsel to the Borrowers in form and substance
      reasonably satisfactory to the Lender in the form annexed hereto as
      EXHIBIT 3.2.

      3.3 OFFICERS' CERTIFICATES. Certificates executed by the Chief Executive
      Officer, Chief Operating Officer or Chief Financial Officer of the Lead
      Borrower which state that

            (a)   Such officer, acting on behalf of the Borrowers, has reviewed
                  each of the Loan Documents and has had the benefit of
                  independent counsel of the Lead Borrower's selection in
                  connection with the review and negotiation of the Loan
                  Documents. In particular, and without limiting the generality
                  of such review, the following provisions of the Loan Documents
                  have been brought to the attention of the undersigned by such
                  counsel: The waiver of the right to a trial by jury in
                  connection

                                    Page 46

<PAGE>

                  with controversies arising out of the loan arrangement
                  contemplated by the Loan Documents.

                  (i)   The designation of, and submission to the exclusive
                        jurisdiction and venue of, certain courts.

                  (ii)  Various other waivers and indemnifications included
                        therein.

                  (iii) The circumstances under which the Liabilities could be
                        accelerated and the grace periods available with respect
                        to certain Events of Default.

            (b)   The representations and warranties made by the Borrowers to
                  the Lender in the Loan Documents are true and complete in all
                  material respects as of the date of such Certificate, and that
                  no Default has occurred and is then continuing which is or
                  which, solely with the giving of notice or passage of time (or
                  both) would be an Event of Default.

      3.4 ADDITIONAL DOCUMENTS. SATISFACTION OF CONDITIONS. The execution of
      such additional instruments and documents and the satisfaction of such
      additional conditions respective as the Lender or its counsel reasonably
      may require or request.

      3.5 MAKE WHOLE AGREEMENT BY ALLOY, INC.. A Make Whole Agreement by Alloy,
      Inc., in form and substance satisfactory to the Lender.

      3.6 CASH MANAGEMENT REQUIREMENTS. All actions required under Article
      7.1(b) to be taken prior to the First Funding shall have been so taken,
      provided that in the case of Alloy Merchandise, LLC and Skate Direct, LLC
      such actions shall be completed within 45 days after the First Funding.

      3.7 REPRESENTATIONS AND WARRANTIES. Each of the representations made by or
      on behalf of each Borrower in this Agreement or in any of the other Loan
      Documents or in any other report, statement, document, or paper provided
      by or on behalf of each Borrower shall be true and complete in all
      material respects as of the date as of which such representation or
      warranty was made.

      3.8 NO BORROWER IN DEFAULT>>

      . No Borrower is in Default.

      3.9 NO ADVERSE CHANGE. No event shall have occurred or failed to occur,
      which occurrence or failure is or could reasonably be expected to have a
      materially adverse effect upon the Borrowers' financial Consolidated
      condition when compared with such financial condition at July 31, 2004.

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<PAGE>

      3.10 BENEFIT OF CONDITIONS PRECEDENT. The conditions set forth in this
      Article 3: are for the sole benefit of the Lender and may be waived by the
      Lender in whole or in part without prejudice to the Lender.

      No document shall be deemed delivered to the Lender until received and
accepted by the Lender at its offices in Boston, Massachusetts. Under no
circumstances shall this Agreement take effect until executed and accepted by
the Lender at said offices.

ARTICLE 4: GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:

      To induce the Lender to establish the credit facility contemplated herein
and to induce the Lender to provide loans and advances under the Revolving
Credit (each of which loans shall be deemed to have been made in reliance
thereupon) the Borrowers, in addition to all other representations, warranties,
and covenants made by any Borrower in any other Loan Document, make those
representations, warranties, and covenants included in this Agreement.

      4.1 PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrowers shall pay each
      payment Liability in accordance with its respective terms, after giving
      effect to any applicable grace period, and shall promptly, punctually, and
      faithfully perform each other Liability.

      4.2 DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS.

            (a)   Each Borrower presently is and hereafter shall remain in good
                  standing as a corporation or limited liability company, as
                  applicable, under the laws of the State in which it is
                  organized, as set forth in the Preamble to this Agreement and
                  is and shall hereafter remain duly qualified and in good
                  standing in every other State in which, by reason of the
                  nature or location of each Borrower's assets or operation of
                  each Borrower's business, such qualification may be necessary,
                  except where the failure to so qualify could not reasonably be
                  expected to have a Material Adverse Effect.

            (b)   Each Borrower's respective organizational identification
                  number assigned to it by the State of its incorporation and
                  its respective federal employer identification number is
                  stated on EXHIBIT 4.2, annexed hereto.

            (c)   No Borrower shall change its State of organization; any
                  organizational identification number assigned to that Borrower
                  by that State; or that Borrower's federal taxpayer
                  identification number.

            (d)   Each Affiliate is listed on EXHIBIT 4.2. The Lead Borrower
                  shall provide the Lender with prior written notice of any
                  entity's becoming or ceasing to be an Affiliate.

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<PAGE>

            (e)   Each Borrower has all requisite power and authority to execute
                  and deliver all Loan Documents to which that Borrower is a
                  party and has and will hereafter retain all requisite power to
                  perform all Liabilities.

            (f)   The execution and delivery by each Borrower of each Loan
                  Document to which it is a party; each Borrower's consummation
                  of the transactions contemplated by such Loan Documents
                  (including, without limitation, the creation of Collateral
                  Interests by that Borrower to secure the Liabilities); each
                  Borrower's performance under those of the Loan Documents to
                  which it is a party; the borrowings hereunder; and the use of
                  the proceeds thereof:

                  (i)   Have been duly authorized by all necessary action.

                  (ii)  Do not, and will not, contravene in any material respect
                        any provision of any Requirement of Law or obligation of
                        that Borrower.

                  (iii) Will not result in the creation or imposition of, or the
                        obligation to create or impose, any Encumbrance upon any
                        assets of that Borrower pursuant to any Requirement of
                        Law or obligation, except pursuant to the Loan
                        Documents.

            (g)   The Loan Documents have been duly executed and delivered by
                  each Borrower and are the legal, valid and binding obligations
                  of each Borrower, enforceable against each Borrower in
                  accordance with their respective terms, except as such
                  enforcement may be limited by bankruptcy, insolvency,
                  reorganization, moratorium, or similar laws and equitable
                  principles which affect the rights of creditors generally.

      4.3 TRADE NAMES.

            (a)   EXHIBIT 4.3, annexed hereto, is a listing of:

                  (i)   All names under which any Borrower conducted its
                        business since October 14, 1999.

                  (ii)  All Persons with whom any Borrower ever consolidated or
                        merged, or from whom any Borrower ever acquired in a
                        single transaction or in a series of related
                        transactions substantially all of such Person's assets.

            (b)   The Lead Borrower will provide the Lender with not less than
                  twenty-one (21) days prior written notice (with reasonable
                  particularity) of any change to any Borrower's name from that
                  under which that Borrower is conducting its business at the
                  execution of this Agreement and will not effect such change
                  unless each Borrower is then in

                                    Page 49

<PAGE>

                  compliance in all material respects with all provisions of
                  this Agreement.

      4.4 INFRASTRUCTURE.

            (a)   Except as described on EXHIBIT 4.4, annexed hereto, each
                  Borrower has and will maintain a sufficient infrastructure to
                  conduct its business as presently conducted and as
                  contemplated to be conducted following its execution of this
                  Agreement.

            (b)   Each Borrower owns and possesses, or has the right to use (and
                  will hereafter own, possess, or have such right to use) all
                  patents, industrial designs, trademarks, trade names, trade
                  styles, brand names, service marks, logos, copyrights, trade
                  secrets, know-how, confidential information, and other
                  intellectual or proprietary property of any third Person
                  necessary for that Borrower's conduct of that Borrower's
                  business substantially in accordance with the Business Plan.

            (c)   The conduct by each Borrower of that Borrower's business does
                  not presently infringe (nor will any Borrower conduct its
                  business in the future so as to infringe) the patents,
                  industrial designs, trademarks, trade names, trade styles,
                  brand names, service marks, logos, copyrights, trade secrets,
                  know-how, confidential information, or other intellectual or
                  proprietary property of any third Person except where such
                  infringement could not reasonably be expected to have a
                  Material Adverse Effect.

      4.5 LOCATIONS.

            (a)   The Collateral, and the books, records, and papers of
                  Borrowers' pertaining thereto, are kept and maintained solely
                  at the following locations:

                  (i)   The Lead Borrower's chief executive offices which are at
                        435 Hudson Street, New York, New York 10014.

                  (ii)  Those locations which are listed on EXHIBIT 4.5, annexed
                        hereto, which EXHIBIT includes, with respect to each
                        such location, the name and address of the landlord on
                        the Lease which covers such location (or an indication
                        that a Borrower owns the subject location) and of all
                        service bureaus with which any such records are
                        maintained.

            (b)   No Borrower shall remove any of the Collateral from said chief
                  executive office or those locations listed on EXHIBIT 4.5
                  except:

                  (i)   To accomplish sales of Inventory in the ordinary course
                        of business.

                                    Page 50

<PAGE>

                  (ii)  To move Inventory from one such location to another such
                        location.

                  (iii) To utilize such of the Collateral as is removed from
                        such locations in the ordinary course of business (such
                        as motor vehicles).

                  (iv)  To dispose of such Collateral as otherwise permitted by
                        this Agreement.

            (c)   The Lead Borrower shall obtain and deliver to the Lender a
                  consent, waiver and subordination (each reasonably
                  satisfactory to the Lender) by the landlord of each Borrower's
                  warehouse and distribution center locations of which, prior to
                  the date of execution hereof, such Borrower is a tenant and by
                  the mortgagee or each Borrower's warehouse and distribution
                  center locations of which, prior to the date of execution
                  hereof, such Borrower is the owner.

            (d)   The Lead Borrower shall expend commercially reasonable efforts
                  to obtain and deliver to the Lender a consent, waiver and
                  subordination (each reasonably satisfactory to the Lender) by
                  the landlord for each Borrower's store locations within thirty
                  (30) days of the date of execution hereof.

            (e)   At the execution of this Agreement and at any time thereafter,
                  the Lender may establish an Availability Reserve for up to
                  thirty (30) days rent for each of the Borrowers' locations in
                  Pennsylvania, Washington and Virginia, or in any other state
                  with respect to which Lender reasonably determines that the
                  claim of a landlord against Inventory may be senior to the
                  Collateral Interest of the Lender and for which a satisfactory
                  consent, waiver and subordination has not been received. Such
                  Availability Reserve shall be eliminated with respect to any
                  particular location upon the furnishing to the Lender of a
                  consent, waiver and subordination (in form reasonably
                  satisfactory to the Lender) by the landlord for the subject
                  location.

            (f)   Without duplication of any Availability Reserve described
                  above, the Lender may establish an Availability Reserve for
                  past due rent.

            (g)   Except as otherwise disclosed pursuant to, or permitted by,
                  this Section 4.5, or by Section 4.6, no tangible personal
                  property of any Borrower is in the care or custody of any
                  third party or stored or entrusted with a bailee or other
                  third party and none shall hereafter be placed under such
                  care, custody, storage, or entrustment.

      4.6 LEASE AMENDMENTS. NEW STORES. STORE CLOSINGS.

            (a)   No Borrower will alter, modify, or amend any Lease in any
                  material respect other than

                                    Page 51

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                  (i)   for the subject Borrower's benefit, provided, however,
                        in no event may such alternation, modification, or
                        amendment have an adverse effect on the Lender's ability
                        to exercise the Lender's Rights and Remedies; or

                  (ii)  to exercise options included therein (in which event,
                        such exercise shall be made only upon not less than ten
                        (10) days prior written notice to Lender (with
                        reasonable specificity of the facts and circumstances
                        thereof)).

            (b)   No Borrower will commit to, or open any Store, except that
                  subject to the conditions set forth in Section 4.6(a), the
                  Borrowers may open up to the following number of Stores during
                  each Fiscal year: 120% of the number of new Stores as
                  reflected in the Borrowers' Business Plan for the relevant
                  Fiscal year (which number shall be rounded upward or downward
                  based on a single decimal place).

                  The Borrowers' commitment to and its opening of new Stores
                  respectively are subject, in each instance, to the following
                  conditions:

                        (A)   At the time that any Borrower becomes
                              contractually obligated on the Lease for such new
                              Store, no Event of Default has occurred and is
                              continuing.

                        (B)   Neither any Borrower's becoming so contractually
                              obligated nor its opening of such Store will
                              result in the occurrence of an Event of Default.

                        (C)   The Lead Borrower shall have provided not less
                              than fifteen (15) days prior written notice to
                              Lender (with reasonable specificity of the facts
                              and circumstances thereof) of the opening of that
                              location.

            (c)   No Borrower may close any Store except as provided in this
                  Section (c).

                  (i)   Subject to the conditions set forth in Section (iii) the
                        Borrowers may voluntarily close up to five Stores beyond
                        those already disclosed to the Lender in any Fiscal
                        Year.

                  (ii)  Any Borrower may close a Store upon the refusal of the
                        landlord thereof to renew the lease relating to such
                        Store upon substantially the same terms and conditions
                        of the previous lease between such Borrower and the
                        landlord. Any such closure shall be deemed an
                        involuntary closure for purposes hereof.

                  (iii) The Lead Borrower shall provide not less than thirty
                        (30) days prior written notice to Lender (with
                        reasonable specificity of the

                                    Page 52

<PAGE>

                        facts and circumstances thereof) of any voluntary
                        closing, and shall provide prompt notice of any
                        involuntary closing.

                  (iv)  If the relevant Borrower determines to employ an
                        inventory liquidation agent to effect any such closing
                        (whether on a guarantee, fee or other basis), then the
                        Lead Borrower shall provide the Lender with the
                        following:

                        (A)   Not less than five (5) Business Days advance
                              notice of the initiation of any bidding process
                              (which notice includes a summary, with reasonable
                              particularity, of such process).

                        (B)   Within not less than a reasonable period prior to
                              its execution within which to review and provide
                              the Lead Borrower with the Lender's comments
                              thereon, a copy of the agreement pursuant to which
                              such agent is employed. The Borrowers shall not be
                              under any affirmative obligation to take any
                              action on account of such comments, if any,
                              provided by the Lender.

      4.7 TITLE TO ASSETS.

            (a)   The Borrowers are, and shall hereafter remain, the owners of
                  the Collateral free and clear of all Encumbrances with the
                  exceptions of the following:

                  (i)   Encumbrances in favor of the Lender.

                  (ii)  Permitted Encumbrances.

            (b)   No Borrower has, and none shall have, possession of any
                  property on consignment to that Borrower.

            (c)   No Borrower shall acquire or obtain the right to use any
                  Equipment, the acquisition or right to use of which Equipment
                  is otherwise permitted by this Agreement, in which Equipment
                  any third party has an interest, except for the following:

                  (i)   Equipment which is not material to the conduct of that
                        Borrower's business.

                  (ii)  Equipment, the acquisition or right to use of which has
                        been consented to by the Lender, which consent may be
                        conditioned upon the Lender's receipt of an agreement
                        (substantially in the form of EXHIBIT 4.7(c)(ii),
                        annexed hereto) with the third party which has an
                        interest in such Equipment.

      4.8 INDEBTEDNESS.

                                    Page 53

<PAGE>

            (a)   The Borrowers do not and shall not hereafter have any
Indebtedness with the exceptions of:

                  (i)   Any Indebtedness on account of the Revolving Credit.

                  (ii)  Permitted Indebtedness.

            (b)   Each Borrower shall observe and comply with the following
                  covenants, which are applicable with respect to the Hanover
                  Property Indebtedness:

                  (i)   No Borrower, other than dELiA*s Distribution Company,
                        may make any payment, directly or indirectly, in respect
                        of the Hanover Property Indebtedness.

                  (ii)  The only payments in respect of the Hanover Property
                        Indebtedness which may be made are regularly scheduled
                        payments of principal and interest and other mandatory
                        payments of principal or interests, in each instance
                        when due in accordance with the terms of the Hanover
                        Property Loan Documents as in effect on the date hereof.

                  (iii) No term of the Hanover Property Indebtedness may be
                        amended, modified, altered or changed other than the
                        following (with prior written notice (with reasonable
                        particularity) in each instance, to the Lender):

                        (A)   Extension of the maturity thereof.

                        (B)   Deferral of the timing of any payments in respect
                              thereof.

                        (C)   Forgiveness or cancellation of any portion of such
                              Indebtedness.

                        (D)   Reduction of the interest rate or any fees in
                              connection therewith.

                  (iv)  Except as otherwise permitted by this Section (b), no
                        Borrower may redeem, retire, defease, purchase, or
                        otherwise acquire the Hanover Property Indebtedness nor
                        set aside or deposit or invest funds for such purpose

                  (v)   The Lead Borrower shall furnish the Lender with all
                        notices, demands or other materials concerning such
                        Indebtedness either received by any Borrower or on its
                        behalf, promptly after receipt thereof, or sent by any
                        Borrower or on its behalf, concurrently with the sending
                        thereof, as applicable.

                                    Page 54

<PAGE>

            (c)   Each Borrower shall observe and comply with the following
                  covenants, which are applicable with respect to Indebtedness
                  described on EXHIBIT 4.8, annexed hereto and any refinancing
                  thereof:

                  (i)   The Borrowers may only make regularly scheduled or other
                        mandatory payments of principal and interest in respect
                        of such Indebtedness when due in accordance with the
                        terms of the agreement or instrument evidencing or
                        giving rise to such Indebtedness as in effect on the
                        date hereof.

                  (ii)  The Borrowers shall not directly or indirectly undertake
                        any of the following:

                        (A)   The amendment, modification, alteration, or change
                              of the terms of such Indebtedness or any
                              agreement, document or instrument related thereto
                              as in effect on the date hereof in any material
                              respect except, that, the Borrowers, after prior
                              written notice to Lender (with reasonable
                              particularity), may amend, modify, alter or change
                              the terms thereof, so as to forgive or cancel any
                              portion of such Indebtedness (other than pursuant
                              to payments thereof), or to reduce the interest
                              rate or any fees in connection therewith.

                        (B)   Except as permitted by Section (A), the
                              redemption, retirement, defeasance, purchase, or
                              other acquisition of such Indebtedness or the
                              setting aside or deposit or investment of funds
                              for such purpose.

      4.9 INSURANCE.

            (a)   EXHIBIT 4.9, annexed hereto, is a schedule of all insurance
                  policies owned by the Borrowers or under which any Borrower is
                  the named insured as of the date of this Agreement. Each of
                  such policies is in full force and effect. Neither the issuer
                  of any such policy (to the knowledge of the Borrowers) nor any
                  Borrower is in default or violation in any material respect of
                  any such policy.

            (b)   The Borrowers shall have and maintain at all times insurance
                  covering such risks, in such amounts, containing such terms,
                  in such form, for such periods, and written by such companies
                  as is customary in their industry and is reasonably
                  satisfactory to the Lender.

            (c)   All insurance carried by the Borrowers shall provide for a
                  minimum of thirty (30) days' prior written notice of
                  cancellation to the Lender and all such insurance which covers
                  the Collateral shall

                  (i)   Include an endorsement in favor of the Lender, which
                        endorsement shall provide that the insurance, to the
                        extent of the

                                    Page 55
<PAGE>

                        Lender's interest therein, shall not be impaired or
                        invalidated, in whole or in part, by reason of any act
                        or neglect of any Borrower or by the failure of any
                        Borrower to comply with any warranty or condition of the
                        policy.

                  (ii)  Except as disclosed on EXHIBIT 4.9, not include an
                        endorsement in favor of any other Person.

            (d)   The coverage reflected on EXHIBIT 4.9 presently satisfies the
                  foregoing requirements, it being recognized by each Borrower
                  and the Lender, however, that such requirements may change
                  hereafter to reflect changing circumstances.

            (e)   The Lead Borrower shall furnish the Lender from time to time
                  with certificates or other evidence reasonably satisfactory to
                  the Lender regarding compliance by the Borrowers with the
                  foregoing requirements.

            (f)   In the event of the failure by the Borrowers to maintain
                  insurance as required herein, the Lender, at its option, may
                  obtain such insurance, provided, however, the Lender's
                  obtaining of such insurance shall not constitute a cure or
                  waiver of any Event of Default occasioned by the Borrowers'
                  failure to have maintained such insurance.

      4.10  LICENSES. Each material license, distributorship, franchise, and
      similar agreement issued to, or to which any Borrower is a party is in
      full force and effect. To the Borrowers' knowledge, no party to any such
      license or agreement is in default or violation thereof. No Borrower has
      received any written notice or threat of cancellation of any such license
      or agreement.

      4.11  LEASES. EXHIBIT 4.11, annexed hereto, is a schedule of all presently
      effective material Capital Leases. (Exhibit 4.5 includes a list of all
      other presently effective Leases). Each of such Leases and Capital Leases
      is in full force and effect. To the Borrowers' knowledge, no party to any
      such Lease or Capital Lease is in default or violation of any such Lease
      or Capital Lease. No Borrower has received any written notice or threat of
      cancellation of any such Lease or Capital Lease. Each Borrower hereby
      authorizes the Lender at any time and from time to time, on prior notice
      to the Lead Borrower, to contact any of the Borrowers' respective
      landlords in order to confirm the Borrowers' continued compliance with the
      terms and conditions of the Lease(s) between the subject Borrower and that
      landlord and to discuss such issues, concerning the subject Borrower's
      occupancy under such Lease(s), as the Lender may determine.

      4.12  REQUIREMENTS OF LAW.

            (a)   Subject to Section (b), each Borrower is in compliance with,
                  and shall hereafter comply with and use its assets in
                  compliance with, all Requirements of Law except where the
                  failure of such compliance is

                                    Page 56
<PAGE>

                  otherwise permitted by this Agreement and could not reasonably
                  be expected to have a Material Adverse Effect. No Borrower has
                  received any notice of any violation of any Requirement of Law
                  (other than of a violation which could not reasonably be
                  expected to have a Material Adverse Effect), which violation
                  has not been cured or otherwise remedied.

            (b)   The representations, covenants, and warranties which are made
                  and undertaken in Section (a) do not include the separately
                  made and undertaken representations, covenants, and warranties
                  included in the following Sections of this Agreement:

<TABLE>
<CAPTION>
Section         Relates To
<S>             <C>
4.13            Labor Relations

4.15            Taxes

4.17            ERISA

4.18            Hazardous Materials
</TABLE>

      4.13  LABOR RELATIONS.

            (a)   As of the date of this Agreement, no Borrower has been, and
                  none is presently a party to any collective bargaining or
                  other labor contract.

            (b)   As of the date of this Agreement, there is not presently
                  pending and, to any Borrower's knowledge, there is not
                  threatened any of the following:

                  (i)   Any strike, slowdown, picketing, work stoppage, or
                        employee grievance process.

                  (ii)  Any proceeding against or affecting any Borrower
                        relating to the alleged violation of any Applicable Law
                        pertaining to labor relations or before National Labor
                        Relations Board, the Equal Employment Opportunity
                        Commission, or any comparable governmental body,
                        organizational activity, or other labor or employment
                        dispute against or affecting any Borrower, which, if
                        determined adversely to that Borrower could reasonably
                        be expected to have a Material Adverse Effect.

                  (iii) Any lockout of any employees by any Borrower (and no
                        such action is contemplated by any Borrower).

                  (iv)  Any application for the certification of a collective
                        bargaining agent.

                                    Page 57
<PAGE>

            (c)   Each Borrower:

                  (i)   Has complied with all Applicable Law relating to
                        employment, equal employment opportunity,
                        nondiscrimination, immigration, wages, hours, benefits,
                        collective bargaining, the payment of social security
                        and similar taxes, occupational safety and health, and
                        plant closing except where the failure to so comply
                        could not reasonably be expected to have a Material
                        Adverse Effect.

                  (ii)  Is not liable for the payment of any amount of
                        compensation, damages, taxes, fines, penalties, or other
                        amounts, however designated, for that Borrower's failure
                        to comply with any Applicable Law referenced in Section
                        (i) except where the failure to make payment thereof
                        could not reasonably be expected to have a Material
                        Adverse Effect.

      4.14  MAINTAIN PROPERTIES. The Borrowers shall:

            (a)   Keep the Collateral in good order and repair (ordinary
                  reasonable wear and tear and insured casualty excepted and to
                  the extent that the Collateral consists of Leasehold
                  Interests, subject to the obligations of the respective
                  Borrowers under the applicable Lease).

            (b)   Not suffer or cause the waste or destruction of any material
                  part of the Collateral (insured casualty excepted).

            (c)   Not use any of the Collateral in violation of any policy of
                  insurance thereon, which violation could reasonably be
                  expected to result in cancellation thereof or denial of
                  coverage thereunder.

            (d)   Not sell, lease, or otherwise dispose of any of the
                  Collateral, other than the following:

                  (i)   The sale of Inventory in compliance with this Agreement.

                  (ii)  The disposal of Equipment which is obsolete, outmoded,
                        worn out, or damaged beyond repair, which Equipment is
                        replaced to the extent necessary to preserve or improve
                        the operating efficiency of any Borrower.

                  (iii) The turning over to the Lender of all Receipts as
                        provided herein.

                  (iv)  The disposal of Leasehold Interests as permitted by
                        Section 4.6(a).

                  (v)   Dispositions of Collateral in any Fiscal year having a
                        net book value (if Equipment) or Cost (if Inventory),
                        which, when aggregated with "Collateral" so disposed of
                        by the Guarantors

                                    Page 58
<PAGE>

                        pursuant to a "basket" accorded to the Guarantors in
                        their respective Security Agreements in favor of the
                        Lender, does not exceed $200,000.00.

      4.15  TAXES.

            (a)   With respect to the Borrowers' federal, state, and local tax
                  liability and obligations:

                  (i)   Except as described on EXHIBIT 4.15: the Lead Borrower,
                        in compliance with all Applicable Law, has properly
                        filed all returns due to be filed up to the date of this
                        Agreement with the exception of any return, the failure
                        to timely file will not have a Material Adverse Effect
                        (all of which excepted returns ultimately will be
                        filed).

                  (ii)  As of the date of this Agreement, except as described on
                        EXHIBIT 4.15:

                        (A)   At no time has any Borrower received from any
                              taxing authority any request to perform any
                              examination of or with respect to any Borrower nor
                              any other written or verbal notice in any way
                              relating to any claimed failure by any Borrower to
                              comply with all Applicable Law concerning payment
                              of any taxes or other amounts in the nature of
                              taxes.

                        (B)   No agreement is extant which waives or extends any
                              statute of limitations applicable to the right of
                              any taxing authority to assert a deficiency or
                              make any other claim for or in respect to federal
                              income taxes.

                        (C)   No issue has been raised in any tax examination of
                              any Borrower which, by application of similar
                              principles, reasonably could be expected to result
                              in the assertion of a deficiency for any fiscal
                              year open for examination, assessment, or claim by
                              any taxing authority.

            (b)   The Borrowers have, and hereafter shall: pay, as they become
                  due and payable, all taxes and unemployment contributions and
                  other charges of any kind or nature levied, assessed or
                  claimed against any Borrower or the Collateral by any person
                  or entity whose claim could reasonably be expected to result
                  in an Encumbrance upon any asset of any Borrower or by any
                  governmental authority, except where such purported obligation
                  to pay is being contested in good faith by appropriate
                  proceedings in respect of which adequate reserves have been
                  established and no lien is filed with respect thereto;
                  properly exercise any trust responsibilities imposed upon any
                  Borrower by reason of withholding from employees'

                                    Page 59
<PAGE>

                  pay or by reason of any Borrower's receipt of sales tax or
                  other funds for the account of any third party; timely make
                  all contributions and other payments as may be required
                  pursuant to any Employee Benefit Plan now or hereafter
                  established by any Borrower; and timely file all tax and other
                  returns and other reports with each governmental authority to
                  whom any Borrower is obligated to so file.

      4.16  NO MARGIN STOCK. No Borrower is engaged in the business of extending
      credit for the purpose of purchasing or carrying any margin stock (within
      the meaning of Regulations U, T, and X of the Board of Governors of the
      Federal Reserve System of the United States). No part of the proceeds of
      any borrowing hereunder will be used at any time to purchase or carry any
      such margin stock or to extend credit to others for the purpose of
      purchasing or carrying any such margin stock.

      4.17  ERISA.

            (a)   Neither any Borrower nor any ERISA Affiliate has ever engaged,
                  committed, suffered, or caused any of the following where the
                  result thereof could reasonably be expected to have a Material
                  Adverse Effect:

                  (i)   Violated or failed to be in full compliance with any
                        Borrower's Employee Benefit Plan.

                  (ii)  Failed timely to file all periodic and other reports and
                        filings required by ERISA to be filed by any Borrower.

                  (iii) Engaged in any nonexempt "prohibited transactions" or
                        "reportable events" (respectively as described in
                        ERISA).

                  (iv)  Engaged in, or committed, any act such that a tax or
                        penalty reasonably could be imposed upon any Borrower on
                        account thereof pursuant to ERISA.

                  (v)   Accumulate any material cumulative funding deficiency
                        within the meaning of ERISA.

                  (vi)  Terminated any Employee Benefit Plan such that a lien
                        could be asserted against any assets of any Borrower on
                        account thereof pursuant to ERISA.

                  (vii) Been a member of, contributed to, or have any obligation
                        under any Employee Benefit Plan which is a multiemployer
                        plan within the meaning of Section 4001(a) of ERISA
                        under which any Borrower or any ERISA Affiliate could
                        have any withdrawal liability.

                                    Page 60
<PAGE>

            (b)   Neither any Borrower nor any ERISA Affiliate shall engage in
                  any action of the type described in Section (a) where the
                  result thereof could reasonably be expected to have a Material
                  Adverse Effect.

      4.18  HAZARDOUS MATERIALS.

            (a)   Except as described on EXHIBIT 4.18, annexed hereto, no
                  Borrower has ever engaged, committed, suffered, or caused any
                  of the following where the result thereof could reasonably be
                  expected to have a Material Adverse Effect:

                  (i)   Been legally responsible for any release or threat of
                        release of any Hazardous Material.

                  (ii)  Received notification of the incurrence of any expense
                        in connection with the assessment, containment, or
                        removal of any Hazardous Material for which that
                        Borrower would be responsible.

            (b)   Each Borrower shall: (i) dispose of any Hazardous Material
                  only in compliance with all Environmental Laws and (ii) have
                  possession of any Hazardous Material only in the ordinary
                  course of that Borrower's business and in compliance with all
                  Environmental Laws.

      4.19  LITIGATION. As of the date of this Agreement, except as described in
      EXHIBIT 4.19, annexed hereto, there is not presently pending or threatened
      by or against any Borrower any suit, action, proceeding, or investigation
      which, if determined adversely to any Borrower, could reasonably be
      expected to have a Material Adverse Effect.

      4.20  DIVIDENDS. INVESTMENTS. CORPORATE ACTION. No Borrower shall:

            (a)   Pay any cash dividend or make any other distribution in
                  respect of any class of that Borrower's capital stock other
                  than by way of a Permitted Distribution.

            (b)   Own, redeem, retire, purchase, or acquire any of any
                  Borrower's capital stock other than by way of a Permitted
                  Distribution.

            (c)   Invest in or purchase any stock or securities or rights to
                  purchase any such stock or securities, of any Person other
                  than Permitted Investments.

            (d)   Merge or consolidate or be merged or consolidated with or into
                  any other corporation or other entity.

            (e)   Consolidate any of that Borrower's operations with those of
                  any other Person other than of another Borrower.

            (f)   Organize or create any Affiliate.

                                     Page 61
<PAGE>

            (g)   Subordinate any debts or obligations owed to that Borrower by
                  any third party to any other debts owed by such third party to
                  any other Person.

            (h)   Acquire any assets other than in the ordinary course and
                  conduct of that Borrower's business as conducted at the
                  execution of this Agreement.

      4.21  LOANS. No Borrower shall make any loans or advances to, nor acquire
      the Indebtedness of, any Person, provided, however, the foregoing does not
      prohibit any of the following:

            (a)   Advance payments made to that Borrower's suppliers in the
                  ordinary course.

            (b)   Advances to that Borrower's officers, employees, and
                  salespersons with respect to reasonable expenses to be
                  incurred by such officers, employees, and salespersons for the
                  benefit of that Borrower, which expenses are properly
                  substantiated by the person seeking such advance and properly
                  reimbursable by that Borrower.

            (c)   Loans, not the exceed $500,000.00 in the aggregate outstanding
                  at any one time to employees.

      4.22  PROTECTION OF ASSETS. The Lender, in the Lender's discretion, and
      from time to time, may discharge any tax or Encumbrance on any of the
      Collateral, or take any other action which the Lender may deem necessary
      or desirable to repair, insure, maintain, preserve, collect, or realize
      upon any of the Collateral, but only to the extent that the Borrowers have
      failed to comply with their respective obligations hereunder with respect
      thereto. The Lender shall not have any obligation to undertake any of the
      foregoing and shall have no liability on account of any action so
      undertaken except where there is a specific finding in a judicial
      proceeding by a court of competent jurisdiction (in which the Lender has
      been given an opportunity to be heard), from which finding no further
      appeal is available, that the Lender had acted in actual bad faith or in a
      grossly negligent manner or in wilful misconduct. The Borrowers shall pay
      to the Lender, on demand, or the Lender, in its discretion, may add to the
      Loan Account, all amounts paid or incurred by the Lender pursuant to this
      section 4.22.

      4.23  LINE OF BUSINESS. No Borrower shall engage in any business other
      than the business in which it is currently engaged or a business
      reasonably related thereto.

      4.24  AFFILIATE TRANSACTIONS. No Borrower shall make any payment, nor give
      any value to any Affiliate except for the following:

            (a)   Transactions which are in the ordinary course of such
                  Borrower's business, including agreement listed on EXHIBIT
                  4.24 in place on the date hereof,

                                    Page 62
<PAGE>

                  (i)   upon fair and reasonable terms prior written disclosure
                        of which (with reasonable particularity) has been made
                        by the Lead Borrower to the Lender; and

                  (ii)  that are no less favorable to such Borrower than would
                        be obtained in an arm's length transaction with a
                        non-Affiliate of such Borrower.

            (b)   Transactions between any Borrower, on the one hand, and any
                  other Borrower or guarantor of the Liabilities, on the other
                  hand.

      4.25  FURTHER ASSURANCES.

            (a)   Except as provided in Section (g), no Borrower is the owner
                  of, nor has it any interest in, any property or asset which,
                  immediately upon the satisfaction of the conditions precedent
                  to the effectiveness of the credit facility contemplated
                  hereby (Article 3:) will not be subject to a prior perfected
                  Collateral Interest in favor of the Lender (subject only to
                  Permitted Encumbrances) to secure the Liabilities.

            (b)   Except as provided in Section (g), no Borrower will hereafter
                  acquire any asset or any interest in property which is not,
                  immediately upon such acquisition, subject to such a perfected
                  Collateral Interest in favor of the Lender to secure the
                  Liabilities (subject only to Permitted Encumbrances).

            (c)   Each Borrower shall execute and deliver to the Lender such
                  instruments, documents, and papers, and shall do all such
                  things from time to time hereafter as the Lender may request
                  to carry into effect the provisions and intent of this
                  Agreement; to protect and perfect the Lender's Collateral
                  Interests in the Collateral; and to comply with all applicable
                  statutes and laws, and facilitate the collection of the
                  Receivables Collateral. Each Borrower shall execute all such
                  instruments as reasonably may be required by the Lender with
                  respect to the recordation and/or perfection of the Collateral
                  Interests created or contemplated herein.

            (d)   Each Borrower hereby designates the Lender as and for that
                  Borrower's true and lawful attorney, with full power of
                  substitution, to sign and file any financing statements in
                  order to perfect or protect the Lender's Collateral Interests
                  in the Collateral.

            (e)   This Agreement constitutes an authenticated record which
                  authorizes the Lender to file such financing statements as the
                  Lender reasonably determines as appropriate to perfect or
                  protect the Collateral Interests created by this Agreement.

                                     Page 63
<PAGE>

            (f)   A carbon, photographic, or other reproduction of this
                  Agreement or of any financing statement or other instrument
                  executed pursuant to this Section 4.25 shall be sufficient for
                  filing to perfect the security interests granted herein.

            (g)   The requirements of Sections (a) and (b) are subject to the
                  following:

                  (i)   Such requirements shall not apply to any Excluded Asset.

                  (ii)  Except as provided in Sections(iii), such requirements
                        shall not apply to any Borrower's right to use property
                        which is not material to the conduct of that Person's
                        business.

                  (iii) Such requirements shall apply in all events to the
                        following:

                        (A)   Any Permitted Investments.

                        (B)   Any trademark or service mark becomes "active"
                              after the execution of this Agreement.

      4.26  ADEQUACY OF DISCLOSURE.

            (a)   The Consolidated financial statements furnished to the Lender
                  by the Lead Borrower have been prepared (except as otherwise
                  disclosed thereon) in accordance with GAAP consistently
                  applied and present fairly the condition of the Borrowers and
                  their respective subsidiaries at the date(s) thereof and the
                  results of operations and cash flows for the period(s) covered
                  therein (provided however, that unaudited financial statements
                  are subject to normal year end adjustments and to the absence
                  of footnotes). Except as reflected on such financial
                  statements, there has been no change in the Consolidated
                  financial condition, results of operations, or cash flows of
                  the Borrowers and their respective subsidiaries since July 31,
                  2004, other than changes in the ordinary course of business,
                  which changes have not been materially adverse, either
                  singularly or in the aggregate.

            (b)   No Borrower has any contingent obligations or obligation under
                  any Lease or Capital Lease which is required by GAAP to be
                  disclosed and which is not noted in the Borrowers'
                  Consolidated financial statements furnished to the Lender
                  prior to the execution of this Agreement.

            (c)   No document, instrument, agreement, or paper, when taken as a
                  whole in light of all written information delivered to the
                  Lender by and on behalf of each Borrower, now or hereafter
                  given to the Lender by or on behalf of each Borrower or any
                  guarantor of the Liabilities in connection with the execution
                  of this Agreement by the Lender contains or will contain any
                  untrue statement of a material fact or omits or will omit to
                  state a material fact necessary in order to make the
                  statements therein

                                    Page 64
<PAGE>

                  not misleading, provided, however, the foregoing
                  representation does not include any projections or so-called
                  forward looking statements which might have been provided to
                  the Lender. Taken as a whole, in light of all information
                  delivered to the Lender by or on behalf of each Borrower,
                  there is no fact known to any Borrower which has, or which, in
                  the foreseeable future could reasonably be expected to have, a
                  material adverse effect on the financial condition of any
                  Borrower or any such guarantor which has not been disclosed in
                  writing to the Lender.

      4.27  NO RESTRICTIONS ON LIABILITIES. No Borrower shall enter into or
      directly or indirectly become subject to any agreement which prohibits or
      restricts, in any manner, any Borrower's:

            (a)   Creation of, and granting of Collateral Interests in favor of
                  the Lender.

            (b)   Incurrence of Liabilities.

      4.28  SKATE DIRECT.

            (a)   During the fiscal months of February through October, the
                  amount of payables owed by Skate Direct, LLC to its trade
                  vendors shall not exceed fifty percent (50%) of the Eligible
                  Inventory owned by Skate Direct, LLC; and

            (b)   During the fiscal months of November through January, the
                  amount of payables owed by Skate Direct, LLC to its trade
                  vendors shall not exceed sixty percent (60%) of the Eligible
                  Inventory owned by Skate Direct, LLC.

      4.29  OTHER COVENANTS. No Borrower shall indirectly do or cause to be done
      any act which, if done directly by that Borrower, would breach any
      covenant contained in this Agreement.

ARTICLE 5: FINANCIAL REPORTING AND PERFORMANCE COVENANTS:

      5.1   MAINTAIN RECORDS. The Borrowers shall:

            (a)   At all times, keep proper books of account, in which full,
                  true, and accurate entries shall be made of all of the
                  Borrowers' financial transactions, all in accordance with GAAP
                  applied consistently with prior periods to fairly reflect the
                  financial condition of the Borrowers at the close of, and its
                  results of operations for, the periods in question, subject,
                  however to usual year end adjustments and, with the exception
                  of Alloy, Inc.'s Consolidated annual statement, the absence of
                  footnotes.

            (b)   Timely provide the Lender with those financial reports,
                  statements, and schedules required by this Article 5: or
                  otherwise, each of which reports,

                                     Page 65
<PAGE>

                  statements and schedules shall be prepared, to the extent
                  applicable, in accordance with GAAP applied consistently with
                  prior periods to fairly reflect the Consolidated financial
                  condition of the Borrowers at the close of, and the results of
                  operations for, the period(s) covered therein.

            (c)   At all times, keep accurate current records of the Collateral
                  including, without limitation, accurate current stock, cost,
                  and sales records of its Inventory, accurately and
                  sufficiently itemizing and describing the kinds, types, and
                  quantities of Inventory and the cost and selling prices
                  thereof.

            (d)   At all times, retain independent certified public accountants
                  who are either one of the so-called "Big 4" or other
                  nationally recognized accounting firms (or any successor
                  thereto), or are otherwise reasonably satisfactory to the
                  Lender, and instruct such accountants reasonably to cooperate
                  with, and be available to, the Lender to discuss the
                  Borrowers' financial performance, financial condition,
                  operating results, controls, and such other matters, within
                  the scope of the retention of such accountants, as may be
                  raised by the Lender. The parties hereto agree that BDO
                  Seidman, the current certified public accountants of the Lead
                  Borrower, shall be satisfactory to Lender for purposes of this
                  Section 5.1(d).

            (e)   Not change any Borrower's fiscal year.

      5.2   ACCESS TO RECORDS.

            (a)   Upon reasonable prior notice during normal business hours,
                  each Borrower shall accord the Lender with access from time to
                  time as the Lender reasonably may require to all properties
                  owned by or over which any Borrower has control. The Lender
                  shall have the right, and each Borrower will permit the Lender
                  from time to time as Lender may request, to examine, inspect,
                  copy, and make extracts from any and all of the Borrowers'
                  books, records, electronically stored data, papers, and files.
                  Each Borrower shall make all of that Borrower's copying
                  facilities reasonably available to the Lender.

            (b)   Each Borrower hereby authorizes the Lender:

                  (i)   Upon reasonable prior notice during normal business
                        hours, to inspect, copy, duplicate, review, cause to be
                        reduced to hard copy, run off, draw off, and otherwise
                        use any and all computer or electronically stored
                        information or data which relates to any Borrower, or
                        any service bureau, contractor, accountant, or other
                        person, and directs any such service bureau, contractor,
                        accountant, or other person reasonably to cooperate with
                        the Lender with respect thereto.

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                  (ii)  Verify at any time the Collateral or any portion
                        thereof, including verification with Account Debtors,
                        and/or with each Borrower's computer billing companies,
                        collection agencies, and accountants and to sign the
                        name of each Borrower on any notice to each Borrower's
                        Account Debtors or verification of the Collateral.

            (c)   The Lender from time to time may designate one or more
                  representatives to exercise the Lender's rights under this
                  Section 5.2 as fully as if the Lender were doing so.

      5.3   IMMEDIATE NOTICE TO LENDER.

            (a)   The Lead Borrower shall provide the Lender with written notice
                  promptly upon the occurrence of any of the following events,
                  which written notice shall be with reasonable particularity as
                  to the facts and circumstances in respect of which such notice
                  is being given:

                  (i)    Any change in the Lead Borrower's President, chief
                         executive officer, chief operating officer, and chief
                         financial officer (without regard to the title(s)
                         actually given to the Persons discharging the duties
                         customarily discharged by officers with those titles).

                  (ii)   Any ceasing of any Borrower's making of material
                         payment, in the ordinary course, to its creditors
                         (other than its ceasing of making of such payments on
                         account of a de minimis dispute which is diligently
                         being pursued by such Borrower).

                  (iii)  Any failure by any Borrower to pay rent at any of that
                         Borrower's locations, which failure continues for more
                         than Three (3) days following the last day on which
                         such rent was payable (after giving effect to any
                         applicable grace period) without more than a de minimis
                         adverse effect to that Borrower.

                  (iv)   Any material adverse change in the business,
                         operations, or financial affairs of any Borrower.

                  (v)    Any Borrower's becoming in Default.

                  (vi)   Any intention on the part of any Borrower to discharge
                         that Borrower's present independent accountants or any
                         withdrawal or resignation by such independent
                         accountants from their acting in such capacity (as to
                         which, see Subsection 5.1(d)).

                  (vii)  Any litigation which, if determined adversely to any
                         Borrower and after giving effect to any applicable
                         insurance coverage could reasonably be expected to have
                         a material adverse effect on the financial condition of
                         that Borrower.

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                  (viii) The reduction by any of Borrower's material vendors in
                         the amount of trade credit or terms provided by such
                         vendor to Borrower on the date of execution hereof.

            (b)    The Lead Borrower shall:

                  (i)    Provide the Lender, when so distributed, with copies of
                         any materials distributed to the shareholders of the
                         Lead Borrower (qua such shareholders).

                  (ii)   Provide the Lender:

                         (A)   When filed, copies of all material filings with
                               the SEC (including any filing on forms 10-K,
                               10-Q, or 8-K).

                         (B)   When received, copies of all correspondence from
                               the SEC, other than routine non-substantive
                               general communications from the SEC.

                  (iii) Add the Lender as an addressee on all mailing lists
                        maintained by or for each Borrower.

                  (iv)  At the request of the Lender, from time to time, provide
                        the Lender with copies of all advertising (including
                        copies of all print advertising and duplicate tapes of
                        all video and radio advertising).

                  (v)   Provide the Lender, promptly following receipt by any
                        Borrower, with a copy of any management letter or
                        similar communications from any accountant of any
                        Borrower.

      5.4   BORROWING BASE CERTIFICATE. Daily, on or before 1:00 P.M. by
      telecopier:

            (a)   A Borrowing Base Certificate, as of the close of business for
                  the prior Business Day.

            (b)   A statement calculating the Borrowers' Excess Availability as
                  of the close of business for the prior Business Day. Such
                  Borrowing Base Certificate will roll forward Collateral
                  weekly.

      5.5   MONTHLY REPORTS. Monthly, the Lead Borrower shall provide the Lender
      with those financial statements and reports described in EXHIBIT 5.5,
      annexed hereto.

      5.6   ANNUAL REPORTS.

            (a)   Annually, within forty five (45) days following the end of the
                  Borrowers' fiscal year, the Lead Borrower shall furnish the
                  Lender with the Borrower's internally prepared draft of its
                  annual financial statement for the year then just completed,
                  which shall include, at a minimum

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                  (with comparative information for the then prior Fiscal year)
                  a balance sheet, income statement, and cash flows.

            (b)   Annually, within ninety (90) days following the end of the
                  Borrowers' fiscal year, the Lead Borrower shall furnish the
                  Lender with the following:

                  (i)   An original signed counterpart of Alloy, Inc.'s
                        Consolidated annual financial statement, which statement
                        shall have been audited by, and bear the opinion,
                        without material qualification, of, Alloy Inc.'s
                        independent certified public accountants (i.e. said
                        statement shall be "certified" by such accountants) and
                        shall include, at a minimum (with comparative
                        information for the then prior Fiscal year) a balance
                        sheet, income statement, statement of changes in
                        shareholders' equity, cash flows, and schedules of
                        consolidation.

                  (ii)  The officer's compliance certificate described in
                        Section 5.7.

            (c)   No later than the earlier of Fifteen (15) days prior to the
                  end of each of the Borrowers' fiscal years or the date on
                  which such accountants commence their work on the preparation
                  of Alloy, Inc.'s Consolidated annual financial statement, the
                  Lead Borrower shall give written notice to such accountants
                  (with a copy of such notice, when sent, to the Lender) that:

                  (i)   Such annual financial statement will be delivered by the
                        Lead Borrower to the Lender.

                  (ii)  It is the primary intention of the Borrowers to satisfy
                        the financial reporting requirements set forth in this
                        Article 5:.

                  (iii) The Lead Borrower has been advised that the Lender will
                        rely thereon with respect to the administration of, and
                        transactions under, the credit facility contemplated by
                        this Agreement.

            (d)   Each annual statement shall be accompanied by such
                  accountant's Certificate indicating that, in conducting the
                  audit for such annual statement, nothing came to the attention
                  of such accountants to believe that the Borrower is not in
                  Default (or that if the Borrower is in Default, the facts and
                  circumstances thereof).

      5.7   OFFICERS' CERTIFICATES. The Lead Borrower shall cause either the
      Lead Borrower's Chief Executive Officer, Chief Financial Officer or Chief
      Operating Officer, in each instance, to provide such Person's Certificate
      with those monthly financial statements required to be filed within thirty
      (30) days of the end of each month, and with those annual statements to be
      furnished pursuant to this Agreement, which Certificate shall:

                                    Page 69
<PAGE>

            (a)   Indicate that the subject statement was prepared in accordance
                  with GAAP consistently applied and presents fairly the
                  Consolidated financial condition of the Borrowers at the close
                  of, and the results of the Borrowers' operations and cash
                  flows for, the period(s) covered, subject, however to the
                  following:

                  (i)   Usual year end adjustments and the absence of footnotes
                        (this exception shall not be included in the Certificate
                        which accompanies such annual statement).

                  (ii)  Material Accounting Changes (in which event, such
                        Certificate shall include a schedule (in reasonable
                        detail) of the effect of each such Material Accounting
                        Change) not previously specifically taken into account
                        in the determination of the financial performance
                        covenant imposed pursuant to Section 5.10.

            (b)   Indicate either that (i) no Borrower is in Default, or (ii) if
                  such an event has occurred, its nature (in reasonable detail)
                  and the steps (if any) being taken or contemplated by the
                  Borrowers to be taken on account thereof.

            (c)   Include calculations concerning the Borrowers' compliance (or
                  failure to comply) at the date of the subject statement with
                  each of the financial performance covenants included in
                  Section 5.10 hereof.

      5.8   INVENTORIES, APPRAISALS, AND AUDITS.

            (a)   The Lender shall be permitted, either directly or through
                  agents retained for that purpose, after delivery of reasonable
                  advance notice to the Lead Borrower, and at the borrowers'
                  expense in each instance, to conduct during regular business
                  hours such audits, inspections, and field examinations of the
                  Borrowers' books, records, and assets as the Lender may
                  require from time to time, as the Lender in its reasonable
                  discretion may determine are necessary and/or appropriate. The
                  Lender contemplates conducting no more than 3 audits per year.
                  The Borrowers, subject to receipt of reasonable advance
                  notice, during regular business hours shall cooperate with and
                  assist the Lender, or its agents, in connection with the
                  performance of any such audit, inspection, and field
                  examination.

            (b)   The Lender, at the expense of the Borrowers, may participate
                  in and/or observe each physical count and/or inventory of so
                  much of the Collateral as consists of Inventory which is
                  undertaken on behalf of any Borrower.

            (c)   The Borrowers shall obtain (at the Borrower's expense in all
                  instances) financial or SKU based physical counts and/or
                  inventories conducted by such inventory takers as are
                  satisfactory to the Lender and following

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                  such methodology as is consistent with the Borrowers'
                  practices in effect at the execution of this Agreement and as
                  provided in this Section.

                  (i)   Unless an Event of Default has occurred and is
            continuing, the Borrowers shall cause the following number of such
            counts / inventories to be undertaken in each twelve (12) month
            period during which this Agreement is in effect:

                        (A)   Retail operations : One (1).

                        (B)   Direct operations (catalogue and web): One (1).

                  (ii)  If an Event of Default occurs and is continuing, the
            foregoing limit on the number of such counts and/or inventories
            shall terminate and the Lender may require such counts and/or
            inventories (at the expense of the Borrowers in each instance) at
            such intervals as the Lender, in its discretion, may determine as
            being appropriate.

                  (iii) The Borrowers shall cause their accountants to observe
            the Borrowers' year end retail operations and direct operations
            counts / inventories (and such other counts / inventories as the
            accountants may require so as to permit those accountants to express
            its opinion on the Borrowers' annual Consolidated financial
            statement to the standard set out in this Agreement).

                  (iv)  The Lead Borrower shall provide the Lender with a copy
            of the preliminary results of each such count and/or inventory (as
            well as of any other physical inventory undertaken by any Borrower)
            within ten (10) business days following the completion of such
            inventory.

                  (v)   The Lead Borrower, within thirty (30) days following the
            completion of such count and/or inventory, shall provide the Lender
            with a reconciliation of the results of each such count and/or
            inventory (as well as of any other physical inventory undertaken by
            any Borrower) and shall, in the case of a year-end inventory, post
            such results to the Borrowers' stock ledger and, as applicable to
            the Borrowers' other financial books and records. The Lender may use
            the reconciliation and results of each such count and/or inventory
            and implement them in accordance with the terms of this Agreement.

            (d)   The Lender may obtain such appraisals of Collateral consisting
                  of Inventory, from time to time during the period that this
                  Agreement is in effect, conducted by such appraisers as are
                  satisfactory to the Lender (at the Borrowers' expense in each
                  instance). The Lender contemplates conducting 3 appraisals per
                  year.

            (e)   The Lender from time to time (in all events, at the Borrowers'
                  expense) may undertake "mystery shopping" (so-called) visits
                  to all or any of the Borrowers' business premises.

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      5.9   ADDITIONAL FINANCIAL INFORMATION. BUSINESS PLAN.

            (a)   In addition to all other information required to be provided
                  pursuant to this Article 5:, the Lead Borrower promptly shall
                  provide the Lender (and any guarantor of the Liabilities),
                  with such other and additional information concerning the
                  Borrowers, the Collateral, the operation of the Borrowers'
                  business, and the Borrowers' financial condition, including
                  original counterparts of financial reports and statements, as
                  the Lender may from time to time reasonably request from the
                  Lead Borrower.

            (b)   The Borrowers have provided the Lender with their current
                  Business Plan, a copy of which is annexed hereto as EXHIBIT
                  5.9(b).

                  (i)   The Borrowers may provide the Lender, from time to time
                        hereafter, with updated business plans.

                  (ii)  In all events by (x) not later than January 31 of each
                        year, the Borrowers shall furnish the Lender with a good
                        faith estimate of its updated and extended business plan
                        which shall go out at least through the end of the then
                        next Fiscal year and (y) the Borrowers shall furnish the
                        Lender with copies of the final business plan, as
                        approved by the Lead Borrower's Board of Directors, for
                        the forthcoming Fiscal year promptly following its
                        adoption, but in no event later than each February 28.
                        In each event, such updated and extended business plans
                        shall be prepared pursuant to a methodology and shall
                        include such assumptions as are made in good faith by
                        the Lead Borrower.

            (c)   The Lead Borrower may furnish the Lender with a business plan
                  within forty five (45) days of the refinancing of the Hanover
                  Property Indebtedness, on which business plan the Lender shall
                  provide its sign-off provided that it was prepared pursuant to
                  the methodology used to prepare the Business Plan and updated
                  from the Business Plan solely to reflect the effect of such
                  refinancing.

      5.10  FINANCIAL PERFORMANCE COVENANTS.

            (a)   The Borrower shall not incur Capital Expenditures in excess of
                  $2,400,000.00 on an aggregate basis for Fiscal Year 1.

            The Borrowers may incur Capital Expenditures of up to 120% of the
            amounts provided in their business plan for any year, and in
            addition may open up to 120% of the number of stores provided for in
            their business plan for any given year, and the costs incurred in
            connection with such store openings shall be in addition to the
            Capital Expenditures provided for in such business plan.

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            Permitted Capital Expenditures for Years 2 and 3 will be established
            in connection with the business plans for such year.

            (b)   Compliance with such financial performance covenant set forth
                  in Section (a) shall be made as if no Material Accounting
                  Changes had been made (other than any Material Accounting
                  Changes specifically taken into account in the setting of such
                  covenants).

            (c)   The Lender may determine the Borrowers' compliance with such
                  covenants based upon financial reports and statements provided
                  by the Lead Borrower to the Lender (whether or not such
                  financial reports and statements are required to be furnished
                  pursuant to this Agreement) as well as by reference to interim
                  financial information provided to, or developed by, the
                  Lender.

      5.11  E-REPORTING. At the Lender's option all information and reports
      required to be supplied to the Lender by any Borrower shall be transmitted
      electronically pursuant to an electronic transmitting reporting system and
      shall be in a record layout format designated by the Lender from time to
      time, provided, however,

            (a)   the Borrowers shall not be required to incur any material
                  expense in connection with their compliance with this Section
                  5.11; and

            (b)   the Borrowers shall not be obligated to so transmit such
                  information and reports unless the Borrowers are reasonably
                  satisfied that such system incorporates reasonable assurances
                  of security for the data being so transmitted.

ARTICLE 6: USE OF COLLATERAL:

      6.1   USE OF INVENTORY COLLATERAL.

            (a)   No Borrower shall engage in any of the following:

                  (i)   An sale of the Inventory other than for fair
                        consideration in the conduct of the Borrowers' business
                        in the ordinary course.

                  (ii)  Sales or other dispositions to creditors.

                  (iii) Sales or other dispositions in bulk.

                  (iv)  Sales of any Collateral in breach of any provision of
                        this Agreement.

                  (v)   Any sale on consignment, approval, or under any other
                        circumstances such that, with the exception of the
                        Borrowers' customary return policy applicable to the
                        return of inventory purchased by the Borrowers' retail
                        customers in the ordinary

                                     Page 73
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                        course, such Inventory may be returned to a Borrower
                        without the consent of the Lender.

            (b)   The Borrowers shall not transfer items of their Inventory from
                  one Sales Channel of their business to another Sales Channel
                  other than in the ordinary course of business.

      6.2   INVENTORY QUALITY. All Inventory now owned or hereafter acquired by
      each Borrower is and will be of good and merchantable quality and free
      from defects (other than defects within customary trade tolerances).

      6.3   ADJUSTMENTS AND ALLOWANCES. Each Borrower may grant such allowances
      or other adjustments to that Borrower's Account Debtors (exclusive of
      extending the time for payment of any material Account or material Account
      Receivable, which shall not be done without first obtaining the Lender's
      prior written consent in each instance) as that Borrower may reasonably
      deem to accord with sound business practice, provided, however, the
      authority granted the Borrowers pursuant to this Section 6.3 may be
      limited or terminated by the Lender at any time that an Event of Default
      has occurred.

      6.4   VALIDITY OF ACCOUNTS.

            (a)   The amount of each Account shown on the books, records, and
                  invoices of the Borrowers represented as owing by each Account
                  Debtor is and will be the correct amount actually owing by
                  such Account Debtor and shall have been fully earned by
                  performance by the Borrowers.

            (b)   As of the date of this agreement, no Borrower has any
                  knowledge of any impairment of the validity or collectibility
                  of more than a de minimis amount of its Accounts. The Lead
                  Borrower shall notify the Lender of any such impairment
                  immediately after any Borrower becomes aware of any such
                  impairment.

      6.5   NOTIFICATION TO ACCOUNT DEBTORS. The Lender shall have the right
      (whether or not an Event of Default has occurred) to notify any of the
      Borrowers' Account Debtors to make payment directly to the Lender and to
      collect all amounts due on account of the Collateral.

ARTICLE 7: CASH MANAGEMENT. PAYMENT OF LIABILITIES:

      7.1   DEPOSITORY ACCOUNTS.

            (a)   Annexed hereto as EXHIBIT 7.1 is a Schedule of all present
                  DDA's, which Schedule includes, with respect to each
                  depository (i) the name and address of that depository; (ii)
                  the account number(s) of the account(s) maintained with such
                  depository; and (iii) a contact person at such depository.

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            (b)   Prior to the First Funding, the Lead Borrower shall deliver
                  the following to the Lender:

                  (i)   Notification, executed on behalf of each Borrower, to
                        each depository institution with which any DDA is
                        maintained (other than any Exempt DDA and the Blocked
                        Account), in form reasonably satisfactory to the Lender
                        of the Lender's interest in such DDA.

                  (ii)  A Blocked Account Agreement with any depository
                        institution at which either of the following conditions
                        applies:

                        (A)   Both any DDA (other than the Operating Account)
                              and the Operating Account is maintained.

                        (B)   A Blocked Account is maintained.

            (c)   No Borrower will establish any DDA hereafter (other than an
                  Exempt DDA) unless, contemporaneous with such establishment,
                  the Lead Borrower delivers the following to the Lender:

                  (i)   Notification to the depository at which such DDA is
                        established if the same would have been required
                        pursuant to Section (b)(ii)(A) if the subject DDA were
                        open on the date of this Agreement.

                  (ii)  A Blocked Account Agreement executed on behalf of the
                        depository at which such DDA is established if the same
                        would have been required pursuant to Section (b)(ii)(B)
                        if the subject DDA were open on the date of this
                        Agreement.

      7.2   CREDIT CARD RECEIPTS.

            (a)   Annexed hereto as EXHIBIT 7.2, is a Schedule which describes
                  all arrangements to which any Borrower is a party with respect
                  to the payment to that Borrower of the proceeds of credit card
                  charges for sales by that Borrower.

            (b)   The Lead Borrower shall deliver to the Lender, notification,
                  executed on behalf of each Borrower, to each of each
                  Borrower's credit card clearinghouses and processors of notice
                  (in form reasonably satisfactory to the Lender), which notice
                  provides that payment of all credit card charges submitted by
                  that Borrower to that clearinghouse or other processor and any
                  other amount payable to that Borrower by such clearinghouse or
                  other processor shall be directed to the Blocked Account or as
                  otherwise designated from time to time by the Lender. No
                  Borrower shall change such direction or designation except
                  upon and with the prior written consent of the Lender.

                                     Page 75
<PAGE>

      7.3   THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS .

            (a)   The following accounts have been or will be established (and
                  are so referred to herein):

                  (i)   The "BLOCKED ACCOUNT" (so referred to herein): Account
                        No. 530-733285 established by the Lead Borrower with The
                        Chase Manhattan Bank.

                  (ii)  The "CONCENTRATION ACCOUNT"(so referred to herein): An
                        account established by the Lead Borrower with The Chase
                        Manhattan Bank.

                  (iii) The "LENDER'S DEPOSITORY ACCOUNT" (so referred to
                        herein): Established by the Lender with The Chase
                        Manhattan Bank.

                  (iv)  The "OPERATING ACCOUNT" (so referred to herein):
                        Established by the Lead Borrower with The Chase
                        Manhattan Bank.

            (b)   The contents of each DDA (other than the Operating Account)
                  and of the Blocked Accounts and the Concentration Account
                  constitute Collateral and Proceeds of Collateral. The contents
                  of the Lender's Depository Account constitutes the Lender's
                  property.

            (c)   The Blocked Accounts and the Concentration Account shall be
                  subject to a "Blocked Account Control Agreement ("Automatic
                  Sweep/Frozen Account")" substantially in the form provided by
                  The Chase Manhattan Bank.

            (d)   The Borrowers shall pay all fees and charges of, and maintain
                  such imprest balances as may be required by the depository in
                  which any account is opened as required hereby (even if such
                  account is opened by and/or is the property of the Lender).

            (e)   This section (e) applies to the "Instructions" within the
                  meaning of the above referenced Blocked Account Control
                  Agreement ("Automatic Sweep/Frozen Account").

                  (i)   Except as provided in, and subject in all events to,
                        Section (ii), notwithstanding anything to the contrary
                        in any agreement to which the Lender is a party, the
                        Lender will not change the above referenced
                        "Instructions" from those in effect at the execution of
                        this Agreement nor terminate any such above referenced
                        Blocked Account Control Agreement ("Automatic
                        Sweep/Frozen Account") without the prior written consent
                        of the Lead Borrower.

                                     Page 76
<PAGE>

                  (ii)  Section (i) is not effective to the extent that it
                        results in the Lender's not having control of the
                        Concentration Account within the meaning of Section
                        9-104 of the UCC.

      7.4   PROCEEDS AND COLLECTIONS.

            (a)   All Receipts and all cash proceeds of any sale or other
                  disposition of any of each Borrower's assets:

                  (i)   Constitute Collateral and proceeds of Collateral.

                  (ii)  Shall be held in trust by the Borrowers for the Lender.

                  (iii) Shall not be commingled with any of any Borrower's other
                        funds.

                  (iv)  Shall be deposited and/or transferred by the Borrowers
                        only to the Blocked Account, the Concentration Account
                        or the Lender's Depository Account.

            (b)   Whether or not there is then an outstanding balance in the
                  Loan Account, the Lead Borrower shall cause the ACH or wire
                  transfer to one of the Blocked Accounts, not less frequently
                  than weekly (daily following the occurrence of an Event of
                  Default) of the following:

                  (i)   The then contents of each DDA (other than any Exempt
                        DDA) which consist of available funds, each such
                        transfer to be net of any minimum balance, (not to
                        exceed $750.00), as may be required to be maintained in
                        the subject DDA by the bank at which such DDA is
                        maintained.

                  (ii)  The proceeds of all credit card charges not otherwise
                        provided for pursuant hereto.

            (c)   Whether or not there is then an outstanding balance in the
                  Loan Account, not less frequently than weekly (daily following
                  the occurrence of an Event of Default) the then contents of
                  each Blocked Account which consist of available funds shall be
                  transferred to the Concentration Account, such transfer to be
                  net of any minimum balance, (not to exceed $750.00), as may be
                  required to be maintained in the subject DDA by the bank at
                  which such DDA is maintained.

            (d)   Whether or not there is then an outstanding balance in the
                  Loan Account, not less frequently than weekly (daily following
                  the occurrence of an Event of Default) the then contents of
                  each Concentration Account which consist of available funds
                  shall be transferred to the Lender's Depository Account, such
                  transfer to be net of any minimum balance, (not to exceed
                  $750.00), as may be required to

                                     Page 77
<PAGE>

                  be maintained in the subject DDA by the bank at which such DDA
                  is maintained.

            (e)   In the event that, notwithstanding the provisions of this
                  Section 7.4, any Borrower receives or otherwise has dominion
                  and control of any Receipts, or any proceeds or collections of
                  any Collateral, such Receipts, proceeds, and collections shall
                  be held in trust by that Borrower for the Lender and shall not
                  be commingled with any of that Borrower's other funds or
                  deposited in any account of any Borrower other than as
                  instructed by the Lender.

      7.5   PAYMENT OF LIABILITIES.

            (a)   On each Business Day, the Lender shall apply the then
                  collected balance of the Lender's Depository Account (net of
                  fees charged, and of such impressed balances as may be
                  required by the bank at which the Depository Account is
                  maintained) which are not transferred to the Operating Account
                  pursuant to Section 7.4(e) towards the unpaid balance of the
                  Loan Account and all other Liabilities, provided, however, for
                  purposes of the calculation of interest on the unpaid
                  principal balance of the Loan Account, such payment shall be
                  deemed to have been made One (1) Business Day after such
                  transfer.

            (b)   The following rules shall apply to deposits and payments under
                  and pursuant to this Section 7.5:

                  (i)   Funds shall be deemed to have been deposited to the
                        Lender's Depository Account on the Business Day on which
                        deposited, provided that notice of such deposit is
                        available to the Lender by 2:00PM on that Business Day.

                  (ii)  Funds paid to the Lender, other than by deposit to the
                        Lender's Depository Account, shall be deemed to have
                        been received on the Business Day when they are good and
                        collected funds, provided that notice of such payment is
                        available to the Lender by 2:00PM on that Business Day.

                  (iii) If notice of a deposit to the Lender's Depository
                        Account (Section (i)) or payment (Section (ii)) is not
                        available to the Lender until after 2:00PM on a Business
                        Day, such deposit or payment shall be deemed to have
                        been made at 9:00AM on the then next Business Day.

                  (iv)  All deposits to the Lender's Depository Account and
                        other payments to the Lender are subject to clearance
                        and collection.

            (c)   The Lender shall transfer to the Operating Account any surplus
                  in the Lender's Depository Account remaining after the
                  application towards

                                     Page 78
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                  the Liabilities referred to in Section (a), above (less those
                  amounts which are to be netted out, as provided therein)
                  provided, however, in the event that

                  (i)   any Borrower is in Default; and

                  (ii)  one or more L/C's are then outstanding,

      then the Lender may establish a funded reserve of up to 105% of the
aggregate Stated Amounts of such L/C's. Such funded reserve shall either be (i)
returned to the Lead Borrower provided that no Borrower is in Default or (ii)
applied towards the Liabilities following the occurrence of any Event of Default
described in Section 10.11 or acceleration following the occurrence of any other
Event of Default.

      7.6   THE OPERATING ACCOUNT. Except as otherwise specifically provided in,
      or permitted by, this Agreement or as described on EXHIBIT 7.6, annexed
      hereto, all checks shall be drawn by the Lead Borrower upon, and other
      disbursements shall be made by the Lead Borrower solely from, the
      Operating Account.

ARTICLE 8: GRANT OF SECURITY INTEREST

      8.1   GRANT OF SECURITY INTEREST. To secure the Borrowers' prompt,
      punctual, and faithful performance of all and each of the Liabilities,
      each Borrower, subject to Section 8.2(b), hereby grants to the Lender a
      continuing security interest in and to, and assigns to the Lender the
      following, and each item thereof, whether now owned or now due, or in
      which that Borrower has an interest or the power to transfer rights, or
      hereafter acquired, arising, or to become due, or in which that Borrower
      obtains an interest or the power to transfer rights, and all products,
      Proceeds, substitutions, and accessions of or to any of the following (all
      of which, together with any other property in which the Lender may in the
      future be granted a security interest, is referred to herein as the
      "COLLATERAL"):

            (a)   All Accounts and accounts receivable.

            (b)   All Inventory.

            (c)   All General Intangibles.

            (d)   All Equipment.

            (e)   All Goods.

            (f)   All Fixtures.

            (g)   All Chattel Paper.

            (h)   All Letter-of-Credit Rights.

            (i)   All Payment Intangibles.

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            (j)   All Supporting Obligations.

            (k)   All books, records, and information relating to the Collateral
                  and/or to the operation of each Borrower's business, and all
                  rights of access to such books, records, and information, and
                  all property in which such books, records, and information are
                  stored, recorded, and maintained.

            (l)   All Leasehold Interests.

            (m)   All Investment Property, Instruments, Documents, Deposit
                  Accounts, money, policies and certificates of insurance,
                  deposits, impressed accounts, compensating balances, cash, or
                  other property.

            (n)   All insurance proceeds, refunds, and premium rebates,
                  including, without limitation, proceeds of fire and credit
                  insurance, whether any of such proceeds, refunds, and premium
                  rebates arise out of any of the foregoing. ((a) through (m))
                  or otherwise.

            (o)   All liens, guaranties, rights, remedies, and privileges
                  pertaining to any of the foregoing ((a) through (n)),
                  including the right of stoppage in transit.

8.2   EXTENT AND DURATION OF SECURITY INTEREST.

      (a)   The security interest created and granted herein is in addition to,
            and supplemental of, any other security interest granted from time
            to time by any Borrower to the Lender and shall continue in full
            force and effect applicable to all Liabilities until both

            (i)   all Liabilities have been paid and/or satisfied in full; and

            (ii)  the security interest created herein is specifically
                  terminated in writing by a duly authorized officer of the
                  Lender;

      (b)   It is intended that the Collateral Interests created herein extend
            to and cover all assets of each Borrower other than the Excluded
            Assets.

ARTICLE 9: LENDER AS BORROWER'S ATTORNEY-IN-FACT:

      9.1   APPOINTMENT AS ATTORNEY-IN-FACT. Each Borrower hereby irrevocably
      constitutes and appoints the Lender as that (acting through any of its
      officers) Borrower's true and lawful attorney, with full power of
      substitution, which designation the Lender may exercise only following the
      occurrence of any Event of Default, to convert the Collateral into cash at
      the sole risk, cost, and expense of that Borrower, but for the sole
      benefit of the Lender. The rights and powers granted the Lender by this
      appointment include but are not limited to the right and power to:

                                     Page 80
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            (a)   Prosecute, defend, compromise, or release any action relating
                  to the Collateral.

            (b)   Sign change of address forms to change the address to which
                  each Borrower's mail is to be sent to such address as the
                  Lender shall designate; receive and open each Borrower's mail;
                  remove any Receivables Collateral and Proceeds of Collateral
                  therefrom and turn over the balance of such mail either to the
                  Lead Borrower or to any trustee in bankruptcy or receiver of
                  the Lead Borrower, or other legal representative of a Borrower
                  whom the Lender determines to be the appropriate person to
                  whom to so turn over such mail.

            (c)   Endorse the name of the relevant Borrower in favor of the
                  Lender upon any and all checks, drafts, notes, acceptances, or
                  other items or instruments; sign and endorse the name of the
                  relevant Borrower on, and receive as secured party, any of the
                  Collateral, any invoices, schedules of Collateral, freight or
                  express receipts, or bills of lading, storage receipts,
                  warehouse receipts, or other documents of title respectively
                  relating to the Collateral.

            (d)   Sign the name of the relevant Borrower on any notice to that
                  Borrower's Account Debtors or verification of the Receivables
                  Collateral; sign the relevant Borrower's name on any Proof of
                  Claim in Bankruptcy against Account Debtors, and on notices of
                  lien, claims of mechanic's liens, or assignments or releases
                  of mechanic's liens securing the Accounts.

            (e)   Take all such action as may be necessary to obtain the payment
                  of any letter of credit and/or banker's acceptance of which
                  any Borrower is a beneficiary.

            (f)   Repair, manufacture, assemble, complete, package, deliver,
                  alter or supply goods, if any, necessary to fulfill in whole
                  or in part the purchase order of any customer of each
                  Borrower.

            (g)   Use, license or transfer any or all General Intangibles of
                  each Borrower.

      9.2   NO OBLIGATION TO ACT. The Lender shall not be obligated to do any of
      the acts or to exercise any of the powers authorized by Section 9.1
      herein, but if the Lender elects to do any such act or to exercise any of
      such powers, it shall not be accountable for more than it actually
      receives as a result of such exercise of power, and shall not be
      responsible to any Borrower for any act or omission to act, except for any
      act or omission to act as to which there is a final determination made in
      a judicial proceeding by a court of competent jurisdiction (in which the
      Lender has been given an opportunity to be heard), which determination
      includes a specific finding that the subject act or omission to act had
      been grossly negligent or in actual bad faith or wilful misconduct.

ARTICLE 10: EVENTS OF DEFAULT:

                                     Page 81
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      The occurrence of any event described in this Article 10: respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 10.11, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, the Lender may declare any and all
Liabilities shall become immediately due and payable. The occurrence of any
Event of Default shall also constitute, without notice or demand, a default
under all other agreements between the Lender and any Borrower and instruments
and papers heretofore, now, or hereafter given the Lender by any Borrower.

      10.1  FAILURE TO PAY THE REVOLVING CREDIT. The failure by any Borrower to
            pay when due (including any applicable grace period) any principal
            of, interest on, or fees in respect of, the Revolving Credit.

      10.2  FAILURE TO MAKE OTHER PAYMENTS. The failure by any Borrower to pay
            when due (or upon demand, if payable on demand) any payment
            Liability other than any payment liability on account of the
            principal of, or interest on, or fees in respect of, the Revolving
            Credit.

      10.3  FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD). The
            failure by any Borrower to promptly, punctually, faithfully and
            timely perform, discharge, or comply with any covenant or Liability
            included in any of the following provisions hereof:

      Section     Relates to:

      4:4-7(a)    Title to Assets

      4:4-8       Indebtedness

      4:4-9       Insurance

      4.20        Dividends. Investments. Other Corporate Actions

      Article 5: Reporting Requirements and Financial Performance Covenants

      Article 7: Cash Management

      10.4  FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The failure
      by any, Borrower within twenty (20) days following the earlier of any
      Borrower's knowledge of a breach of any covenant or Liability not
      described in any of Sections 10.1, 10.2, or 10.3 or of its receipt of
      written notice from the Lender of the breach of any of any of such
      covenants or Liabilities.

      10.5  MISREPRESENTATION. The determination by the Lender that any
      representation or warranty at any time made by any Borrower to the Lender
      was not true or complete in all material respects when given.

                                     Page 82
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      10.6  ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence of any
      event such that any Indebtedness of any Borrower in excess of $500,000.00
      to any creditor other than the Lender could be accelerated or, without the
      consent of any Borrower, more than five (5) Leases could then be
      terminated (whether or not the subject creditor or lessor takes any action
      on account of such occurrence).

      10.7  DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach of any
      covenant or Liability imposed by, or of any default under, any agreement
      (including any Loan Document) between the Lender and any Borrower or
      instrument given by any Borrower to the Lender and the expiry, without
      cure, of any applicable grace period (notwithstanding that the Lender may
      not have exercised all or any of its rights on account of such breach or
      default).

      10.8  UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss,
      theft, damage, or destruction of or to any material portion of the
      Collateral.

      10.9  ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS.

            (a)   The service of process upon the Lender seeking to attach, by
                  trustee, mesne, or other process, any funds of any Borrower on
                  deposit with, or assets of any Borrower in the possession of,
                  the Lender, which is attachment is not stayed within thirty
                  (30) days after service thereof.

            (b)   The entry of any judgment in excess of $500,000.00 against any
                  Borrower, which judgment is not satisfied (if a money
                  judgment) or appealed from (with execution or similar process
                  stayed) within thirty (30) days of its entry.

            (c)   The entry of any order or the imposition of any other process
                  having the force of law, the effect of which is to restrain in
                  any material way the conduct by any Borrower of its business
                  in the ordinary course, which order is not appealed from (with
                  execution or similar process stayed) within fifteen (15) days
                  of its entry.

      10.10 BUSINESS FAILURE. Any act by, against, or relating to any Borrower,
      or its property or assets, which act constitutes the determination, by any
      Borrower, to initiate a program of partial self-liquidation (other than as
      provided for in the Business Plan) or a program of total self-liquidation;
      application for, consent to, or sufferance of the appointment of a
      receiver, trustee, or other person, pursuant to court action or otherwise,
      over all, or any part of any Borrower's property; the granting of any
      trust mortgage or execution of an assignment for the benefit of the
      creditors of any Borrower, or the occurrence of any other voluntary or
      involuntary liquidation or extension of debt agreement for any Borrower;
      the offering by or entering into by any Borrower of any composition,
      extension, or any other arrangement seeking relief from or extension of
      the debts of any Borrower; or the initiation of any judicial or
      non-judicial proceeding or agreement by, against, or including any
      Borrower which seeks or intends to accomplish a reorganization or
      arrangement with creditors; and/or the initiation by or on behalf of

                                     Page 83
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      any Borrower of the liquidation or winding up of all or any part of any
      Borrower's business or operations.

      10.11 BANKRUPTCY. The failure by any Borrower to generally pay the debts
      of that Borrower as they mature; adjudication of bankruptcy or insolvency
      relative to any Borrower; the entry of an order for relief or similar
      order with respect to any Borrower in any proceeding pursuant to the
      Bankruptcy Code or any other federal bankruptcy law; the filing of any
      complaint, application, or petition by any Borrower initiating any matter
      in which any Borrower is or may be granted any relief from the debts of
      that Borrower pursuant to the Bankruptcy Code or any other insolvency
      statute or procedure; the filing of any complaint, application, or
      petition against any Borrower initiating any matter in which that Borrower
      is or may be granted any relief from the debts of that Borrower pursuant
      to the Bankruptcy Code or any other insolvency statute or procedure, which
      complaint, application, or petition is not timely contested in good faith
      by that Borrower by appropriate proceedings or, if so contested, is not
      dismissed within thirty (30) days of when filed.

      10.12 INDICTMENT - FORFEITURE. The criminal conviction of any Borrower,
      under any Applicable Law where the relief, penalties, or remedies sought
      or available include the forfeiture of any material property of any
      Borrower and/or the imposition of any stay or other order, the effect of
      which could be to restrain in any material way the conduct by any Borrower
      of its business in the ordinary course.

      10.13 DEFAULT. The occurrence of any Guarantor's Default.

      10.14 TERMINATION OF GUARANTY. The termination or attempted termination of
      any guaranty by any guarantor of the Liabilities.

      10.15 CHALLENGE TO LOAN DOCUMENTS.

            (a)   Any challenge by or on behalf of any Borrower or any guarantor
                  of the Liabilities to the validity of any Loan Document or the
                  applicability or enforceability of any Loan Document strictly
                  in accordance with the subject Loan Document's terms or which
                  seeks to void, avoid, limit, or otherwise adversely affect any
                  security interest created by or in any Loan Document or any
                  payment made pursuant thereto.

            (b)   Any determination by any court or any other judicial or
                  government authority that any Loan Document is not enforceable
                  strictly in accordance with the subject Loan Document's terms
                  or which voids, avoids, limits, or otherwise adversely affects
                  any security interest created by any Loan Document or any
                  payment made pursuant thereto.

      10.16 CHANGE IN CONTROL. Any Change in Control.

      10.17 MATERIAL ADVERSE CHANGE. The occurrence of any Material Adverse
      Change with respect to the Borrowers, taken as a whole.

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      10.18 EXCESS AVAILABILITY. The failure to maintain Excess Availability in
      an amount equal to or greater than $2,500,000.00 which Excess Availability
      is not restored within two (2) days thereafter.

ARTICLE 11: RIGHTS AND REMEDIES UPON DEFAULT:

      11.1 ACCELERATION. Upon the occurrence and during the continuance of any
      Event of Default as described in Section 10.11, all Indebtedness of the
      Borrowers to the Lender shall be immediately due and payable. Upon the
      occurrence and during the continuance of any Event of Default other than
      as described in Section 10.11, the Lender may declare all Indebtedness of
      the Borrowers to the Lender to be immediately due and payable and may
      exercise all of the Lender's Rights and Remedies as the Lender from time
      to time thereafter determines as appropriate.

      11.2 RIGHTS OF ENFORCEMENT. Upon the occurrence and during the continuance
      of any Event of Default, the Lender shall have all of the rights and
      remedies of a secured party upon default under, the UCC, in addition to
      which the Lender shall have all and each of the following rights and
      remedies:

            (a)   To give notice to any bank at which any DDA or Blocked Account
                  is maintained and in which Proceeds of Collateral are
                  deposited, to turn over such Proceeds directly to the Lender.

            (b)   To give notice to any customs broker of any of the Borrowers
                  to follow the instructions of the Lender as provided in any
                  written agreement or undertaking of such broker in favor of
                  the Lender.

            (c)   To collect the Receivables Collateral with or without the
                  taking of possession of any of the Collateral.

            (d)   Without causing a breach of the peace, to take possession of
                  all or any portion of the Collateral.

            (e)   To sell, lease, or otherwise dispose of any or all of the
                  Collateral, in its then condition or following such
                  preparation or processing as the Lender deems advisable and
                  with or without the taking of possession of any of the
                  Collateral.

            (f)   To conduct one or more going out of business sales which
                  include the sale or other disposition of the Collateral.

            (g)   To apply the Receivables Collateral or the Proceeds of the
                  Collateral towards (but not necessarily in complete
                  satisfaction of) the Liabilities.

            (h)   To exercise all or any of the rights, remedies, powers,
                  privileges, and discretions under all or any of the Loan
                  Documents.

      11.3  SALE OF COLLATERAL.

                                     Page 85
<PAGE>

            (a)   Any sale or other disposition of the Collateral may be at
                  public or private sale upon such terms and in such manner as
                  the Lender deems advisable, having due regard to compliance
                  with any statute or regulation which might affect, limit, or
                  apply to the Lender's disposition of the Collateral.

            (b)   The Lender, in the exercise of the Lender's rights and
                  remedies upon default, may conduct one or more going out of
                  business sales, in the Lender's own right or by one or more
                  agents and contractors. Such sale(s) may be conducted upon any
                  premises owned, leased, or occupied by any Borrower. The
                  Lender and any such agent or contractor, in conjunction with
                  any such sale, may augment the Inventory with other goods (all
                  of which other goods shall remain the sole property of the
                  Lender or such agent or contractor). Any amounts realized from
                  the sale of such goods which constitute augmentations to the
                  Inventory (net of an allocable share of the costs and expenses
                  incurred in their disposition) shall be the sole property of
                  the Lender or such agent or contractor and neither any
                  Borrower nor any Person claiming under or in right of any
                  Borrower shall have any interest therein.

            (c)   Unless the Collateral is perishable or threatens to decline
                  speedily in value, or is of a type customarily sold on a
                  recognized market (in which event the Lender shall provide the
                  Lead Borrower such notice as may be practicable under the
                  circumstances), the Lender shall give the Lead Borrower at
                  least ten (10) days prior written notice of the date, time,
                  and place of any proposed public sale, and of the date after
                  which any private sale or other disposition of the Collateral
                  may be made. Each Borrower agrees that such written notice
                  shall satisfy all requirements for notice to that Borrower
                  which are imposed under the UCC or other applicable law with
                  respect to the exercise of the Lender's rights and remedies
                  upon default.

            (d)   The Lender may purchase the Collateral, or any portion of it
                  at any sale held under this Article.

            (e)   If any of the Collateral is sold, leased, or otherwise
                  disposed of by the Lender on credit, the Liabilities shall not
                  be deemed to have been reduced as a result thereof unless and
                  until payment is finally received thereon by the Lender.

            (f)   The Lender shall apply the proceeds of the Lender's exercise
                  of its rights and remedies upon default pursuant to this
                  Article 11: in such manner, and with such frequency, as the
                  Lender determines.

      11.4  OCCUPATION OF BUSINESS LOCATION. In connection with the Lender's
      exercise of the Lender's rights under this Article 11: upon the occurrence
      and during the continuance of any Event of Default, the Lender, without
      causing a breach of the peace,

                                     Page 86
<PAGE>

      may enter upon, occupy, and use any premises owned or occupied by each
      Borrower, and may exclude each Borrower from such premises or portion
      thereof as may have been so entered upon, occupied, or used by the Lender.
      The Lender shall not be required to remove any of the Collateral from any
      such premises upon the Lender's taking possession thereof, and may render
      any Collateral unusable to the Borrowers. In no event shall the Lender be
      liable to any Borrower for use or occupancy by the Lender of any premises
      pursuant to this Article 11:, nor for any charge (such as wages for any
      Borrower's employees and utilities) incurred in connection with the
      Lender's exercise of the Lender's Rights and Remedies.

      11.5  GRANT OF NONEXCLUSIVE LICENSE. Each Borrower hereby grants to the
      Lender a royalty free nonexclusive irrevocable license to use, apply, and
      affix any trademark, trade name, logo, or the like in which any Borrower
      now or hereafter has rights, such license being solely with respect to the
      Lender's exercise of the rights hereunder including, without limitation,
      in connection with any completion of the manufacture of Inventory or sale
      or other disposition of Inventory.

      11.6  ASSEMBLY OF COLLATERAL. The Lender may require any Borrower to
      assemble the Collateral and make it available to the Lender at the
      Borrowers' sole risk and expense at a place or places which are reasonably
      convenient to both the Lender and the Lead Borrower.

      11.7  RIGHTS AND REMEDIES. The rights, remedies, powers, privileges, and
      discretions of the Lender hereunder (herein, the "LENDER'S RIGHTS AND
      REMEDIES") shall be cumulative and not exclusive of any rights or remedies
      which it would otherwise have. No delay or omission by the Lender in
      exercising or enforcing any of the Lender's Rights and Remedies shall
      operate as, or constitute, a waiver thereof. No waiver by the Lender of
      any Event of Default or of any default under any other agreement shall
      operate as a waiver of any other default hereunder or under any other
      agreement. No single or partial exercise of any of the Lender's Rights or
      Remedies, and no express or implied agreement or transaction of whatever
      nature entered into between the Lender and any person, at any time, shall
      preclude the other or further exercise of the Lender's Rights and
      Remedies. No waiver by the Lender of any of the Lender's Rights and
      Remedies on any one occasion shall be deemed a waiver on any subsequent
      occasion, nor shall it be deemed a continuing waiver. The Lender's Rights
      and Remedies may be exercised at such time or times and in such order of
      preference as the Lender may determine. The Lender's Rights and Remedies
      may be exercised without resort or regard to any other source of
      satisfaction of the Liabilities.

ARTICLE 12: NOTICES:

      12.1  NOTICE ADDRESSES. All notices, demands, and other communications
      made in respect of any Loan Document (other than a request for a loan or
      advance or other financial accommodation under the Revolving Credit) shall
      be made to the following addresses, each of which may be changed upon
      seven (7) days written notice to all others given by certified mail,
      return receipt requested:

                                     Page 87
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      If to the Lender:

      Wells Fargo Retail Finance II, LLC
      One Boston Place - 18th Floor
      Boston, Massachusetts 02108
      Attention :David Molinario
                Vice President
      Fax       :617 817-6627

      With a copy to:

      Riemer & Braunstein LLP
      Three Center Plaza
      Boston, Massachusetts 02108
      Attention :Robert E. Paul, Esquire
      Fax       :617 880 3456

      If to the Lead Borrower
      And All Borrowers:

      dELiA*s Corp.
      435 Hudson Street
      New York, New York 10014
      Attention : Ed Taffet, Esquire
      Fax       : 212 590 6310

      With a copy to:

      Alloy, Inc.

      151 West 26th Street  11th Floor
      New York, New York 10001
      Attention : General Counsel
      Fax:      : 212-244-4311

      With a copy to:

      Katten Muchin Zavis Rosenman
      1025 Thomas Jefferson St., N.W.
      East Lobby, Suite 700
      Washington, District of Columbia 20007-5201
      Attention : Richard Graf, Esquire
      Fax       : 202.298.7570

      12.2  NOTICE GIVEN.

                                     Page 88
<PAGE>

            (a)   Except as otherwise specifically provided herein, notices
                  shall be deemed made and correspondence received, as follows
                  (all times being local to the place of delivery or receipt):

                  (i)   By registered mail: the sooner of when actually received
                        or Three (3) days following deposit in the United States
                        mail, postage prepaid.

                  (ii)  By recognized overnight express delivery: the Business
                        Day following the day when sent.

                  (iii) By Hand: If delivered on a Business Day after 9:00 AM
                        and no later than Three (3) hours prior to the close of
                        customary business hours of the recipient, when
                        delivered. Otherwise, at the opening of the then next
                        Business Day.

                  (iv)  By Facsimile transmission (which must include a header
                        on which the party sending such transmission is
                        indicated): If sent on a Business Day after 9:00 AM and
                        no later than Three (3) hours prior to the close of
                        customary business hours of the recipient, one (1) hour
                        after being sent. Otherwise, at the opening of the then
                        next Business Day.

            (b)   Rejection or refusal to accept delivery and inability to
                  deliver because of a changed address or Facsimile Number for
                  which no due notice was given shall each be deemed receipt of
                  the notice sent.

ARTICLE 13: TERM:

      13.1  TERMINATION OF REVOLVING CREDIT.

            The Revolving Credit shall remain in effect (subject to suspension
            as provided in Section 2.7(g) hereof) until the Termination Date.

      13.2  ACTIONS ON TERMINATION.

            (a)   On the Termination Date, the Borrowers shall pay the Lender
                  (whether or not then due), in immediately available funds, all
                  then Liabilities including, without limitation: the following:

                  (i)   The entire balance of the Loan Account (including the
                        unpaid principal balance of the Revolving Credit
                        Loans).

                  (ii)  Any payments due on account of the indemnification
                        obligations included in Section 2.11(e).

                  (iii) Any accrued and unpaid Unused Line Fee.

                                     Page 89
<PAGE>

                  (iv)  Any applicable Early Termination Fee.

                  (v)   All unreimbursed costs and expenses of the Lender for
                        which any Borrower is responsible.

            (b)   On the Termination Date, the Borrowers shall also shall make
                  such arrangements concerning any L/C's and any Bank Products
                  and Bank Product Obligations then outstanding as are
                  reasonably satisfactory to the Lender.

            (c)   Until such payment (Section (a)) and arrangements concerning
                  L/C's (Section (b)), all provisions of this Agreement, other
                  than those included in Article 2: which place any obligation
                  on the Lender to make any loans or advances or to provide any
                  financial accommodations to any Borrower shall remain in full
                  force and effect until all Liabilities shall have been paid in
                  full.

            (d)   The release by the Lender of the Collateral Interests granted
                  to the Lender by the Borrowers hereunder may be upon such
                  conditions and indemnifications as the Lender may require.

            (e)   The Lender's obligation to release the Collateral Interests
                  granted to the Lender by any Borrower on the End Date shall
                  not be affected by any Liability's then being outstanding to
                  any Affiliate of the Lender.

ARTICLE 14: GENERAL:

      14.1  PROTECTION OF COLLATERAL. The Lender has no duty as to the
      collection or protection of the Collateral beyond the safe custody of such
      of the Collateral as may come into the possession of the Lender.

      14.2  PUBLICITY. The Lender may issue a "tombstone" notice of the
      establishment of the credit facility contemplated by this Agreement and,
      subject to prior review by the Borrower in each instance, may make
      reference to each Borrower (and may utilize any logo or other distinctive
      symbol associated with each Borrower) in connection with any advertising,
      promotion, or marketing (including the inclusion of a "case study" of the
      financing contemplated hereby) undertaken by the Lender.

      14.3  SUCCESSORS AND ASSIGNS.

            (a)   This Agreement shall be binding upon the Borrowers and their
                  respective representatives, successors, and assigns and shall
                  enure to the benefit of the Lender and its successors and
                  assigns, provided, however, no trustee or other fiduciary
                  appointed with respect to any Borrower shall have any rights
                  hereunder.

            (b)   In the event that the Lender assigns or transfers its rights
                  under this Agreement, the assignee shall thereupon succeed to
                  and become vested

                                     Page 90
<PAGE>

                  with all rights, powers, privileges, and duties of the Lender
                  hereunder and the Lender shall thereupon be discharged and
                  relieved from its duties and obligations hereunder.

            (c)   In the event that the Lender assigns or transfers its rights
                  under this Agreement to an assignee which is not an Affiliate
                  of the Lender or a Person controlling, controlled by, or under
                  common control with the Lender (other than in connection with
                  a programmed disposition, by the Lender, of all or a material
                  part of its portfolio of working capital loans), then the Lead
                  Borrower, by irrevocable written notice to such assignee given
                  no later than one hundred eighty (180) days after receipt of
                  notice of such assignment may set the Termination Date as a
                  date which is no more than forty five (45) days after (and
                  counting) the date of such notice.

      14.4  SEVERABILITY. Any determination that any provision of this Agreement
      or any application thereof is invalid, illegal, or unenforceable in any
      respect in any instance shall not affect the validity, legality, or
      enforceability of such provision in any other instance, or the validity,
      legality, or enforceability of any other provision of this Agreement.

      14.5  AMENDMENTS. COURSE OF DEALING.

            (a)   This Agreement and the other Loan Documents incorporate all
                  discussions and negotiations between each Borrower and the
                  Lender, either express or implied, concerning the matters
                  included herein and in such other instruments, any custom,
                  usage, or course of dealings to the contrary notwithstanding.
                  No such discussions, negotiations, custom, usage, or course of
                  dealings shall limit, modify, or otherwise affect the
                  provisions thereof. No failure by the Lender to give notice to
                  the Lead Borrower of any Borrower's having failed to observe
                  and comply with any warranty or covenant included in any Loan
                  Document shall constitute a waiver of such warranty or
                  covenant or the amendment of the subject Loan Document. No
                  change made by the Lender to the manner by which the Borrowing
                  Base is determined shall obligate the Lender to continue to
                  determine the Borrowing Base in that manner.

            (b)   Each Borrower may undertake any action otherwise prohibited
                  hereby, and may omit to take any action otherwise required
                  hereby, upon and with the express prior written consent of the
                  Lender. No consent, modification, amendment, or waiver of any
                  provision of any Loan Document shall be effective unless
                  executed in writing by or on behalf of the party to be charged
                  with such modification, amendment, or waiver (and if such
                  party is the Lender then by a duly authorized officer
                  thereof). Any modification, amendment, or waiver provided by
                  the Lender shall be in reliance upon all representations and
                  warranties theretofore made to the Lender by or on behalf of
                  the Borrowers (and

                                     Page 91
<PAGE>

                  any guarantor, endorser, or surety of the Liabilities) and
                  consequently may be rescinded in the event that any of such
                  representations or warranties was not true and complete in all
                  material respects when given.

      14.6  POWER OF ATTORNEY. In connection with all powers of attorney
      included in this Agreement, each Borrower hereby grants unto the Lender
      (acting through any of its officers) full power to do any and all things
      necessary or appropriate in connection with the exercise of such powers as
      fully and effectually as that Borrower might or could do, hereby ratifying
      all that said attorney shall do or cause to be done by virtue of this
      Agreement except for any act or omission to act as to which there is a
      final determination made in a judicial proceeding by a court of competent
      jurisdiction (in which the Lender has been given an opportunity to be
      heard), which determination includes a specific finding that the subject
      act or omission to act had been grossly negligent or in actual bad faith
      or wilful misconduct. No power of attorney set forth in this Agreement
      shall be affected by any disability or incapacity suffered by any Borrower
      and each shall survive the same. All powers conferred upon the Lender by
      this Agreement, being coupled with an interest, shall be irrevocable until
      this Agreement is terminated by a written instrument executed by a duly
      authorized officer of the Lender.

      14.7  APPLICATION OF PROCEEDS. The proceeds of any collection, sale, or
      disposition of the Collateral, or of any other payments received
      hereunder, shall be applied towards the Liabilities in such order and
      manner as the Lender determines in its sole discretion, consistent,
      however, with all applicable provisions of this Agreement and the UCC. The
      Borrowers shall remain liable for any deficiency remaining following such
      application.

      14.8  INCREASED COSTS.

            (a)   If, as a result of any Requirement of Law, or of the
                  interpretation or application thereof by any court or by any
                  governmental or other authority or entity charged with the
                  administration thereof, whether or not having the force of
                  law, which:

                  (i)   subjects the Lender to any taxes or changes the basis of
                        taxation, or increases any existing taxes, on payments
                        of principal, interest or other amounts payable by any
                        Borrower to the Lender under this Agreement (except for
                        taxes on the Lender based on net income, capital, or the
                        franchise held by such Lender imposed by the
                        jurisdiction in which the principal or lending offices
                        of the Lender are located);

                  (ii)  imposes, modifies or deems applicable any reserve (other
                        than a reserve included in the computation of the
                        Reserve Percentage), cash margin, special deposit or
                        similar requirements against assets held by, or deposits
                        in or for the account of or loans by or any

                                     Page 92
<PAGE>

                        other acquisition of funds by the relevant funding
                        office of the Lender;

                  (iii) imposes on the Lender any other condition with respect
                        to any Loan Document; or

                  (iv)  imposes on the Lender a requirement to maintain or
                        allocate capital in relation to the Liabilities;

      and the result of any of the foregoing, in the Lender's reasonable
opinion, is to increase the cost to the Lender of making or maintaining any
loan, advance or financial accommodation or to reduce the income receivable by
the Lender in respect of any loan, advance or financial accommodation by an
amount which the Lender deems to be material, then, except as provided in
Section (b), upon written notice from the Lender, from time to time, to the Lead
Borrower (such notice to set out in reasonable detail the facts giving rise to
and a summary calculation of such increased cost or reduced income), the
Borrowers shall forthwith pay to the Lender, upon receipt of such notice, that
amount which shall compensate the Lender for such additional cost or reduction
in income.

            (b)   The obligation of the Borrowers to compensate the Lender
                  pursuant to Section (a) is subject to the following
                  conditions:

                  (i)   The Lender's giving of notice to the Lead Borrower of an
                        event which gives rise to such compensation obligation
                        within ninety (90) days after the Lender has received
                        conclusive notice of the occurrence of the relevant
                        circumstance giving rise to such obligation.

                  (ii)  The Lender's charging of its customers who are similarly
                        situated to the Borrowers in respect of any increased
                        costs or reduction in income on account of which an
                        obligations under Section (a) arises.

      14.9  COSTS AND EXPENSES OF THE LENDER.

            (a)   The Borrowers shall pay the following:

                  (i)   The reasonable costs, expenses, and disbursements
                        (including attorneys' reasonable fees and expenses of
                        the Lender's outside counsel) which are incurred by the
                        Lender in connection with the preparation, negotiation,
                        execution, and delivery of this Agreement and of the
                        other Loan Documents as part of the establishment of the
                        credit facility contemplated hereby, but only to the
                        extent to which the Lead Borrower has agreed to be
                        responsible for such reasonable costs, expenses, and
                        disbursements (including attorneys' reasonable fees and
                        expenses of the Lender's outside counsel).

                                     Page 93
<PAGE>

                  (ii)  From time to time on demand all Costs of Collection and,
                        and all reasonable costs, expenses, and disbursements
                        not described in Section (i) which may be incurred in
                        connection with or in respect to the credit facility
                        contemplated hereby or which otherwise are incurred with
                        respect to the Liabilities.

            (b)   Each Borrower authorizes the Lender to pay all such fees and
                  expenses and in the Lender's discretion, to add such fees and
                  expenses to the Loan Account.

            (c)   The undertaking on the part of each Borrower in this Section
                  14.9 shall survive payment of the Liabilities and/or any
                  termination, release, or discharge executed by the Lender in
                  favor of any Borrower, other than a termination, release, or
                  discharge which makes specific reference to this Section 14.9.

      14.10 COPIES AND FACSIMILES. Each Loan Document and all documents and
      papers which relates thereto which have been or may be hereinafter
      furnished by or to the Lender may be reproduced by the Lender by any
      photographic, microfilm, xerographic, digital imaging, or other process,
      and the Lender may destroy any document so reproduced. Any such
      reproduction shall be admissible in evidence as the original itself in any
      judicial or administrative proceeding (whether or not the original is in
      existence and whether or not such reproduction was made in the regular
      course of business). Any facsimile which bears proof of transmission shall
      be binding on the party which or on whose behalf such transmission was
      initiated and likewise shall be so admissible in evidence as if the
      original of such facsimile had been delivered to the party which or on
      whose behalf such transmission was received.

      14.11 MASSACHUSETTS LAW. This Agreement and all rights and obligations
      hereunder, including matters of construction, validity, and performance,
      shall be governed by the law of The Commonwealth of Massachusetts.

      14.12 CONSENT TO JURISDICTION.

            (a)   The Lender and each Borrower agrees that any legal action,
                  proceeding, case, or controversy against any Borrower with
                  respect to any Loan Document may be brought in the Superior
                  Court of Suffolk County Massachusetts or in the United States
                  District Court, District of Massachusetts, sitting in Boston,
                  Massachusetts, as the Lender may elect in the Lender's sole
                  discretion. By execution and delivery of this Agreement, the
                  Lender and each Borrower, for itself and in respect of its
                  property, accepts, submits, and consents generally and
                  unconditionally, to the jurisdiction of the aforesaid courts.

            (b)   The Lender and each Borrower WAIVES personal service of any
                  and all process upon it, and irrevocably consents to the
                  service of process out of any of the aforementioned courts in
                  any such action or proceeding by

                                     Page 94
<PAGE>

                  the mailing of copies thereof by certified mail, postage
                  prepaid, to the Lead Borrower at the Lead Borrower's address
                  for notices as specified herein, such service to become
                  effective five (5) Business Days after such mailing.

            (c)   The Lender and each Borrower WAIVES any objection based on
                  forum non conveniens and any objection to venue of any action
                  or proceeding instituted under any of the Loan Documents and
                  consents to the granting of such legal or equitable remedy as
                  is deemed appropriate by the Court.

            (d)   The Lender and each Borrower agrees that any action commenced
                  by the Lender or by any Borrower asserting any claim arising
                  under or in connection with this Agreement or any other Loan
                  Document shall be brought solely in the Superior Court of
                  Suffolk County Massachusetts or in the United States District
                  Court, District of Massachusetts, sitting in Boston,
                  Massachusetts, and that such Courts shall have exclusive
                  jurisdiction with respect to any such action.

      14.13 INDEMNIFICATION. Each Borrower shall indemnify, defend, and hold the
      Lender and any of their respective employees, officers, or agents (each,
      an "INDEMNIFIED PERSON") harmless of and from any claim brought or
      threatened against any Indemnified Person by any Borrower, any guarantor
      or endorser of the Liabilities, or any other Person (as well as from
      attorneys' reasonable fees, expenses, and disbursements in connection
      therewith) on account of the relationship of the Borrowers or of any other
      guarantor or endorser of the Liabilities, including all costs, expenses,
      liabilities, and damages as may be suffered by any Indemnified Person in
      connection with (x) the Collateral; (y) the occurrence of any Event of
      Default; or (z) the exercise of any rights or remedies under any of the
      Loan Documents (each of claims which may be defended, compromised,
      settled, or pursued by the Indemnified Person with counsel of the Lender's
      selection, but at the expense of the Borrowers) other than any claim as to
      which a final determination is made in a judicial proceeding by a court of
      competent jurisdiction (in which the Lender has been given an opportunity
      to be heard), which determination includes a specific finding that the
      Indemnified Person seeking indemnification had acted in a grossly
      negligent manner, in actual bad faith or in willful misconduct. This
      indemnification shall survive payment of the Liabilities and/or any
      termination, release, or discharge executed by the Lender in favor of the
      Borrowers, other than a termination, release, or discharge duly executed
      on behalf of the Lender which makes specific reference to this Section
      14.13.

      14.14 RULES OF CONSTRUCTION. The following rules of construction shall be
      applied in the interpretation, construction, and enforcement of this
      Agreement and of the other Loan Documents:

            (a)   Unless otherwise specifically provided for herein, interest
                  and any fee or charge which is stated as a per annum
                  percentage shall be calculated based on a 360 day year and
                  actual days elapsed.

                                     Page 95
<PAGE>

            (b)   Words in the singular include the plural and words in the
                  plural include the singular.

            (c)   Unless otherwise specifically provided for herein or in a
                  specific Loan Document (and then only to the extent so
                  provided), as between the parties hereto or to any Loan
                  Document, the definitions of the following terms, as included
                  in the UCC, are deemed to be as follows for purposes of the
                  performance of obligations arising under or in respect of any
                  Loan Document:

                  (i)   "Authenticate" means "signed".

                  (ii)  "Record" means written information in a tangible form.

            (d)   Titles, headings (indicated by being underlined or shown in
                  SMALL CAPITALS) and any Table of Contents are solely for
                  convenience of reference; do not constitute a part of the
                  instrument in which included; and do not affect such
                  instrument's meaning, construction, or effect.

            (e)   The words "includes" and "including" are not limiting.

            (f)   Text which follows the words "including, without limitation"
                  (or similar words) is illustrative and not limitational.

            (g)   Text which is shown in italics (except for parenthesized
                  italicized text), shown in BOLD, shown IN ALL CAPITAL LETTERS,
                  or in any combination of the foregoing, shall be deemed to be
                  conspicuous.

            (h)   The words "may not" are prohibitive and not permissive.

            (i)   Any reference to a Person's "knowledge" (or words of similar
                  import) are to such Person's knowledge assuming that such
                  Person has undertaken reasonable and diligent investigation
                  with respect to the subject of such "knowledge" (whether or
                  not such investigation has actually been undertaken).

            (j)   Terms which are defined in one section of any Loan Document
                  are used with such definition throughout the instrument in
                  which so defined.

            (k)   The term "Dollars" and the symbol "$" each refers to United
                  States Dollars.

            (l)   Unless limited by reference to a particular Section or
                  provision, any reference to "herein", "hereof", or "within" is
                  to the entire Loan Document in which such reference is made.

                                     Page 96
<PAGE>

            (m)   References to "this Agreement" or to any other Loan Document
                  is to the subject instrument as amended to the date on which
                  application of such reference is being made.

            (n)   Except as otherwise specifically provided, all references to
                  time are to Boston time.

            (o)   In the determination of any notice, grace, or other period of
                  time prescribed or allowed hereunder:

                  (i)   Unless otherwise provided (I) the day of the act, event,
                        or default from which the designated period of time
                        begins to run shall not be included and the last day of
                        the period so computed shall be included unless such
                        last day is not a Business Day, in which event the last
                        day of the relevant period shall be the then next
                        Business Day and (II) the period so computed shall end
                        at 5:00 PM on the relevant Business Day.

                  (ii)  The word "from" means "from and including".

                  (iii) The words "to" and "until" each mean "to, but
                        excluding".

                  (iv)  The word "through" means "to and including".

            (p)   The Loan Documents shall be construed and interpreted in a
                  harmonious manner and in keeping with the intentions set forth
                  in Section 14.15 hereof, provided, however, in the event of
                  any inconsistency between the provisions of this Agreement and
                  any other Loan Document, the provisions of this Agreement
                  shall govern and control.

      14.15 INTENT. It is intended that:

            (a)   This Agreement take effect as a sealed instrument.

            (b)   The scope of all Collateral Interests created by any Borrower
                  to secure the Liabilities be broadly construed in favor of the
                  Lender and that they cover all assets of each Borrower other
                  than any Excluded Assets.

            (c)   All Collateral Interests created in favor of the Lender at any
                  time and from time to time secure all Liabilities, whether now
                  existing or contemplated or hereafter arising.

            (d)   All reasonable costs, expenses, and disbursements incurred by
                  the Lender in connection with the Lender's relationship(s)
                  with any Borrower shall be borne by the Borrowers.

            (e)   Unless otherwise explicitly provided herein, the Lender's
                  consent to any action of any Borrower which is prohibited
                  unless such consent is given

                                     Page 97
<PAGE>

                  may be given or refused by the Lender in its sole discretion
                  and without reference to Section 2.14 hereof.

      14.16 PARTICIPATIONS: The Lender may sell participations in the Lender's
      interests herein to one or more financial institutions.

      14.17 CONFIDENTIALITY: The Lender agrees that, except with the prior
      consent of the Lead Borrower, it will not disclose any confidential
      information with respect to the Borrowers which is now or in the future
      furnished pursuant to this Agreement or any other Loan Document ,
      provided, however, that the Lender may disclose any such information as
      follows:

            (a)   To the following:

                  (i)   To its employees, Affiliates, advisors or counsel.

                  (ii)  To any prospective or actual transferee or participant
                        in connection with any contemplated transfer or
                        participation of this Agreement, the Liabilities, or any
                        interest therein by the Lender, which transfer or
                        participation is permitted by the terms of this
                        Agreement and which transferee or participant agrees to
                        be bound by this Section 14.17.

            (b)   As has become generally available to the public.

            (c)   As may be required or appropriate in any report, statement or
                  testimony submitted to any municipal, state, or federal
                  regulatory body having or claiming to have jurisdiction over
                  the Lender.

            (d)   As may be required or appropriate in respect to any summons or
                  subpoena or in connection with any litigation

            (e)   In order to comply with Applicable Law.

      14.18 RIGHT OF SET-OFF. Any and all deposits or other sums at any time
      credited by or due to any Borrower from the Lender or from any Affiliate
      of any of the foregoing, and any cash, securities, instruments or other
      property of any Borrower in the possession of any of the foregoing,
      whether for safekeeping or otherwise (regardless of the reason such Person
      had received the same) shall at all times constitute security for all
      Liabilities and for any and all obligations of each Borrower to the Lender
      or such Affiliate and may be applied or set off against the Liabilities
      and against such obligations at any time, whether or not other collateral
      is then available to the Lender.

      14.19 PLEDGES TO FEDERAL RESERVE BANKS: Nothing included in this Agreement
      shall prevent or limit the Lender, to the extent that the Lender is
      subject to any of the twelve Federal Reserve Banks organized under Section
      4 of the Federal Reserve Act (12 U.S.C. Section 341) from pledging all or
      any portion of that Lender's interest and rights under this Agreement,
      provided, however, neither such pledge nor the enforcement thereof shall

                                     Page 98
<PAGE>

      release the Lender from any of its obligations hereunder or under any of
      the Loan Documents.

      14.20 MAXIMUM INTEREST RATE. Regardless of any provision of any Loan
      Document, the Lender shall never be entitled to contract for, charge,
      receive, collect, or apply as interest on any Liability, any amount in
      excess of the maximum rate imposed by Applicable Law. Any payment which is
      made which, if treated as interest on a Liability would result in such
      interest's exceeding such maximum rate shall be held, to the extent of
      such excess, as additional collateral for the Liabilities as if such
      excess were "Collateral."

      14.21 WAIVERS.

            (a)   Each Borrower (and all guarantors, endorsers, and sureties of
                  the Liabilities) make each of the waivers included in Section
                  (b), below, to the full extent permitted by Applicable Law and
                  knowingly, voluntarily, and intentionally, and understands
                  that the Lender, in establishing the facilities contemplated
                  hereby and in providing loans and other financial
                  accommodations to or for the account of the Borrowers as
                  provided herein, whether now or in the future, is relying on
                  such waivers.

            (b)   EACH BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
                  RESPECTIVELY WAIVES THE FOLLOWING:

                  (i)   Except as otherwise specifically required hereby, notice
                        of non-payment, demand, presentment, protest and all
                        forms of demand and notice, both with respect to the
                        Liabilities and the Collateral.

                  (ii)  Except as otherwise specifically required hereby, the
                        right to notice and/or hearing prior to the Lender's
                        exercising of the Lender's rights upon default.

                  (iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
                        CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY
                        (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR
                        AGAINST THE LENDER OR IN WHICH THE LENDER IS JOINED AS A
                        PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF
                        OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN
                        ANY BORROWER OR ANY OTHER PERSON AND THE LENDER LIKEWISE
                        WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE
                        OR CONTROVERSY).

                  (iv)  Any defense, counterclaim, set-off, recoupment, or other
                        basis on which the amount of any Liability, as stated on
                        the books and

                                     Page 99
<PAGE>

                        records of the Lender, could be reduced or claimed to be
                        paid otherwise than in accordance with the tenor of and
                        written terms of such Liability.

                  (v)   Any claim to consequential, special, or punitive
                        damages.

        14.22 MERGER.   This Agreement supersedes all prior agreements,
                        understandings, consents and waivers among the parties
                        hereto with respect to the subject matter hereof.

                                    Page 100
<PAGE>

                                       DELIA*S CORP.
                                       ("Lead Borrower")

                                       By____________________________
                                       Print Name:___________________
                                       Title:________________________

                                       ALLOY MERCHANDISE, LLC,
                                       SKATE DIRECT, LLC
                                       DELIA*S CORP.
                                       DELIA*S OPERATING COMPANY
                                       DELIA*S RETAIL COMPANY
                                       ("Borrowers"):

                                       By____________________________
                                       Print Name:___________________
                                       Title:________________________

                                       WELLS FARGO RETAIL FINANCE II, LLC
                                       ("Lender")
                                       By____________________________
                                       Print Name:___________________
                                       Title:________________________

                                    Page 101

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