SPECIALTY CATALOG CORP, S-1/A, 1996-10-15

SPECIALTY CATALOG CORP
S-1/A, 1996-10-15
CATALOG & MAIL-ORDER HOUSES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996

REGISTRATION NO. 333-10793
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

SPECIALTY CATALOG CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 5961 04-3253301
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)

21 BRISTOL DRIVE
SOUTH EASTON, MA 02375
(508) 238-0199
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)

STEVEN L. BOCK, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
21 BRISTOL DRIVE
SOUTH EASTON, MA 02375
(508) 238-0199
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

----------------

COPIES TO:
ROBERT L. LAWRENCE, ESQ. DAVID A. MILLER, ESQ.
JEFFREY S. TULLMAN, ESQ. GRAUBARD MOLLEN & MILLER
KANE KESSLER, P.C. 600 THIRD AVENUE
1350 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10016
NEW YORK, NEW YORK 10019 TELEPHONE NO.: (212) 818-8800
TELEPHONE NO.: (212) 541-6222 FACSIMILE NO.: (212) 818-8881
FACSIMILE NO.: (212) 245-3009

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock $.01 par
value.................. 1,725,000(2) $ 7.50 $12,937,500 $4,461.21
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Underwriter's Purchase
Option................. 1 $100.00 $ 100 (3)
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Common Stock Underlying
Underwriter's Purchase
Option................. 150,000 $ 8.25 $ 1,237,500 $ 426.72
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Total................... -- -- $14,175,100 $4,887.93
</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee.
(2) Includes 225,000 shares which may be issued upon exercise of a 45-day
option granted to the Underwriter to cover over-allotments, if any. See
"Underwriting."
(3) Pursuant to Rule 457(g), no registration fee is payable.

----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

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<PAGE>

SPECIALTY CATALOG CORP.

CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED
BY ITEMS OF FORM S-1

<TABLE>
<CAPTION>
FORM S-1 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Front Cover Page of Registration
Statement; Cross-Reference Sheet;
Outside Front Cover Page of
2. Inside Front and Outside Back Cover Prospectus
Pages of Prospectus................ Inside Front Cover Page of
Prospectus and Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ Prospectus Summary; Risk Factors
4. Use of Proceeds..................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price..... Underwriting
6. Dilution............................ Risk Factors; Dilution
7. Selling Security Holders............ Inapplicable
8. Plan of Distribution................ Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to Be
Registered......................... Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
10. Interests of Named Experts and Underwriting
Counsel............................ Inapplicable
11. Information with Respect to the
Registrant......................... Outside Front Cover Page of
Prospectus; Prospectus Summary;
Reorganization; Risk Factors;
Dividend Policy; Capitalization;
Selected Financial Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description
of Securities; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ Description of Securities
</TABLE>
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED OCTOBER 11, 1996

PROSPECTUS

1,500,000 SHARES

SPECIALTY CATALOG CORP. [LOGO]S C
CORP.
COMMON STOCK

All of the 1,500,000 shares of Common Stock ("Common Stock") offered hereby are
being sold by Specialty Catalog Corp. ("Company").

Prior to this offering ("Offering"), there has been no public market for the
Common Stock of the Company and there can be no assurance that any such market
will develop. It is currently anticipated that the initial public offering
price of the shares will be between $6.50 and $7.50. See "Underwriting" for
information relating to the factors considered in determining the initial
public offering price of the Common Stock. The Company has applied for the
Common Stock to be quoted on the Nasdaq National Market under the symbol
"CTLG".

-----------

THE SHARES OFFERED HEREBY ARE SPECULATIVE IN NATURE, INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AT PAGE 9 HEREOF AND DILUTION
AT PAGE 16 HEREOF.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share..................................... $ $ $
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Total(3)...................................... $ $ $
</TABLE>
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(1) Does not include a 2.5% nonaccountable expense allowance which the Company
has agreed to pay the Underwriter. The Company has also agreed to sell the
Underwriter an option ("Underwriter's Purchase Option") to purchase 150,000
shares of Common Stock and indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended ("Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $ ($ if the
Underwriter's over-allotment option is exercised in full), estimated at
$ .
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 225,000 additional
shares of Common Stock on the same terms set forth above, solely for the
purpose of covering over-allotments, if any. If such over-allotment option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."

The shares of Common Stock are being offered by the Underwriter, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to the approval of certain legal matters by counsel and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the shares of Common Stock will be made
against payment therefor at the offices of the Underwriter in New York City, on
or about October , 1996.

GKN Securities

, 1996
<PAGE>

[PHOTOS]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

This prospectus contains references to trademarks of entities other than the
Company, which have reserved all rights with respects to their respective
trademarks.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, "Company" shall include the two
operating subsidiaries of the Company, SC Corporation, doing business under the
name SC Direct ("SC Direct"), and SC Publishing, Inc. ("SC Publishing"), a
wholly-owned subsidiary of SC Direct. Each prospective investor is urged to
read this Prospectus in its entirety.

THE COMPANY

The Company is a direct marketer targeting niche consumer product categories.
SC Direct, its principal operating subsidiary, is the leading U.S. retailer of
women's wigs and hairpieces. SC Publishing, a subsidiary of SC Direct, sells
continuing education courses to nurses, real estate professionals and Certified
Public Accountants ("CPAs").

SC Direct sells wigs and hairpieces primarily to women over the age of 50,
using three distinct catalogs: Paula Young (R), Christine Jordan (TM) and
Especially Yours (TM). In 1995, SC Direct mailed 20.9 million catalogs,
generating net sales of $37.3 million. SC Direct has developed a proprietary
data base consisting of approximately 5.6 million persons, including more than
875,000 active customers and more than one million persons who have requested
catalogs in the past year but who have not made a purchase. Due to the fact
that wig wearers are difficult to identify, the Company believes that its wig
database is unique and would be very expensive to replicate. The Company
believes that this poses a substantial barrier to entry for any potential
competitor.

SC Direct's target market, women over age 50, is projected by the U.S. Census
Bureau to grow from 38.7 million women, or 38% of the total female population
in 1995, to 51.5 million women, or 45% of the total female population in 2010.
This growth is driven primarily by aging "baby-boomers." The Company believes
that only approximately five million, or 25%, of the 20 million American women
with thinning hair currently wear wigs, and that, accordingly, there is
substantial opportunity for future growth of SC Direct's business.

SC Direct's strategy for its core business is to exploit new distribution
opportunities for wigs and hairpieces and to sell additional products to its
customers. For example, in the last three years, SC Direct has introduced its
upscale Christine Jordan catalog and its Especially Yours catalog for African-
American customers, expanded into international markets and begun a test
program selling to hair salons.

In 1995, SC Direct launched its Paula's Hatbox (TM) catalog through which it
sells a variety of fashion hats to women. The Company believes that the market
for fashion hats has niche characteristics similar to those of the wig market.
In addition, SC Direct intends to enter another new market by testing men's
wigs in the Paula Young catalog in early 1997.

The Company utilizes primarily a two-step marketing program. Step one
involves obtaining prospective customers through a targeted advertising
program. Step two, which commences when a prospective customer responds
favorably to an advertisement placed by the Company, involves sending such
prospective customer a series of catalogs designed to elicit an initial sale.
Through this program, the Company has been able to convert into customers 15%
to 20% of those persons who request catalogs. Because this program involves
targeted mailings only to persons who have shown an interest in its products,
the Company also has been able to reduce its exposure to increases in paper,
postage and other catalog production costs.

3
<PAGE>

SC Publishing offers nurses, real estate agents and CPAs home study
continuing education through its Western Schools(R) catalogs. SC Publishing's
strategy is to build its business by offering additional products and programs
to its core customers and by expanding into new and related professional
fields. In 1995, SC Publishing mailed 8.3 million catalogs generating net sales
of $5.3 million.

The Company intends to build its existing niche markets and enter new niche
markets both by internal expansion and through acquisitions. Niche markets are
characterized by smaller market size, unique or hard to find products, or hard
to locate customers. The Company plans to implement its two-step marketing
program in new and acquired businesses where appropriate.

The catalog industry is very fragmented, with more than 8,000 catalogs
currently being circulated. Many catalog retailers, especially the smaller
ones, are finding it difficult to grow due to a combination of capital
constraints, higher costs and an inability to achieve sufficient operating
economies of scale. This situation was exacerbated by substantial increases in
paper and postage costs in 1995. The Company believes that this environment
will create many acquisition opportunities, allowing it to select acquisition
candidates that provide either strategic growth to its existing businesses or
an opportunity to enter additional niche markets. As of the date of this
Prospectus, the Company has no agreement or understanding, nor is it engaged in
any negotiations, with respect to any acquisition.

The Company was incorporated in Delaware on November 30, 1994, as a holding
company for SC Direct and SC Publishing, which emerged from bankruptcy on
November 23, 1994. See "Reorganization." The principal executive offices of the
Company are located at 21 Bristol Drive, South Easton, Massachusetts 02375 and
its telephone number is (508) 238-0199.

4
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered........................................ 1,500,000 shares
Common Stock Outstanding Prior to this Offering............. 3,201,666 shares(1)
Common Stock to be Outstanding After this Offering.......... 4,701,666 shares
Proposed Nasdaq National Market Symbol...................... CTLG
</TABLE>
- --------

(1) Gives effect to a 325.51 for 1 stock split which will be effected prior to
the date hereof.

USE OF PROCEEDS

The Company intends to apply the net proceeds of this Offering to repay $5.9
million of the Company's Senior Indebtedness (as hereinafter defined),
including: (i) $1.5 million to pay down the outstanding amount under the
revolving credit portion of the Senior Indebtedness; (ii) $1.8 million of the
Senior Indebtedness which is due within one year of the date hereof; and (iii)
$2.6 million of the Senior Indebtedness which is due more than one year
following the date hereof. The remaining $3.0 million will be used for working
capital and general corporate purposes. See "Use of Proceeds."

RISK FACTORS

The securities offered hereby involve a high degree of risk, including,
without limitation: substantial indebtedness; pledge of assets; substantial
portion of proceeds used to pay debt; broad discretion in application of
remaining proceeds; possible inability to refinance senior indebtedness;
working capital deficit; negative net worth; recent decrease in net sales and
net income; possible need for additional capital; effectiveness of catalogs and
advertising; postal rates, paper prices and media costs; limited sources of
fiber and limited number of wig manufacturers. See "Risk Factors."

5
<PAGE>

SUMMARY FINANCIAL AND OPERATING DATA

The summary financial data presented below, except for the summary operating
data, as of and for the fiscal years ended January 1, 1994, December 31, 1994
and December 30, 1995 is derived from the audited financial statements of the
Company included herein. The summary financial data for fiscal years ended
December 28, 1991 and January 2, 1993 and the summary financial data for the
six months ended July 1, 1995 and June 29, 1996, except for the summary
operating data, are derived from the unaudited financial statements of the
Company. In the opinion of management, the summary financial data presented
below as of and for the six months ended July 1, 1995 and June 29, 1996 include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations for
these periods. The six month results are not necessarily indicative of the
results to be expected for the full year. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of the Company,
including the notes thereto, appearing elsewhere herein.

6
<PAGE>

- --------
(1) Pro forma as adjusted operations data and earnings per share information
gives effect to: (i) the sale of 1,019,553 shares by the Company in this
Offering at an estimated initial offering price of $7.00 per share less the
Underwriter's discount and other offering expenses; (ii) the application of
the estimated net proceeds therefrom to repay $5.9 million of Senior
Indebtedness; and (iii) the Preferred Conversion (as hereinafter defined)
(375,000 shares). These transactions, along with the incremental effect of
issuing an additional 75,000 options (17,893 shares) to Steven L. Bock, the
Company's Chairman and Chief Executive Officer, in connection with this
Offering and the weighted average shares outstanding as of June 29, 1996 of
3,577,986, which includes the dilutive effect of the issuance of the
Warrants (as hereinafter defined) (265,335 shares) and 582,999 options to
Mr. Bock and Stephen M. O'Hara, the Company's President, calculated under
the treasury stock method described in Accounting Principles Board Opinion
No. 15, support the share figure of 4,990,432 used to calculate pro forma
as adjusted operations data and earnings per share information.
(2) Net sales include for fiscal 1991 and 1992 the sales of certain
subsidiaries that were sold as of the end of 1992. For comparative
purposes, excluding the sold subsidiaries, the Company's net sales would be
$30,817,000 in fiscal 1991 and $32,430,000 in fiscal 1992.
(3) Net income reflects, for the fiscal year ended January 1, 1994, a gain of
$8,985,122 from the cumulative effect of change in accounting for income
taxes and for the fiscal year ended December 31, 1994, a gain from
extraordinary item of $12,078,489, net of income taxes resulting from the
forgiveness of debt upon the Company's emergence from bankruptcy. See the
financial statements and the notes thereto.
(4) Earnings per share for each fiscal year of the Company is computed by
dividing net income after preferred dividends for such fiscal year by the
weighted average number of shares of common stock and common stock
equivalents outstanding during such fiscal year. See the financial
statements and the notes thereto.
(5) Reflects number of customers who are being mailed catalogs at the end of
each period.
(6) The pro forma as adjusted balance sheet information gives effect to the
issuance of the Junior Subordinated Indebtedness (as hereinafter defined),
the issuance of the Warrants, the irrevocable waiver of accrued dividends
on the 13% Preferred Stock, the Preferred Conversion, the grant of options
to purchase 75,000 shares of Common Stock at an exercise price of $5.33 per
share to Steven L. Bock, the Company's Chairman and Chief Executive
Officer, and the sale by the Company of 1,500,000 shares of Common Stock
offered hereby at an estimated initial public offering price of $7.00 per
share and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds." See the financial statements and the notes
thereto.
(7) Long term debt reflects, for fiscal years ended January 2, 1993 and January
1, 1994, amounts subject to settlement under reorganization proceedings.
See "Reorganization."

Unless otherwise indicated, the information in this Prospectus does not give
effect to: (i) 500,000 shares of Common Stock of the Company reserved for
issuance under the Company's 1996 Stock Option Plan ("Plan"), of which options
to purchase 252,150 shares of Common Stock have been granted; (ii) 225,000
shares which may be issued upon exercise of the Underwriter's over-allotment
option; (iii) 150,000 shares reserved for issuance pursuant to the
Underwriter's Purchase Option; (iv) 657,999 shares reserved for issuance upon
exercise of other outstanding options issued to Steven L. Bock and Stephen M.
O'Hara, the Company's Chief Executive Officer and President, respectively
("Officers' Options"); and (v) 265,335 shares reserved for issuance upon
exercise of certain outstanding warrants issued to a director and others
("Warrants"). Unless otherwise indicated, the number of shares of Common Stock
and all per share information gives effect to: (x) the 325.51 for 1 stock split
to be effected immediately prior to effectiveness of the registration statement
of which this prospectus is a part ("Registration Statement") and (y) the
conversion, on a pro rata basis, of 22,491 shares ($2,249,100 face amount) of
13% preferred stock ("13% Preferred Stock") into 375,000 (post-split) shares of
Common Stock immediately prior to this Offering ("Preferred Conversion").

7
<PAGE>

REORGANIZATION

The Company was incorporated on November 30, 1994 for the purpose of
becoming the parent company of SC Corporation. SC Corporation was incorporated
in February 1989, and in March 1989 it acquired four companies engaged in the
catalog business: Wigs by Paula, Inc. ("Wigs"), the predecessor of SC Direct;
Western Schools Inc., the predecessor of SC Publishing; After the Stork, Inc.
("Stork"), a children's apparel company; and Brotman's Inc. ("Brotman"), a
company selling fabrics to people who sew at home. SC Corporation incurred
substantial indebtedness in order to consummate these acquisitions, the terms
of which indebtedness could not be supported by the operating cash flows of
the acquired businesses. Accordingly, SC Corporation and each of its four
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code ("Bankruptcy") in the United States
Bankruptcy Court for the District of Connecticut ("Bankruptcy Court") on
December 28, 1992. From that date until November 23, 1994, SC Corporation
operated its business as debtor-in-possession, subject to the jurisdiction of
the Bankruptcy Court.

In January 1993, the Bankruptcy Court and SC Corporation agreed to lift the
stay and permit Signal Capital Corporation, SC Corporation's senior secured
creditor ("Signal"), to sell Stork and Brotman. Stork was sold for $950,000 to
a group of purchasers which included Viking Holdings Limited ("Viking") and
Steven Bock, the Company's chairman and chief executive officer. Brotman was
sold by Signal to a liquidator.

SC Corporation's Disclosure Statement with respect to the First Amended and
Restated Joint Plan of Reorganization of SC Corporation, Wigs and SC
Publishing ("Plan of Reorganization") was approved by the Bankruptcy Court on
September 21, 1994. The Plan of Reorganization was subsequently confirmed by
the Bankruptcy Court on October 26, 1994, and the reorganization of SC
Corporation was consummated on November 23, 1994.

The Plan of Reorganization provided for the payment of $15,508,726 in cash,
$1,673,453 in Subordinated Indebtedness (as hereinafter defined) notes, 10,227
shares of preferred stock valued at $1,022,700 and 295,121 shares of common
stock valued at $295,121 in settlement of $24,102,851 of secured claims, and
$3,345,066 in cash, $354,247 in subordinated notes, 2,164 shares of preferred
stock valued at $216,400 and 179,353 shares of common stock valued at $179,353
in settlement of $11,665,353 of unsecured claims. The gain on such discharge
of pre-petition claims has been recorded as an extraordinary item, net of
income taxes of $1,094,649. The Company funded the Plan of Reorganization by
selling additional shares of common stock and 13% Preferred Stock, entering
into a new senior credit facility, and issuing Subordinated Indebtedness.
Subsequent to the consummation of the reorganization, certain stockholders of
the Company purchased the subordinated notes and 13% Preferred Stock from the
holder of the secured claims at their face values and the common stock from
the holders of the secured and unsecured claims at its fair market value.

Pursuant to the Plan of Reorganization, the Company emerged from the
Bankruptcy in November 1994, subject to one outstanding income and sales tax
claim asserted by the Commonwealth of Massachusetts. Massachusetts has claimed
a payment due of $61,000 and the Company has fully accrued this amount.

8
<PAGE>

RISK FACTORS

The securities offered hereby are speculative in nature and involve a high
degree of risk. Accordingly, in analyzing an investment in these securities,
prospective investors should carefully consider, along with the other matters
referred to herein, the following risk factors.

SUBSTANTIAL INDEBTEDNESS; PLEDGE OF ASSETS. The Company's Senior
Indebtedness consists of a $16.0 million credit facility ($14.0 million term
loan and $2.0 million revolving credit line), of which an aggregate of $11.9
million was outstanding on June 29, 1996. In addition, as of June 29, 1996,
$4.4 million of principal and accrued interest was outstanding of its
Subordinated Indebtedness and, as of August 15, 1996, $495,000 of principal
and interest was outstanding of its junior subordinated indebtedness ("Junior
Subordinated Indebtedness"). Substantially all of the Company's assets are
pledged to secure the Senior Indebtedness, which, among other things,
prohibits mergers, sales of assets, payment of dividends and creation of
liens, and restricts borrowings and capital expenditures. In the event of a
default, Banque Nationale de Paris ("BNP"), its senior lender, could foreclose
on its security interest in the Company's assets. Such action would have a
material adverse effect on the Company's business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and the financial statements and notes
thereto.

SUBSTANTIAL PORTION OF PROCEEDS USED TO PAY DEBT; BROAD DISCRETION IN
APPLICATION OF REMAINING PROCEEDS. $5.9 million, or 66.2%, of the net proceeds
from this Offering (assuming an initial public offering price of $7.00) will
be used to repay part of the Senior Indebtedness. Furthermore, the Company
will have broad discretion as to the application of the remaining $3.0 million
of proceeds allocated to working capital and general corporate purposes. See
"Use of Proceeds."

POSSIBLE INABILITY TO REFINANCE SENIOR INDEBTEDNESS. Following the
application of the proceeds of this Offering to repay a portion of the Senior
Indebtedness, $5.4 million of the Senior Indebtedness will remain outstanding.
As part of its credit agreement with BNP, the Company is obligated to pay an
additional fee of $625,000, increasing periodically to a maximum of $1.0
million on November 22, 1998, upon any future default, prepayment, change in
control, or with the final loan payment ("Additional Fee"). BNP has agreed to
waive the Additional Fee if the Senior Indebtedness is repaid in full on or
before March 31, 1997. The Company intends to refinance the Senior
Indebtedness and the Subordinated Indebtedness prior to March 31, 1997.
Failure to refinance the Senior Indebtedness by March 31, 1997 will obligate
the Company to pay the Additional Fee to BNP, which will have a negative
impact on the Company's liquidity and earnings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

WORKING CAPITAL DEFICIT; NEGATIVE NET WORTH; RECENT DECREASE IN NET SALES
AND NET INCOME; POSSIBLE NEED FOR ADDITIONAL CAPITAL. The Company has had in
the past and continues to have a working capital deficit and a negative net
worth. As of June 29, 1996, the Company had a working capital deficit of
$185,000 and a negative net worth of $4.4 million. Results of operations for
the six months ended June 29, 1996 show a decline in net sales and net income
versus the prior year. Net sales decreased $3.6 million, or 16.1%, from $22.4
million for the six months ended July 1, 1995 to $18.8 million for the six
months ended June 29, 1996. Net income declined by $405,000, or 73.1%, from
$555,000 for the six months ended July 1, 1995 to $149,000 for the six months
ended June 29, 1996. In addition, total catalog circulation declined by
2,353,000 catalogs, or 15.4%, from 15,245,000 catalogs circulated in the six
months ended July 1, 1995 to 12,891,000 catalogs circulated in the six months
ended June 29, 1996. There can be no assurance that the Company's future
results will improve or that the decline in net sales and net income will not
be reflective of the future results of the Company. The Company anticipates,
based on current plans and assumptions relating to its operations, that the
proceeds of this Offering, together with existing resources and income
generated from operations, should be sufficient to satisfy the Company's
anticipated cash requirements for at least 12 months after completion of this
Offering. If, however, additional financing becomes necessary, the Company may
seek additional equity financing, which could have a dilutive effect on
stockholders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

9
<PAGE>

EFFECTIVENESS OF CATALOGS AND ADVERTISING. The Company targets potential new
customers through its advertising programs and solicits orders from existing
customers through catalog marketing campaigns. Catalog marketing campaigns and
advertising are working capital intensive and the success of such activities
depends, to a large extent, upon the accuracy of assumptions and judgments
made by the Company. The Company must continuously identify new customers with
its advertising programs and stimulate new purchases from existing customers
with its catalog marketing campaigns in order to be successful. There can be
no assurance that such advertising and catalog mailings will result in
attracting new customers at the rate required to maintain profitability or
continue to generate new purchases from the Company's existing customers. The
failure of such activities to identify new customers or to generate new
purchases from existing customers may have a material adverse effect on the
Company's business and its results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Wigs--Marketing."

POSTAL RATES, PAPER PRICES AND MEDIA COSTS. Postage, shipping and paper
costs are significant expenses in the operation of the Company's business. The
Company mails its catalogs and generally ships its products to customers
through the U.S. Postal Service and, at the customer's request and expense,
ships its products by overnight and second day delivery services. The Company
passes on the costs of mailing its products directly to customers as separate
shipping and handling charges, but does not directly pass on paper costs and
the costs of mailing its catalogs. Effective January 1, 1995, postal rates for
mailing the Company's catalogs increased 14.3%. The cost of paper also
increased significantly in 1995. Any future increases in postal or shipping
rates or paper costs will have an adverse effect on the Company's operating
results if the Company is unable to pass on these increases to its customers.
In addition, a rise in media costs could have a material adverse effect on the
Company's ability to generate new customers. See "Business--Wigs--Marketing."

LIMITED SOURCES OF FIBER. The majority of the Company's revenue is derived
from the sale of wigs. Virtually all of the wigs sold by the Company are made
from special synthetic fiber manufactured by only two Japanese companies,
Kaneka Corporation and Toyo Chemical Corporation. The wig manufacturers from
whom the Company purchases its inventory purchase the fiber from these two
fiber manufacturers. Should there be a permanent or long-term disruption in
the supply of fiber, the Company believes that the time required to obtain an
alternate source and the attendant delay in new production, as well as a
possibly significant increase in the price of fiber, may have a material
adverse effect on the Company's wig and hairpiece sales and profit margin. See
"Business--Wigs--Products."

LIMITED NUMBER OF WIG MANUFACTURERS. The wigs sold by the Company are
produced by a limited number of manufacturers. Each of the Company's five
largest manufacturers represented between 8% and 25% of the Company's overall
wig purchases in the first half of 1996. The loss of one or more of these
manufacturers could materially disrupt the Company's wig operations. Although
the Company believes that in such an event it could purchase its wig
requirements from the remaining manufacturers and from additional
manufacturers, there can be no assurance that such sources of supply could
meet the Company's wig requirements without considerable disruption to the
Company's purchasing cycles, inventory levels and profit margins. The Company
does not currently have, and does not anticipate entering into in the
foreseeable future, long-term supply contracts with its manufacturers. See
"Business--Wigs--Products" and "--Operations--Purchasing."

RISK OF PHYSICAL DISASTER. Substantially all of the Company's telemarketing,
customer service and management information systems functions are housed in
the Company's main facility in South Easton, Massachusetts. Although the
Company has a disaster recovery program and creates a daily back-up tape of
customer list and computer information and sends such tapes on a weekly basis
for off-site storage, a significant disruption or loss affecting the telephone
or computer systems, or any significant damage to the Company's headquarters,
could have a material adverse effect on the Company's business. Although the
Company maintains $10 million of business interruption insurance, there can be
no assurance that a physical disruption to the Company's business or
operations would be adequately covered by such insurance. See "Business--
Operations."

RISK OF A CURE FOR HAIR LOSS; CANCER TREATMENT IMPROVEMENT. Millions of
American women suffer varying degrees of hair loss, including those suffering
hair loss as a side effect of cancer treatments. These

10
<PAGE>

women comprise a significant percentage of the Company's customer base for its
wigs and hairpieces. Ongoing research is conducted by numerous groups, both
public and private, seeking remedies for hair loss. One drug, Minoxidil
(primarily marketed under the name Rogaine(R)), is now available over-the-
counter and is sold to men and women as a measure against hair loss. There can
be no assurance that a new drug will not be developed that could prevent hair
loss among women. Such an event could have a material adverse effect on the
Company's core wig business. In addition, the development of any new cancer
therapies that would eliminate hair loss as a side effect of treatment could
have a material adverse effect on the Company's business. See "Business--
Wigs--Industry and Market."

DEPENDENCE UPON FOREIGN SUPPLIERS; EXCHANGE RATES; CURRENCY
FLUCTUATIONS. All of the wigs purchased by the Company, including those
purchased from domestic importers, are manufactured in Asia. The Company
expects that most of its wig merchandise will continue to be manufactured in
Asia in the future. Accordingly, the Company's operations are subject to the
customary risks of doing business abroad, including fluctuations in the value
of currencies, export duties, quotas, work stoppages and, in certain parts of
the world, political instability and possible governmental intervention. Since
the Company pays for its wigs in U.S. dollars, the cost of wigs may be
adversely affected by an increase in the relative value of the relevant
foreign currencies against the U.S. dollar. Although to date such risks have
not had a significant effect on the Company's business operations, no
assurance can be given that such risks will not have a material adverse effect
on the Company's business operations in the future. See "Business--Wigs--
Products."

RELIANCE ON KEY PERSONNEL. The Company's performance is substantially
dependent on the performance of its executive officers and key employees. The
loss of the services of any its key employees, particularly Steven L. Bock,
its Chairman and Chief Executive Officer, or Stephen M. O'Hara, its President,
could have a material adverse effect on the Company's business, financial
condition or operating results. The Company has employment agreements with
Messrs. Bock and O'Hara expiring December 31, 1999. The Company currently
maintains an $8.5 million key person life insurance policy on Mr. Bock and a
$5.5 million key person life insurance policy on Mr. O'Hara, although those
amounts may be reduced. See "Management."

PRIOR BANKRUPTCY. SC Corporation was formed in 1989 to effect a leveraged
buy-out of four catalog companies, including the Company's present operating
subsidiaries. Mr. Bock was a principal in the original investment group that
formed SC Corporation in 1989. On December 28, 1992, as a result of its
inability to service then-existing debt requirements, SC Corporation and each
of its four subsidiaries filed voluntary petitions for bankruptcy under
Chapter 11 of the United States Bankruptcy Code. From that date until November
23, 1994, SC Corporation operated its business as debtor-in-possession subject
to the jurisdiction of the Bankruptcy Court. Pursuant to the Plan of
Reorganization, the Company emerged from the Bankruptcy in November 1994,
subject to one outstanding income and sales tax claim asserted by the
Commonwealth of Massachusetts. Massachusetts has claimed a payment due of
$61,000 and the Company has fully accrued this amount. Mr. Bock, who currently
serves as chief executive officer and director of the Company, was, prior to
and during the Bankruptcy, an executive officer and director of SC Corporation
or its predecessors. Mr. O'Hara, who currently serves as president of the
Company, was, prior to and during the Bankruptcy, president of Wigs. See
"Reorganization."

COMPETITION. The Company encounters competition in all areas of its
business. The Company competes directly with other direct mail catalog
retailers and numerous other retail sources of products which are the same as,
or similar to, those products sold by the Company through its catalogs. Some
of the Company's competitors have greater financial and marketing resources
than the Company. Potential competition may emerge via new distributions
channels such as the Internet and interactive television. See "Business--
Competition."

POSSIBLE TERMINATION OF LEASES. The Company leases two buildings in South
Easton, Massachusetts. Under the terms of the leases, the landlords and the
Company have the right to terminate the leases upon four month's notice. The
Company believes that, in the event that either or both landlords give the
Company notice, the Company could move to a new facility within four months.
Nonetheless, there can be no assurance that the Company will find an
appropriate space within four months or that the process of moving and
restarting operations in a new site would not have a material adverse effect
on the Company's operations. See "Business--Facilities."

11
<PAGE>

UNCERTAINTY AND EXPENSE OF INTELLECTUAL PROPERTY LITIGATION. The Company
currently has several registered trademarks and may seek additional legal
protection for its products and trade names. The Company has invested
substantial resources in developing several distinctive catalog trademarks as
well as branded products and product lines. There can be no assurance that the
steps taken by the Company to protect its rights will be sufficient to deter
misappropriation. Failure to protect these intellectual property assets could
have a material adverse effect on the Company's business operations. Moreover,
although the Company does not currently know of any lawsuit alleging the
Company's infringement of intellectual property rights that could have a
material adverse effect on the Company's business, there can be no assurance
that any such lawsuit will not be filed against the Company in the future or,
if such a lawsuit is filed, that the Company would ultimately prevail. See
"Legal Proceedings."

CONTINUED CONTROL BY CURRENT MANAGEMENT. Upon completion of this Offering,
the Company's directors and executive officers and their affiliates will
control approximately 69.3% of the outstanding shares of Common Stock. As a
result, current management will be able to elect the entire Board of Directors
of the Company, thereby enabling them to control all major decisions of the
Company. Furthermore, such concentration of ownership may have the effect of
preventing a change in control of the Company. See "Principal Stockholders"
and "Description of Securities."

MANAGEMENT OF GROWTH. The Company has experienced significant growth in
recent years, and this growth has placed significant demands on the Company's
managerial, operational and financial resources. The Company is dependent on
its ability to retain and motivate high quality personnel, especially its
management, marketing and merchandising executives and other key employees,
and the inability of the Company to do so would have a material adverse effect
on the Company's business, financial condition and operating results. In
addition, the Company's operations are dependent upon the accuracy, capability
and proper utilization of its management information systems, including its
computers and telephone systems, which the Company will need to expand and
enhance on a regular basis to support its planned growth and to remain
competitive. There can be no assurance that if the Company continues to grow,
management will be effective in attracting and retaining additional qualified
personnel, expanding the Company's physical facilities, integrating acquired
businesses or otherwise managing growth. If the Company is unable to manage
growth effectively, the Company's business, financial condition and operating
results could be materially adversely affected. See "Business" and
"Management."

ABSENCE OF PRIOR PUBLIC MARKET. Prior to this Offering, there has been no
public market for the Common Stock of the Company and there can be no
assurance that an active trading market for the Common Stock will develop or
be sustained after this Offering. The initial public offering price has been
determined solely by negotiation between the Company and the Underwriter based
on a number of factors and may not be indicative of the market price for the
Common Stock after this Offering. The trading price of the Company's Common
Stock is expected to be subject to significant fluctuations in response to
variations in quarterly operating results, changes in analysts' earnings
estimates, general conditions in the wig industry and other factors. In
addition, the stock market is subject to price and volume fluctuations that
affect the market prices for companies and that are often unrelated to
operating performance. See "Underwriting."

LIMITATION ON USE OF NOLS. The Company currently has recorded a deferred tax
asset reflecting the benefit of approximately $18 million of net operating
loss carryforwards ("NOLs") available for federal and state income tax
purposes, which expire from 2005 through 2010. The Company believes that this
Offering will result in an "ownership change" under Section 382 of the
Internal Revenue Code of 1986 ("Code") and, as a result, the Company's ability
to use its "pre-change" NOLs will be limited to between $1.5 million and $2.0
million in each fiscal year following this Offering. Realization of the NOLs
is dependent on generating sufficient taxable income prior to expiration of
the loss carryforwards. There can be no assurance that the Company will be
able to use the NOLs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

STATE SALES TAX COLLECTION. In 1994, the United States Supreme Court
reaffirmed an earlier decision that allowed direct marketers to make sales
into states where they do not have a physical presence without collecting

12
<PAGE>

sales taxes but noted that Congress has the power to change this law. The
imposition of an obligation to collect sales taxes may have a negative effect
on the Company's response rates and may require the Company to incur
administrative costs in collecting and remitting the sales taxes. The Company
believes that Massachusetts is the only jurisdiction where it is currently
required to collect sales taxes. See "Business--Government Regulations."

SHARES ELIGIBLE FOR FUTURE SALE. Sales of the Company's Common Stock in the
public market after this Offering could adversely affect the market price of
the Common Stock. See "Management--Stock Option Plan", "Description of
Securities" and "Shares Eligible for Future Sale."

ANTITAKEOVER MATTERS; POTENTIAL ADVERSE EFFECT OF FUTURE ISSUANCES OF
AUTHORIZED PREFERRED STOCK. The Company's Certificate of Incorporation and By-
laws contain certain provisions that may delay, defer or prevent a takeover of
the Company. The Company's Board of Directors has the authority to issue up to
1,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"), and to determine the price, rights, preferences and restrictions,
including voting rights, of those shares, without any further vote or action
by the stockholders. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue Preferred Stock, for any reason and at any
time, with such rates of dividends, redemption provisions, liquidation
preferences, voting rights, conversion privileges and other characteristics as
the Board of Directors may deem necessary. The rights of holders of Common
Stock will be subject to, and may be adversely affected by, the rights of
holders of any Preferred Stock that may be issued in the future. The Company's
By-laws include provisions establishing advance notice procedures with respect
to stockholder proposals and director nominations and permit special
stockholder meetings to be called only by the Board of Directors or the Chief
Executive Officer. In addition, the Company is subject to certain anti-
takeover provisions of the Delaware General Corporation Law ("DGCL"). Such
provisions could adversely affect the holders of the Common Stock and could
discourage, delay or prevent a takeover of the Company. See "Description of
Securities."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered
hereby will incur immediate and substantial dilution of $5.92 or 84.6%,
representing the difference between the net tangible book value of the Common
Stock immediately after this Offering and the assumed initial public offering
price of the Common Stock of $7.00. See "Dilution."

EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Immediately after this Offering,
not including the Underwriter's Purchase Option, there will be outstanding
options and warrants to purchase, in the aggregate, 1,175,484 shares of Common
Stock at per share exercise prices ranging from $0.31 to the initial public
offering price. These options and warrants consist of: (i) options to purchase
252,150 shares of common stock at the initial public offering price granted
under the Plan, 10,000 of which are currently exercisable; (ii) Officers'
Options to purchase 657,999 shares of Common Stock, consisting of options to
purchase 582,999 shares at $0.31 per share, of which options to purchase
528,444 shares are currently exercisable, and options to purchase 75,000
shares at $5.33 per share, none of which are currently exercisable; and (iii)
Warrants to purchase 265,335 shares at $1.88, all of which are currently
exercisable. The exercise of the foregoing options and warrants and the
Underwriter's Purchase Option will dilute the percentage ownership of the
Company's stockholders and any sales in the public market of shares of Common
Stock underlying such securities may adversely affect the prevailing market
price for the Common Stock. Moreover, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected since the
holders of the outstanding securities will, to the extent they are able,
likely exercise them at a time when the Company could, in all likelihood,
obtain any needed capital on terms more favorable to the Company than those
provided in the options and the warrants. See "Dilution."

NO DIVIDENDS. The Company has never paid cash dividends on the Common Stock.
The Company intends to retain any future earnings to finance its growth.
Accordingly, any potential investor who anticipates the need for current
dividends from an investment in the Common Stock should not purchase any of
the shares of Common Stock offered hereby. The Company's Senior Indebtedness
contains, and the Company anticipates that any future credit facility or other
indebtedness that the Company may enter into or incur would contain, a
prohibition against the payment of cash dividends and certain restrictions on
the payment of non-cash dividends. See "Dividend Policy."

13
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock offered
hereby, assuming an initial public offering price of $7.00 per share, are
estimated to be $8,910,000, or $10,319,625 if the Underwriter's over-allotment
option is exercised in full, after deducting the estimated underwriting
discounts and offering expenses payable by the Company. Of this amount, $5.9
million, or 66.2% of the net proceeds, will be used to repay a portion of the
Senior Indebtedness, including (i) $1.5 million to pay down the outstanding
amount under the revolving credit portion of the Senior Indebtedness; (ii)
$1.8 million of the Senior Indebtedness which is due within one year of the
date hereof; and (iii) $2.6 million of the Senior Indebtedness which is due
more than one year following the date hereof. The Company's Senior
Indebtedness consists of a $14.0 million term loan which bears interest at
3.5% above certain LIBOR rates and matures on May 22, 1999; and a $2.0 million
revolving credit facility, which bears interest at 2% over the prime rate and
matures on May 22, 1999. An aggregate of $11.9 million was outstanding under
the Senior Indebtedness on June 29, 1996.

The remainder of the net proceeds of this Offering, estimated to be
approximately $3.0 million, or 33.8% of the net proceeds ($4.4 million, or
42.8% of the net proceeds, if the Underwriter's over-allotment option is
exercised in full), will be used for general corporate purposes, including
capital expenditures and working capital.

The Company plans to use its available working capital, including cash flow
from operations and net proceeds of this Offering to expand its business by,
among other things: (i) increasing advertising levels in its wig and hat
business; (ii) testing new marketing programs; (iii) producing and mailing
additional catalogs; and (iv) increasing direct purchasing of wigs and
hairpieces. Depending on the Company's business needs and cash flow,
additional amounts of the Company's remaining Senior Indebtedness may be
repaid from the net proceeds of this Offering allocated to working capital. In
addition, if a suitable opportunity arises, the Company may also use a portion
of the net proceeds of this Offering as part of the financing for an
acquisition. As of the date of this Prospectus, the Company has no agreement
or understanding, nor is it engaged in any negotiations, with respect to any
acquisition.

Net proceeds not immediately required for the purposes described above will
be invested in United States government securities, short-term certificates of
deposit, money market funds or other short-term interest-bearing government
obligations.

The Company anticipates, based on current plans and assumptions relating to
its operations, that the proceeds of this Offering, together with existing
resources and income generated from operations, should be sufficient to
satisfy the Company's anticipated cash requirements for at least 12 months
after completion of this Offering. After that time, the Company believes that
income from operations should satisfy the Company's working capital needs;
however, there can be no assurance that this will be the case.

The allocation of the net proceeds of this Offering represents the Company's
best estimate based upon its current plans and certain assumptions regarding
industry and general economic conditions and the Company's future revenues and
expenditures. If any of these factors change, the Company may find it
necessary or advisable to reallocate some of the proceeds within the above
described categories or may be required to seek additional financing. There
can be no assurance that additional financing will be available to the Company
on acceptable terms, or at all. Any failure to obtain additional financing, if
required, could have a material adverse effect on the Company.

14
<PAGE>

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of June 29, 1996. The pro forma information gives effect to the issuance of
the Junior Subordinated Indebtedness, the issuance of the Warrants, the
irrevocable waiver of accrued dividends on the 13% Preferred Stock in August
1996, the Preferred Conversion, and the grant of options to purchase 75,000
shares of Common Stock at an exercise price of $5.33 per share to Steven L.
Bock, the Company's chairman and chief executive officer. The pro forma as
adjusted information gives effect to all of the above, and, in addition, the
sale by the Company of 1,500,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $7.00 per share and the application
of the estimated net proceeds therefrom as described in "Use of Proceeds."
This table should be read in conjunction with the financial statements of the
Company including the notes thereto, appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 29, 1996
-------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt............ $ 2,950 $ 2,950 $ 1,352
Revolving portion of line of credit.......... 1,450 1,450 --
Long-term debt:
Non-current portion of long-term debt........ 7,450 7,450 4,598
Subordinated notes........................... 4,363 4,744 4,744
Accrued dividends............................ 511 -- --
Stockholders' equity:
Preferred Stock, $1.00 par value; 1,000,000
shares authorized, 22,491 shares issued and
outstanding................................. 2,249 -- --
Common Stock, $.01 par value; 10,000,000
shares authorized, 2,826,666 shares issued
and outstanding at June 29, 1996, 3,201,666
outstanding on a pro forma basis and
4,701,666 outstanding as adjusted........... 28 32 47
Additional paid-in capital................... 4,496 7,497 16,392
Note from stockholder........................ (140) (140) (140)
Deferred compensation........................ -- (125) (125)
Accumulated deficit.......................... (11,046) (11,046) (11,046)
-------- -------- --------
Total stockholders' equity................. (4,413) (3,782) 5,128
-------- -------- --------
Total capitalization....................... $ 12,311 $ 12,812 $ 15,822
======== ======== ========
</TABLE>

DIVIDEND POLICY

The Company has never declared or paid cash or other dividends on the Common
Stock and it is currently the intention of the Company not to declare or pay
cash dividends on the shares of Common Stock. The payment of cash dividends in
the future will depend on the Company's earnings, financial condition, capital
needs and other factors deemed relevant by the Board, including statutory
restrictions on the availability of capital for the payment of dividends, the
rights of holders of any series of preferred stock that may hereafter be
issued and the limitations, if any, on the payment of dividends under any
then-existing credit facility or other indebtedness. The Company's Senior
Indebtedness contains, and the Company anticipates that any future credit
facility or other indebtedness that the Company may enter into or incur would
contain, a prohibition against the payment of cash dividends and restrictions
on the payment of non-cash dividends. It is the current intention of the Board
to retain earnings, if any, to finance the operations and expansion of the
Company's business.

15
<PAGE>

DILUTION

The difference between the initial public offering price per share of Common
Stock and the pro forma as adjusted net tangible book value per share of
Common Stock after this Offering constitutes the dilution per share of Common
Stock to investors in this Offering. Net tangible book value per share is
determined by dividing the net tangible book value (total tangible assets less
total liabilities) by the number of outstanding shares of Common Stock.

At June 29, 1996, the Company had a negative pro forma net tangible book
value of $3,816,169, or approximately negative $1.19 per share of Common
Stock. After giving effect to the sale of Common Stock offered hereby
(assuming a price of $7.00 per share less underwriting discounts and estimated
expenses of this Offering), the net tangible book value of the Company would
be $5,093,831, or approximately $1.08 per share. This represents an immediate
increase in net tangible book value of $2.27 per share to the existing
stockholders, and an immediate dilution of approximately $5.92 per share to
investors in this Offering (or approximately 84.6% of the initial public
offering price).

The following table illustrates the per share dilution without giving effect
to results of operations of the Company subsequent to June 29, 1996.

<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $7.00
Pro forma net tangible book value per share before Offering. $(1.19)
Increase in net tangible book value per share attributable
to new investors........................................... 2.27
Net tangible book value per share after Offering.............. 1.08
-----
Dilution to new investors..................................... $5.92
=====
</TABLE>

The following table summarizes the number and percentage of shares of Common
Stock purchased from the Company, the amount and percentage of consideration
paid and the average price per share paid by the existing stockholders and by
new investors pursuant to this Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 3,201,666 68.1% $ 7,529,000 41.8% $2.35
New investors................... 1,500,000 31.9 10,500,000 58.2 $7.00
--------- ----- ----------- -----
Total......................... 4,701,666 100.0% $18,029,000 100.0%
========= ===== =========== =====
</TABLE>

16
<PAGE>

SELECTED FINANCIAL AND OPERATING DATA

The selected financial data presented below, except for the selected
operating data, as of and for the fiscal years ended January 1, 1994,
December 31, 1994 and December 30, 1995 is derived from the audited financial
statements of the Company included herein. The selected financial data for
fiscal years ended December 28, 1991 and January 2, 1993 and the selected
financial data for the six months ended July 1, 1995 and June 29, 1996, except
for the selected operating data, are derived from the unaudited financial
statements of the Company. In the opinion of management, the selected
financial data presented below as of and for the six months ended July 1, 1995
and June 29, 1996 include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for these periods. The six month results are not
necessarily indicative of the results to be expected for the full year. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements of the Company, including the notes thereto, appearing elsewhere
herein.

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL AS ADJUSTED(1)
------------------------------------------------------------------- -------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED YEAR SIX MONTHS
------------------------------------------------ ----------------- ENDED ENDED
DEC. 28, JAN. 2, JAN. 1, DEC. 31, DEC. 30, JULY 1, JUNE 29, DEC. 30, JUNE 29,
1991 1993 1994 1994 1995 1995 1996 1995 1996
-------- -------- -------- -------- -------- ------- -------- -------------- ----------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS AND AVERAGE ORDER SIZE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(2)........... $ 46,552 $ 47,120 $ 33,801 $38,179 $42,568 $22,419 $18,754 $42,568 $18,754
Cost of sales(2)....... 21,699 21,544 13,868 15,648 16,423 8,859 7,003 16,423 7,003
-------- -------- -------- ------- ------- ------- ------- ------- -------
Gross profit(2)........ 24,853 25,576 19,933 22,531 26,145 13,560 11,751 26,145 11,751
Selling, general and
administrative(2)..... 27,487 24,452 16,768 17,772 22,835 11,156 10,591 22,835 10,591
Restructuring charges.. -- -- -- -- 513 513 -- 513 --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............ (2,634) 1,124 3,165 4,759 2,797 1,891 1,160 2,797 1,160
Interest expense, net.. 3,242 3,080 431 661 1,918 958 909 1,343 623
Reorganization items... -- -- 1,038 2,890 -- -- -- -- --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes,
cumulative effect of
change in accounting
principle and
extraordinary item.... (5,876) (1,956) 1,696 1,208 879 933 251 1,454 537
Income taxes........... 21 180 704 498 357 379 102 582 215
-------- -------- -------- ------- ------- ------- ------- ------- -------
Income (loss) before
cumulative effect of
change in accounting
principle and
extraordinary item.... $ (5,897) $ (2,136) $ 992 $ 710 $ 522 $ 554 $ 149 $ 872 $ 322
======== ======== ======== ======= ======= ======= ======= ======= =======
Net income (loss)(3)... $ (5,897) $ (2,136) $ 9,977 $12,789 $ 522 $ 554 $ 149 $ 872 $ 322
-------- -------- -------- ------- ------- ------- ------- ------- -------
Preferred stock
dividends............. -- -- -- 31 292 146 146 -- --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Net income available to
common stockholders... $ (5,897) $ (2,136) $ 9,977 $12,758 $ 230 $ 408 $ 3 $ 872 $ 322
======== ======== ======== ======= ======= ======= ======= ======= =======
EARNINGS (LOSS) PER
COMMON SHARE:(4)
Income (loss) before
cumulative effect of
change in accounting
principle and
extraordinary item.... $ (1.95) $ (0.71) $ 0.33 $ 0.22 $ 0.08 $ 0.14 $ 0.00 $ 0.17 $ 0.06
Net Income (loss)...... $ (1.95) $ (0.71) $ 3.30 $ 4.22 $ 0.08 $ 0.14 $ 0.00 $ 0.17 $ 0.06
OTHER FINANCIAL AND
OPERATING DATA:
Total catalog
circulation(5)........ 17,122 17,562 18,807 22,623 29,245 15,245 12,891
Active customer file... 762 890 941 1,094 1,096 1,254 1,222
Average order size..... $ 56.17 $ 57.98 $ 60.82 $ 60.27 $ 61.05 $ 60.05 $ 62.85
<CAPTION>
PRO FORMA
HISTORICAL AS ADJUSTED(6)
------------------------------------------------------------------- --------------
FISCAL YEAR ENDED SIX MONTHS ENDED SIX MONTHS
------------------------------------------------ ----------------- ENDED
DEC. 28, JAN. 2, JAN. 1, DEC. 31, DEC. 30, JULY 1, JUNE 29, JUNE 29,
1991 1993 1994 1994 1995 1995 1996 1996
-------- -------- -------- -------- -------- ------- -------- --------------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Working capital........ $ (3,480) $ (30) $ 124 $ 2,114 $ 649 $ 2,253 $ (185) $ 6,373
Total assets........... 10,756 6,150 19,142 17,364 18,170 18,755 17,777 21,287
Long-term debt(7)...... 28,461 31,621 30,125 15,180 12,876 14,792 11,813 9,343
Preferred stock........ -- -- -- 2,249 2,249 2,249 2,249 --
Stockholders' equity
(deficit)............. $(28,222) $(30,358) $(20,381) $(4,654) $(4,416) $(4,246) $(4,413) $ 5,128
</TABLE>

17
<PAGE>

- --------
(1) Pro forma as adjusted operations data and earnings per share information
gives effect to: (i) the sale of 1,019,553 shares by the Company in this
Offering at an estimated initial offering price of $7.00 per share less
the Underwriter's discount and other offering expenses; (ii) the
application of the estimated net proceeds therefrom to repay $5.9 million
of Senior Indebtedness; and (iii) the Preferred Conversion (375,000
shares). These transactions, along with the incremental effect of issuing
an additional 75,000 options (17,893 shares) to Steven L. Bock, the
Company's Chairman and Chief Executive Officer, in connection with this
Offering and the weighted average shares outstanding as of June 29, 1996
of 3,577,986, which includes the dilutive effect of the issuance of the
Warrants (265,335 shares) and 582,999 options to Mr. Bock and Stephen M.
O'Hara, the Company's President, calculated under the treasury stock
method described in Accounting Principles Board Opinion No. 15, support
the share figure of 4,990,432 used to calculate pro forma as adjusted
operations data and earnings per share information.
(2) Net sales, cost of sales, gross profit and selling, general and
administrative expenses include for fiscal 1991 and 1992 the results of
certain subsidiaries that were sold as of the end of 1992. For comparative
purposes, excluding the sold subsidiaries the Company's net sales, cost of
sales, gross profit and selling, general and administrative expenses would
be: $30,817,000, $13,608,000, $17,209,000 and $16,607,000, respectively,
in fiscal 1991 and $32,430,000, $14,367,000 $18,063,000 and $15,885,000,
respectively, in fiscal 1992.
(3) Net income reflects, for the fiscal year ended January 1, 1994, a gain of
$8,985,122 from the cumulative effect of change in accounting for income
taxes, and for the fiscal year ended December 31, 1994, a gain from
extraordinary item of $12,078,489, net of income taxes resulting from the
forgiveness of debt upon the Company's emergence from the Bankruptcy. See
the financial statements and the notes thereto.
(4) Earnings per share for each fiscal year of the Company is computed by
dividing net income after preferred dividends for such fiscal year by the
weighted average number of shares of common stock and common stock
equivalents outstanding during such fiscal year. See the financial
statements and the notes thereto.
(5) Reflects the number of customers who are being mailed catalogs at the end
of each period.
(6) The pro forma as adjusted balance sheet information gives effect to the
issuance of the Junior Subordinated Indebtedness, the issuance of the
Warrants, the irrevocable waiver of accrued dividends on the 13% Preferred
Stock, the Preferred Conversion, the grant of options to purchase 75,000
shares of Common Stock at an exercise price of $5.33 per share to Steven
L. Bock, the Company's chairman and chief executive officer, the sale by
the Company of 1,500,000 shares of Common Stock offered hereby at an
estimated initial public offering price of $7.00 per share and the
application of the estimated net proceeds therefrom as described in "Use
of Proceeds." See the financial statements and the notes thereto.
(7) Long-term debt reflects, for fiscal years ended January 2, 1993 and
January 1, 1994, amounts subject to settlement under reorganization
proceeding. See "Reorganization."

18
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated, "1995" means the Company's fiscal year ended
December 30, 1995, "1994" means the Company's fiscal year ended December 31,
1994, "1993" means the Company's fiscal year ended January 1, 1994 and "1992"
means the Company's fiscal year ended January 2, 1993. The discussion and
analysis below should be read in conjunction with the Financial Statements of
the Company and the notes to the financial statements included elsewhere in
this Prospectus. In addition to historical information, the following
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
those anticipated in these forward-looking statements as a result of certain
factors, including those discussed in "Risk Factors" and elsewhere in this
Prospectus.

OVERVIEW

The Company is a direct marketer targeting niche consumer product
categories. SC Direct, its principal operating subsidiary, is the leading U.S.
retailer of women's wigs and hairpieces. SC Publishing, a subsidiary of SC
Direct, sells continuing education courses to nurses, real estate
professionals and CPAs.

In 1995, SC Direct's sales of women's wigs, hairpieces, accessories and hats
represented 87.6% of the Company's net sales. Since 1992, SC Direct's sales
have grown through: (i) the expansion of its core Paula Young wig business;
(ii) the introduction in 1993 of the upscale Christine Jordan wig catalog;
(iii) the introduction in 1994 of the Especially Yours catalog, serving
African-American women; and (iv) the introduction in 1995 of the Paula's
Hatbox catalog. In addition, in 1995 the Company began selling directly to
consumers in Canada.

The balance of the Company's sales come from SC Publishing's catalogs, which
sell continuing education courses to nurses, real estate agents and CPAs. In
July 1995, the Company moved SC Publishing from San Diego, California to the
Company's South Easton, Massachusetts facilities. The Company encountered
difficulties in integrating SC Publishing into its operations in South Easton,
resulting in disruptions to SC Publishing's operations and a reduction in its
1995 operating profitability.

As a direct marketer, an important goal of the Company is to expand the size
and prevent the "aging" of, and maximize sales to, its customer file. To
acquire new customers and prevent the "aging" of its customer file, the
Company must continually expend working capital to maintain its advertising
program and convert the recipients of its catalogs into customers. In
addition, to retain and sell more to existing customers, the Company must
expend working capital for additional catalog mailings to these customers.
Reductions in advertising lead to declines in new customer prospects and,
therefore, new customers. In addition, the Company experiences a time lag
between advertising expenditures to gain new customer prospects and the
receipt of revenues generated by new customers.

As is typical in the catalog industry, the Company's business is affected by
increases in paper, postage, print and other catalog production costs. During
a period of rising postage and paper costs, such as 1995, the catalog industry
faces pressure on operating profits. The Company believes that its niche focus
allows it to target its mailings, thereby reducing its exposure to increases
in paper, postage and other catalog production costs.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995

Net sales decreased $3.6 million, or 16.1%, from $22.4 million for the six
months ended July 1, 1995 to $18.8 million for the six months ended June 29,
1996. This decrease resulted from the Company's decision to conserve working
capital by limiting its advertising expenditures during the second half of
1995 and the first half of 1996 which reduced the number of catalogs mailed to
prospective new customers. Gross sales of wigs and hairpieces to new customers
declined $2.8 million, or 57.1%, from $4.9 million in 1995 to $2.1 million in
1996. Gross sales to new customers represented 9.2% of gross sales in the
first half of 1996 and 18.4% of gross sales in the first half of 1995. Gross
sales of wigs and hairpieces to existing customers declined $600,000, or

19
<PAGE>

3.6%, from $16.8 million in 1995 to $16.2 million in 1996. In addition, gross
sales of continuing education courses declined approximately $600,000, or
19.4%, from $3.1 million in the six months ended July 1, 1995 to $2.5 million
in the six months ended June 29, 1996 due to a decision to mail fewer
catalogs.

Gross margins from the sale of wigs and hairpieces increased from 58.2% in
the six months ended July 1, 1995 to 60.8% in the six months ended June 29,
1996 primarily due to lower product costs resulting from the continued
expansion of direct purchasing from overseas manufacturers. In the six months
ended June 29, 1996, the Company purchased 55.1% of its wigs directly from
manufacturers compared to 30.7% in the six months ended July 1, 1995. Gross
margin for continuing education courses increased slightly from 75.0% in the
six months ended July 1, 1995 to 75.4% in the six months ended June 29, 1996.

Selling, general and administrative ("SG&A") expenses declined $600,000, or
5.4%, from $11.2 million in the six months ended July 1, 1995 to $10.6 million
in the six months ended June 29, 1996. In the six months ended June 29, 1996,
the Company mailed fewer catalogs because of increases in paper prices and
postage rates, decreased advertising expenditures to conserve working capital
and employed additional senior managers. Total catalogs mailed decreased by
2.3 million, or 15.1%, from 15.2 million in 1995 to 12.9 million in 1996.
Total postage costs decreased $600,000, or 19.4%, from $3.1 million in the
first six months of 1995 to $2.5 million in the first six months of 1996.
Despite the reduction in the number of catalogs mailed, total catalog
production costs increased by $100,000, or 3.6%, from $2.8 million in 1995 to
$2.9 million in 1996, because of the increased paper prices. Advertising
expenditures decreased by $400,000, and general office overhead increased by
$300,000.

Deferred catalog costs increased $400,000, or 19.1%, from $2.1 million in
the six months ended July 1, 1995 to $2.5 million in the six months ended June
29, 1996. This increase was caused by an increase in the amount of production
costs being amortized, offset by a reduction in catalogs mailed and a
reduction in the prepayment of costs for catalogs not yet mailed.

Net interest expense declined $49,000, or 5.1%, from $958,000 in the six
months ended July 1, 1995 to $909,000 in the six months ended June 29, 1996,
reflecting lower interest rates and lower principal amounts outstanding on the
Senior Indebtedness.

1995 COMPARED TO 1994

Net sales increased $4.4 million, or 11.5%, from $38.2 million in 1994 to
$42.6 million in 1995. This increase is attributable to (i) an increase in
gross sales of wigs and hairpieces of $1.9 million, or 5.8%, from $32.6
million in 1994 to $34.5 million in 1995; (ii) an increase in gross sales of
wigs, hairpieces and hats through new catalogs of $1.3 million, or 162.5%,
from $800,000 in 1994 to $2.1 million in 1995; (iii) $1.1 million of gross
sales of wigs and hairpieces marking the commencement of direct sales by the
Company into Canada; and (iv) an increase in gross sales of continuing
education courses of $1.3 million, or 32.5%, from $4.0 million in 1994 to $5.3
million in 1995. In addition, a reduction in the rate of returned merchandise
accounted for $800,000 of the increase in net sales. Gross sales of wigs and
hairpieces to new customers declined $2.6 million, or 26.3%, from $9.9 million
in 1994 to $7.3 million in 1995. Gross sales of wigs and hairpieces to new
customers represented 21.3% of gross sales in 1994 and 14.5% of gross sales in
1995. This decline was caused by a decline in advertising during the last half
of 1995 which resulted in the mailing of 221,000 fewer inquiry catalogs in
1995 and lower response rates to the inquiry series.

Gross margin from the sale of wigs and hairpieces increased from 56.9% in
1994 to 59.6% in 1995 due to an increase in the direct purchasing of wigs from
overseas manufacturers. Gross margin from the sale of continuing education
courses decreased as a percentage of sales from 76.6% in 1994 to 74.1% in 1995
reflecting an increase in costs due to purchasing smaller quantities to fill
back orders and an increase in author fees.

Inventories increased by $900,000, or 21.4%, from $4.2 million at the end of
1994 to $5.1 million at the end of 1995. While this rate of increase was
higher than the rate at which sales increased in 1995, it was caused

20
<PAGE>

by a $968,000 shortfall from budgeted sales in the fourth quarter of 1995.
Inventory levels were reduced by $1,000,000, or 19.6%, through the normal
course of business in the first six months of 1996, from $5.1 million at the
end of December 1995 to $4.1 million at the end of June 1996. The Company
disposes of closeout inventory through a special mailing program to customers.

SG&A expenses increased by $5.0 million, or 28.1%, from $17.8 million in
1994 to $22.8 million in 1995. SG&A as a percentage of sales increased from
46.6% in 1994 to 53.6% in 1995, primarily as a result of sharp increases in
paper, postage and media costs. Total catalogs mailed increased by 6.6
million, or 29.2%, from 22.6 million in 1994 to 29.2 million in 1995. Due to a
14.3% postal rate increase at the beginning of 1995, total postage costs
increased $1.7 million, or 39.5%, from $4.3 million in 1994 to $6.0 million in
1995. Total catalog production costs increased by $2.3 million, or 56.1%, from
$4.1 million in 1994 to $6.4 million in 1995. Catalog production costs were
adversely affected by continuous increases in the cost of paper during 1995
that ranged from 19% to 45% depending on paper grade. In December 1995 paper
prices were 45% to 55% higher than in September 1994.

Deferred catalog costs increased by $600,000 or 35.3%, from $1.7 million in
1994 to $2.3 million in 1995. An increase in prepaid costs for catalogs not
yet mailed caused $400,000 of the increase. The remaining $200,000 of the
increase is attributable to changes in amortization schedules that more
accurately match catalog costs with associated catalog revenue streams in
accordance with the adoption of 93-7, "Reporting on Advertising Costs."

Media costs were affected by a 55.5% increase in the cost of free standing
inserts from $3.64 per thousand inserts in 1994 to $5.66 per thousand in 1995.
As a result of this rate increase and the continuing need to conserve working
capital, the Company reduced its total spending on this medium from $695,000
in 1994 to $425,000 in 1995, a 38.9% reduction.

Net interest expense increased from $661,000 in 1994 to $1.9 million in
1995, reflecting a full year of debt servicing costs on the Senior and
Subordinated Indebtedness incurred as part of the Company's reorganization in
November 1994.

1994 COMPARED TO 1993

Net sales increased $4.4 million, or 13.0%, from $33.8 million in 1993 to
$38.2 million in 1994. This increase was driven by an increase in gross sales
of wigs and hairpieces to existing customers of $3.6 million, or 12.4%, from
$29.0 million in 1993 to $32.6 million in 1994. Gross sales of wigs and
hairpieces to new customers in 1994 increased by $3.4 million, or 52.3%, from
$6.5 million in 1993 to $9.9 million in 1994 due to an increase in
advertising. Gross sales to new customers in 1994 were 21.3% of total gross
sales in 1994 in 1994 and 16.3% of total gross sales in 1993. Gross sales of
continuing education courses declined $500,000, or 11.1%, from $4.5 million in
1993 to $4.0 million in 1994.

The Company's gross margin remained relatively constant at 59.0% in 1993 and
59.0% in 1994, although gross profit increased $2.6 million as a result of the
increase in sales. Gross margin from the sale of wigs and hairpieces increased
from 56.1% in 1993 to 56.9% in 1994 reflecting the continuation of the direct
import program. Gross margin from the sale of continuing education courses
declined from 77.6% in 1993 to 76.6% in 1994 as sales of continuing education
courses for nurses, which have lower gross margins, increased to 53% of sales
in 1994 from 50% in 1993, and sales of courses for real estate agents, which
have higher gross margins, declined from 23% of sales in 1993 to 21% in 1994.
In addition, the Company lowered prices in the real estate catalogs to compete
with lower priced competitors.

SG&A expenses increased $1.0 million, or 6.0%, from $16.8 million in 1993 to
$17.8 million in 1994. SG&A as a percentage of sales declined from 49.6% in
1993 to 46.5% in 1994. Total catalogs mailed increased

21
<PAGE>

by 3.8 million, or 20.2%, from 18.8 million in 1993 to 22.6 million in 1994.
Total postage costs increased $500,000, or 13.2%, from $3.8 million in 1993 to
$4.3 million in 1994. Total catalog production costs increased by $300,000, or
7.9%, from $3.8 million in 1993 to $4.1 million in 1994.

Deferred catalog costs increased by $200,000, or 13.0%, from $1.5 million in
1993 to $1.7 million in 1994. This increase was caused by an increase in the
number of catalogs being amortized and an increase in photography costs and
costs associated with the start-up of the Company's hat catalog.

Media costs were affected by a 35.7% decrease in the costs of free standing
inserts from $5.66 per thousand in 1993 to $3.64 per thousand in 1994.
Although the Company benefitted from this decrease in media rates, on a cost
per thousand basis, a need to conserve working capital caused the Company to
decrease its total spending on this medium from $1,003,000 in 1993 to $695,000
in 1994, a 30.7% decrease.

Net interest expense increased $230,000, or 53.4%, from $431,000 in 1993 to
$661,000 in 1994 as a result of the interest expense incurred during the last
six weeks of 1994 on the Senior Indebtedness and Subordinated Indebtedness
incurred to finance the Company's Plan of Reorganization.

Reorganization expense increased from $1.0 million in 1993 to $2.9 million
in 1994, reflecting the use of additional legal, accounting and other
professional services needed to emerge from the Bankruptcy and an additional
compensation expense of $533,000. An extraordinary gain of $12.1 million was
recognized in 1994, reflecting the forgiveness of debt upon the execution of
the Plan of Reorganization on November 23, 1994.

1993 COMPARED TO 1992

Net sales in 1992 included $14.7 million of sales from two subsidiaries that
were sold as of the end of 1992. Excluding those sales, net sales for 1992
were $32.4 million. Net sales in 1993 increased $1.4 million, or 4.3%, from
$32.4 million in 1992 to $33.8 million in 1993. Gross sales of wigs and
hairpieces increased $2.7 million, or 10.3%, from $26.3 million in 1992 to
$29.0 million in 1993. Gross sales of wigs and hairpieces to new customers
decreased $400,000, or 5.8%, from $6.9 million in 1992 to $6.5 million in
1993. Gross sales of continuing education courses increased $200,000, or 4.7%,
from $4.3 million in 1992 to $4.5 million in 1993.

Gross margin increased from 55.7% in 1992 to 59.0% in 1993 as a result of
the start of SC Direct's direct purchasing program, together with a
significant shift to lower cost importers for a substantial portion of its wig
purchases. Gross margins from the sale of continuing education courses
declined slightly as lower margin sales to CPAs increased as a percentage of
total sales of continuing education courses.

SG&A expenses increased $900,000, or 5.7%, from $15.9 million in 1992 to
$16.8 million in 1993. Included in 1992 SG&A expenses were approximately
$600,000 of non-recurring expenses relating to the sale of two subsidiaries as
of the end of 1992. Excluding the $600,000, SG&A expense increased $1.5
million, or 9.8%, from $15.3 million in 1992 to $16.8 million in 1993.
Advertising expenditures increased by $1.1 million from $2.4 million in 1992
to $3.5 million in 1993. Total catalogs mailed increased by 1.2 million, or
6.8%, from 17.6 million in 1992 to 18.8 million in 1993. Total postage costs
increased by $100,000, or 2.7%, from $3.7 million in 1992 to $3.8 million in
1993. Total catalog production costs increased by $300,000, or 8.6%, from $3.5
million in 1992 to $3.8 million in 1993.

Deferred catalog costs remained constant at $1.5 million at the end of
fiscal 1993 and fiscal 1992.

Net interest expense decreased by $2.7 million, or 87.1%, from $3.1 million
in 1992 to $431,000 in 1993 as a result of no interest being accrued on $26.3
million of pre-bankruptcy debt during 1993.

LIQUIDITY AND CAPITAL RESOURCES

The Company expends significant amounts of working capital for advertising,
inventory and catalog production costs in advance of the revenues generated by
these items. The Company has met its working capital needs primarily through
funds generated from operations and short-term bank financing. Because of the
need to amortize the Senior Indebtedness, there have been limited funds
available to expand the business.

Cash flow provided by operating activities fluctuated during the past three
fiscal years as business conditions changed. In 1993 the Company generated
$615,000 from operating activities, in 1994 the Company used $1.2

22
<PAGE>

million in operating activities and in 1995 the Company generated $1 million
from operating activities. In 1993 and 1994, while the Company was in
bankruptcy, cash was used to provide working capital for inventory,
advertising and catalog expenses. In addition, the Company accrued bankruptcy
related expenses during 1993 and 1994 which were paid at the end of 1994 along
with pre-petition obligations. In 1995 the Company increased its accounts
payable to normal levels. In the first six months of 1996 cash flow from
operating activities increased by $1.2 million from the first six months of
1995 primarily as a result of a $983,000 reduction in inventory.

The Company's Senior Indebtedness consists of a $16.0 million credit
facility ($14.0 million term loan and $2.0 million revolving credit line), of
which an aggregate of $11.9 million was outstanding on June 29, 1996. The term
loan portion of the Senior Indebtedness is payable in installments, with the
final installment due on May 22, 1999, and bears interest at 3.5% above
certain LIBOR rates or, at the Company's option, at 2% over the prime rate.
The revolving portion is due on the maturity of the term loan and bears
interest at 2% over the prime rate. $5.9 million of the proceeds of this
Offering are being used to repay the Senior Indebtedness, including
(i) $1.5 million to pay down the outstanding amount under the revolving credit
portion of the Senior Indebtedness; (ii) $1.8 million of the Senior
Indebtedness which is due within one year of the date hereof; and (iii) $2.6
million of the Senior Indebtedness which is due more than one year following
the date hereof. The Company will be able to reborrow under the revolving
credit line following this Offering.

In addition to principal and interest due under the Senior Indebtedness, the
Company is obligated to pay the Additional Fee to BNP in the event of any
future default, prepayment or change in control, or upon the final principal
payment in May 1999. The Additional Fee is currently $625,000 and will rise to
$1.0 million over the term of the Senior Indebtedness. On August 14, 1996, the
Company entered into a Second Amendment, Waiver and Consent ("Second
Amendment") with BNP. Pursuant to the Second Amendment, BNP consented to this
Offering and the use of proceeds of this Offering, agreed to amend certain
financial covenants and agreed to waive the Additional Fee provided that BNP's
Senior Indebtedness is repaid in full on or prior to March 31, 1997. See "Use
of Proceeds" and Note 5 to the financial statements.

Pursuant to the Plan of Reorganization, certain of the Company's current
stockholders purchased $3.6 million of subordinated indebtedness earning 11.5%
interest per annum, payable semi-annually on June 1 and December 1
("Subordinated Indebtedness"). The Company may, at its option through November
22, 1999, and, under certain conditions, through November 22, 2002, pay
interest on the Subordinated Indebtedness with additional notes containing
identical terms and conditions as the Subordinated Indebtedness. The principal
of the Subordinated Indebtedness is due December 1, 2002, subject to a
subordination agreement with BNP. As of June 29, 1996, approximately $4.4
million, including accrued interest, was outstanding under the Senior
Indebtedness.

The Company has high amortization payments under the Senior Indebtedness.
The Company had little cash on hand at the end of any year, except 1993 when
it was in bankruptcy. Cash generated from operations plus $1.5 million of
borrowings under the revolving credit line have been used for working capital
and to pay principal and interest on the Senior Indebtedness. The term loan
portion of the Senior Indebtedness has been reduced from the original $14.0
million outstanding when the loan was obtained in November 1994 to $10.4
million at the end of June 1996. Capital expenditures average under $400,000
per year.

Due to its working capital constraints, on June 1, 1996 the Company entered
into an agreement with a director, Martin Franklin, and two associates of Mr.
Franklin, pursuant to which Mr. Franklin and such associates loaned $495,000
to the Company. This loan was made on August 9, 1996, bears interest at 11.5%,
and is due August 9, 1999, provided that this loan will not be repaid prior to
the repayment of the Subordinated Indebtedness. In addition, in connection
with such loan, Mr. Franklin and his associates purchased for $5,000 a warrant
to acquire an aggregate of 265,335 shares of the Company's Common Stock at an
aggregate exercise price of $500,000. See "Certain Transactions" and Note 13
to the financial statements.

The Company anticipates that following this Offering and the application of
the proceeds to repay a portion of the Senior Indebtedness, there will be
approximately $5.4 million of Senior Indebtedness outstanding. The Company
plans to refinance the remaining Senior Indebtedness and the Subordinated
Indebtedness after this

23
<PAGE>

Offering. The Company believes that partial repayment of the Senior
Indebtedness will lower its debt servicing cost, and that this, together with
the remaining net proceeds of this Offering, will enable the Company to expand
its business. Should the Company be unable to secure a lender to refinance
both the Senior and Subordinated Indebtedness, the Company will attempt to
refinance only the Senior Indebtedness. The Company anticipates, based on
current plans and assumptions relating to its operations, that the proceeds of
this Offering, together with existing resources and cash generated from
operations, should be sufficient to satisfy the Company's anticipated cash
requirements for at least 12 months after completion of this Offering. After
that time, the Company believes that income from operations should satisfy the
Company's working capital needs; however, there can be no assurance that this
will be the case.

The Company currently has recorded a deferred tax asset reflecting the
benefit of approximately $18 million of NOLs available for federal and state
income tax purposes, which expire from 2005 through 2010. The Company believes
that this Offering will result in an "ownership change" under Section 382 of
the Code and, as a result, the Company's ability to use its "pre-change" NOLs
will be limited to between $1.5 million and $2.0 million in each fiscal year
following this Offering. Realization of the NOLs is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards. There
can be no assurance that the Company will be able to use the NOLs.

The Company believes that it is more likely than not that the deferred tax
asset will be realized. This belief is based on the Company's ability to
generate income before taxes of $878,837, $1,208,278, and $1,696,288 for the
years ended December 30, 1995, December 31, 1994 and January 1, 1994,
respectively. During this period, the deferred tax asset has been reduced by
$2,205,766, or approximately 24%, from $8,985,122 at January 1993 to
$6,779,356 at December 30, 1995. Prior to 1993, the Company recorded
significant operating losses. These losses were primarily due to poor
operating performances of two of the Company's four subsidiaries during that
period and the significant debt service during that period. The Company
disposed of the two poor performing subsidiaries in January 1993 and reduced
its debt service as part of the Plan of Reorganization. Aggregate net losses
for the two subsidiaries for 1992 and 1991, respectively, including a loss of
$671,396 on disposal in 1992, were $1,766,473 and $4,208,847. The Company's
remaining two subsidiaries have a history of operating profits. Although these
profits decreased in 1995, the decrease in profitability was experienced
throughout the direct mail catalog industry due to the increase in both paper
and postage rates in that year. The Company has enacted certain policies in
order to reduce operating expenses and increase profitability in response to
the increase in paper and postage expenses and believes that it will be able
to attain its past levels of profitability in the near future. The Company
does not expect any significant differences between book and tax income and
therefore the Company believes that its book income closely approximates its
actual taxable income against which the NOLs can be applied.

SEASONALITY AND INFLATION

The Company's sales have been generally non-seasonal. The need-based profile
of the Company's wig and continuing education customers serves to minimize
seasonality, as opposed to the traditional seasonality of want-based
consumption.

The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operating
results.

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BUSINESS

GENERAL

The Company is a direct marketer targeting niche consumer product
categories. SC Direct, its principal operating subsidiary, is the leading U.S.
retailer of women's wigs and hairpieces. SC Publishing, a subsidiary of SC
Direct, sells continuing education courses to nurses, real estate
professionals and CPAs.

SC Direct sells wigs and hairpieces primarily to women over the age of 50,
using three distinct catalogs: Paula Young, Christine Jordan and Especially
Yours. In 1995, SC Direct mailed 20.9 million catalogs, generating net sales
of $37.3 million. SC Direct has developed a proprietary data base consisting
of approximately 5.6 million persons, including more than 875,000 active
customers and more than one million persons who have requested catalogs in the
past year but who have not made a purchase. Due to the fact that wig wearers
are difficult to find, the Company believes that its wig database is unique
and would be very expensive to replicate. The Company believes that this poses
a substantial barrier to entry for any potential competitor.

SC Direct's target market, women over age 50, is projected by the U.S.
Census Bureau to grow from 38.7 million women, or 38% of the total female
population in 1995, to 51.5 million women, or 45% of the total female
population in 2010. This growth is driven primarily by aging "baby-boomers."
The Company believes that only approximately five million, or 25%, of the 20
million American women with thinning hair currently wear wigs, and that,
accordingly, there is substantial opportunity for future growth of SC Direct's
business.

In 1995, SC Direct launched its Paula's Hatbox catalog, through which it
sells a variety of fashion hats to women. The Company believes that the market
for fashion hats has niche characteristics similar to those of the wig market.
In addition, SC Direct intends to begin test marketing men's wigs in the Paula
Young catalog in early 1997.

SC Publishing offers nurses, real estate agents and CPAs home study
continuing education through the Western Schools catalogs. SC Publishing's
strategy is to build its business by offering additional products and programs
to its core customers and by expanding into new and related professional
fields. In 1995, SC Publishing mailed 8.3 million catalogs, generating net
sales of $5.3 million.

The Company intends to build its business in existing niche markets and
enter new niche markets both by internal expansion and through acquisitions.
Niche markets are characterized by smaller market size, unique or hard to find
products, or hard to locate customers. In executing its plans, the Company
will seek to do the following:

. REFINE MARKETING PROGRAMS. The Company continually seeks to refine its
marketing programs, including the two-step marketing program which it
utilizes to identify hard to locate customers in niche markets. The
Company constantly seeks to develop new and improved marketing
techniques to increase catalog requests, convert catalog requests into
orders and increase sales to existing customers.

. OFFER BROAD PRODUCT SELECTION AT ATTRACTIVE PRICING. The Company
believes that it differentiates itself from both traditional store-front
retailers and other direct marketers by offering a broad and deep
selection of the products it offers. By virtue of its large order volume
and direct purchasing from wig manufacturers, the Company is able to
offer wigs at prices lower than most hair salons and wig shops.

. MAINTAIN CLOSE SUPPLIER RELATIONSHIPS. The Company maintains close
relationships with many of the leading wig manufacturers. Through these
relationships, the Company is able to obtain better control over
purchasing, styles, quality and cost.

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. CONTINUE TO PROVIDE SUPERIOR CUSTOMER SERVICE. By emphasizing the
training of marketing representatives, the Company seeks to maintain
high levels of customer satisfaction. The Company seeks to provide
prompt, courteous and knowledgeable service to its customers in order to
build customer loyalty and demonstrate to the customer the convenience
of catalog shopping.

. ACHIEVE ECONOMIES OF SCALE AND EFFICIENCIES. The Company believes that,
if it is able to achieve its growth objectives, it will be able to
reduce its fixed and other costs as a percentage of sales.

. DEVELOP NEW PRODUCTS AND ENTER NEW MARKETS. The Company intends to add
new product lines through new or expanded catalogs. To that end, the
Company carefully monitors the wig, hat and continuing education markets
to identify unfulfilled consumer demand. By developing and offering new
products to meet that demand, the Company creates additional sales
opportunities and reinforces customer loyalty to the Company's catalogs.
The Company is seeking to add complementary products to its existing
product lines that would appeal to its current customer base. The
Company is also looking for new markets to enter, either through
internal development or acquisitions.

WIGS

INDUSTRY AND MARKET

Based on U.S. Census Bureau import data, approximately five million wigs are
sold annually in the United States. The wig market is comprised of fashion wig
wearers and need-based wig wearers. Need-based wig wearers purchase wigs as an
everyday necessity due to a physical problem such as naturally thinning hair
or total hair loss, as well as temporary hair loss due to medical procedures
and conditions (i.e., cancer treatments). Many everyday wig wearers prefer to
replace their wigs every three to four months, and have a wig "wardrobe,"
consisting of several wigs of different styles and colors.

In the 1960s, wigs and related products were broadly viewed as a fashion
accessory, but as styles changed the fashion-driven demand for wigs decreased.
Due to this trend, during the 1970s and 1980s the number of specialty wig
boutiques declined and department stores reduced their selling space and
inventories of wigs. The Company recognized that a base of dedicated, need-
based wig customers existed which was no longer being adequately serviced by
the remaining retail alternatives. Therefore, the Company launched its catalog
business to service this market.

The retail wig market is serviced by direct mail catalogers and retail
markets, including beauty salons, department stores and wig shops. The Company
estimates that catalog retailers represent 40% of the current market and offer
the benefits of privacy, convenience, lower prices and broad product
selection. Retail stores provide customers with more personalized service and
allow customers to try on the product, however, they charge higher prices and
offer less convenience, privacy and selection than catalog retailers.

The Company believes it has advantages over its two principal mail order
competitors, General Wig Company (a subsidiary of Revlon, Inc.), which markets
wigs through the Beauty Trends catalog, and Vincent James Company, which
markets wigs through the TWC Catalog. The Company believes that these
advantages include economies of scale, the size of its customer list, and the
extent of its advertising program. The Company estimates that all other wig
catalog retailers represent less than 5% of the market.

The African-American wig market, unlike the Caucasian market, has yet to
undergo the transition to direct marketing from retail outlets. Currently,
only about 5% of African-American wigs are sold through catalogs, with the
balance sold in beauty salons, department stores and wig shops. As a result,
there are no significant catalog competitors. The Company is aware of only
three other mail order catalogs targeting the African-American market--Black
is Beautiful, Naomi Simms and Gold Medal.

Millions of American women suffer varying degrees of hair loss. These women
comprise a significant percentage of the Company's customer base for its wigs
and hairpieces. Ongoing research is conducted by

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numerous groups, both public and private, seeking remedies for hair loss. One
drug, Minoxidil (primarily marketed under the name Rogaine(R)) is available
over-the-counter and is sold to men and women as a measure against hair loss.
There can be no assurance that a new drug will not be developed that could
prevent hair loss among women. Such an event could have a material adverse
effect on the Company's core wig business. In addition, any new cancer
therapies that would eliminate hair loss as a side effect of treatment could
have a material adverse effect on the Company's business.

PRODUCTS

The Company sells a full range of wigs and hairpieces in five separate
product lines. Hairpieces include wiglets and add-ons or extensions. Wiglets
are small wigs generally worn on the top of the head to add style or cover
thinning hair on the top or crown area. Add-ons or extensions are usually
added for style reasons, generally to the back of the head. The Company offers
about 45 different wig styles per catalog in more than 25 colors, including
browns, blondes, grays and reds. Most wigs are available in one or two sizes,
except for wigs in the Christine Jordan line which offers all styles in five
sizes.

All of the Company's wigs, as well as the majority of all wigs sold in the
U.S., are manufactured in small, privately-owned factories in Korea, Indonesia
and China that manufacture to the specifications and designs of their
customers. The Company believes that there is adequate supply to meet the
demand, and the Company is not solely dependent on any one manufacturer for
its wig supply. All wigs and hairpieces sold by the Company are made of
synthetic fibers. The wig market is dominated by synthetic fiber wigs.
Synthetic fiber has several advantages over human hair, including lower cost,
permanent styling, truer colors and cleanliness.

The Company expects that most of its wig merchandise will continue to be
manufactured in Asia in the future. Accordingly, the Company's operations are
subject to the customary risks of doing business abroad, including
fluctuations in the value of currencies, export duties, quotas, work stoppages
and, in certain parts of the world, political instability and possible
governmental intervention. Since the Company pays for its wigs in U.S.
dollars, the cost of wigs may be adversely affected by an increase in the
relative value of the relevant foreign currencies against the U.S. dollar.
Although to date such risks have not had a significant effect on the Company's
business operations, no assurance can be given that such risks will not have a
material adverse effect on the Company's business operations in the future.

Wigs are manufactured using a special modacrylic fiber, the market for which
is dominated by two Japanese firms, Kaneka Corporation and Toyo Chemical
Corporation. Modacrylic fiber is not a proprietary material, and other
manufacturers in the past have produced this material. Although the Company
believes that in the event of a disruption in the supply of fiber, alternative
sources could be found, such a transition to new fiber suppliers could
interrupt or delay wig production schedules, potentially causing a material
adverse effect on the Company's business.

The manufacture of a wig begins with the blending of the fibers for color
and the cutting of the fiber to proper length. The fibers are then sewn to a
cotton or lace wefting, after which the predetermined curl pattern is baked
in. The wefting is then sewn together into the final pattern and styled.

During the first half of 1996, the Company purchased approximately 55% of
its wigs and hairpieces directly from foreign manufacturers and the balance
from four U.S. importers. Each of the Company's five largest manufacturers
represented between 8% and 25% of its overall wig purchases in the first half
of 1996. The Company is increasing the percentage of wigs purchased directly
from manufacturers because direct purchasing permits better control over
price, quality and style. By 1998, the Company plans to purchase 80% to 90% of
its wigs directly from the manufacturers.

The Company also sells wig accessories, including brushes and stylers,
styrofoam head forms and stands, rainhoods, wig liners, shampoos and styling
products, generally at prices below $10.

MARKETING

The Company markets its products through catalogs, generally by way of a
two-step marketing program. Step one involves obtaining prospective customers
by soliciting customer interest through targeted advertising.

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The Company uses a variety of advertising media, including magazines,
newspaper tabloids, co-op mailers, package insert programs and television. The
Company places advertising based on demographics, cost and historical
experience. Historical experience is measured by cost per inquiry, cost per
customer and lifetime value of a customer and, based on this information, the
Company determines which media are effective and where future marketing
dollars should be spent.

Step two, which commences when a prospective customer responds favorably to
an advertisement placed by the Company, involves sending the prospective
customer a series of catalogs designed to elicit an initial sale. By pre-
qualifying prospects in this manner, SC Direct has been able to convert 15% to
20% of inquirers into customers within one year of catalog request. If a sale
is made, the customer is put on an active list and additional catalogs
designed to create a repeat buyer are mailed. Inactive inquiries and customers
are periodically sent a program of targeted mailings designed to reactivate
customer interest.

The Company believes that in niche markets its two-step marketing program
has several advantages over the more traditional one-step marketing approach
which entails mailing unsolicited catalogs to rented names. Since catalogs are
sent only to persons who have shown an interest in the Company's products, the
Company experiences higher conversion rates and fewer catalogs need to be
printed and mailed, which leads to savings in paper, postage and other catalog
production costs.

The Company continually refines its marketing programs and processes for the
purpose of increasing its conversion rate and satisfying its existing
customers. The Company employs a variety of research methods, including
demographic analysis, customer surveys, test mailings and advertising, focus
groups and outside research sources. The Company's research efforts have
assisted the Company in pursuing its strategic goals by identifying new niche
markets, such as hats and wigs and hairpieces for African-American women.

BRANDS

The Company markets through three distinct wig catalogs: Paula Young,
Christine Jordan and Especially Yours. Each catalog includes detailed product
descriptions and specifications, full color photographs and pricing
information. Each of these catalogs is published several times a year, and
often, different variations of each catalog are distributed. Each catalog
focuses on its namesake brand, as well as other selections of the Company's
brands. The Company markets the following brands through its catalogs:

Paula Young is the Company's flagship line, is designed to have the broadest
appeal and is available in all three catalogs. Paula Young wigs are value
priced from $29 to $59 and have a "shake and wear" styling with quality
construction. Gross sales of Paula Young brand wigs were $21.8 million in
1995, or 51% of the Company's wig sales.

Celebrity Secrets(R) is geared toward a more sophisticated customer.
Celebrity Secrets has more contemporary styling and unique features, such as a
monofilament "partial scalp" permitting a natural looking hair part. These
wigs command slightly higher prices ranging from $49 to $69 and are available
in all three catalogs. Gross sales of Celebrity Secrets brand wigs were $3.8
million in 1995, or 9% of the Company's wig sales.

Christine Jordan is the Company's premium brand and consists of the
Company's highest quality wigs ranging in price from $69 to $99. Christine
Jordan wigs have a unique fiber blend and come in their own distinctive
colors. In addition, the wigs have comfort construction with a natural
hairline and it is the only brand in the industry to carry five sizes in all
styles. This wig line is featured in its own separate catalog as well as the
Paula Young and Especially Yours catalogs. Gross sales of Christine Jordan
brand wigs were $9.2 million in 1995, or 21% of the Company's wig sales.

Especially Yours offers styles specially designed for African-American women
and offers a variety of features, including natural hairline crimping and
fiber texture, to reflect the natural hair of African-Americans.

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Especially Yours is featured in its own separate catalog with prices ranging
from $29 to $69 and is also being tested in selected Paula Young catalogs.
Gross sales of Especially Yours wigs were $600,000 in 1995, or 1% of the
Company's wig sales.

Touch of Class features only hairpieces, including wiglets, add-ons and
extensions. Touch of Class products are sold primarily in the Paula Young
catalog. Gross sales of Touch of Class brand hairpieces were $3.6 million in
1995, or 8% of the Company's wig sales.

In addition to its own five proprietary brands, the Company also markets Eva
Gabor(R) wigs, a brand comparable in quality to Paula Young and Celebrity
Secrets, but which is owned by Eva Gabor International. Eva Gabor wigs
comprised 10% of the Company's 1995 wig sales. There is no licensing or
marketing agreement between the Company and Eva Gabor International.

NEW OPPORTUNITIES

African-American Market. Although African-American women comprise
approximately 13% of the U.S. female population, they purchase approximately
50% of the wigs sold. The Company estimates that sales to the African-American
wig market approximate $125 million annually. African-American women wear
hairpieces for fashion reasons and are more likely to begin wearing wigs and
hairpieces at a younger age than Caucasian women. The Company's newest wig
catalog, Especially Yours, targets this market and is already the largest
African-American wig catalog. The Company plans to market actively to African-
American women.

International Expansion. The Company seeks to leverage its marketing and
product knowledge, infrastructure and procurement ability to expand
internationally. The Company estimates that the international market is at
least as large as the U.S. market. In the United Kingdom and New Zealand, the
Company has entered into license agreements which grant each licensee
exclusive rights to use the Company's trademarks to sell wigs in the
licensee's territory. The licensee uses the Company's inventory and
fulfillment services, for which the Company is reimbursed, and also receives
marketing advice and catalog development assistance. Pursuant to the license
agreements, the licensees are required to pay royalties on their net sales,
including a minimum guaranteed annual royalty, and expend a specified minimum
amount of advertising expenditures each year.

The U.K. licensee will conduct a test introduction of hats in late 1996 and
plans to enter the Netherlands market with wigs in early 1997. The Company has
targeted Europe, Japan, Scandinavia, Australia, Israel and South Africa as
potential expansion areas. In 1995, the Company purchased its Canadian
licensee's customer list and began to market directly to Canadian consumers.
The Company's Canadian gross sales totaled $1,100,000 in 1995. There can be no
assurance that the Company will be able to achieve international success with
its products.

Business to Business. The Company launched a pilot program in 1995 to sell
wigs to beauty salons. The program permits participating salons to offer their
customers a broad selection of styles while keeping a limited inventory of
wigs in the store.

Men's Wigs. Utilizing its two-step marketing program, the Company intends to
begin test marketing men's wigs in the Paula Young catalog in early 1997.

HATS

In 1995, as part of its overall expansion strategy, the Company launched the
Paula's Hatbox catalog. The Company believed that the fashion hat market, like
the wig market, was not well served by existing retail chains of distribution,
with no major competitor offering a broad selection of quality hats. The
Company's research suggested that the marketing skills needed to capture this
niche market were similar to those the Company used in the wig market.

The women's fashion hat market is fragmented among department stores, small
boutiques, resort stores and other general merchants and catalog retailers who
offer a limited number of styles as a complement to their

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<PAGE>

principal product lines. Although the women's fashion hat market is estimated
to be a $700 million market, no dominant hat retailer has emerged.

The Company sells a variety of hats in more than 125 styles and colors,
ranging in style and price from simple baseball caps or sun visors for under
$20 to designer hats for more than $200. Paula's Hatbox also includes hat pins
and accessories, including costume jewelry, sunglasses, scarves, belts and
handbags.

The majority of the Company's hats are manufactured domestically and
purchased from domestic vendors often from top designers. Currently, with the
exception of hat boxes, the Company does not purchase hats and related
products directly from manufacturers. As sales of hats expand, the Company
expects to improve profit margins through improved sourcing.

The Company is using the two step marketing approach developed in its wig
business to sell hats. In addition, the Company is testing new one step
marketing techniques and selling hats through its Especially Yours catalog. In
1995, Paula's Hatbox represented less than 1% of the Company's sales. Although
the Company believes that the hat market presents a significant opportunity
for growth, there can be no assurance that the Company's efforts to expand its
hat business will be successful or profitable.

CONTINUING EDUCATION

SC Publishing distributes catalogs under the name of Western Schools and
specializes in providing continuing education ("CE") to nurses, real estate
brokers and salespersons, and CPAs. SC Publishing represents a relatively
small proportion of the Company's overall revenue, with net sales in 1995 of
$5.3 million, or approximately 12% of the Company's overall net sales. SC
Publishing's predecessor was organized in 1978 in California to provide real
estate continuing education courses.

Required CE frequency and the number of required hours varies from
profession to profession and from state to state depending on state laws and
association regulations. The CE industry has many small providers, including
local universities, but few large providers. In addition, some hospitals and
CPA firms educate their own employees through in-house programs and by
subsidizing outside programs. Because CE is a required product, people may not
be enthusiastic buyers. Accordingly, SC Publishing competes aggressively on
price, course content and selection, and customer service.

Nursing represented more than half of SC Publishing's continuing education
sales in 1995. Twenty-one states currently require nurses to have some form of
CE. Two additional states will begin to require CE in 1997. SC Publishing is
exploring the expansion of this segment through the addition of non-CE
products and business-to-business opportunities in joint ventures, with
hospitals, nursing homes and seminar providers.

SC Publishing sells continuing education to real estate agents only in
California, which is the largest U.S. market for real estate agents and
brokers. Although the California real estate market has been depressed in
recent years, the Company believes there are signs of improvement in this
market. SC Publishing is seeking to build market share by refining its
circulation plan and expanding its offerings to other related professionals
such as appraisers and new home builders. SC Publishing is also assessing
opportunities to begin selling in other states which require real estate
agents to take CE.

SC Publishing sells continuing education to CPAs, who generally are required
to obtain CE every year. SC Publishing seeks to compete in this market by
offering current CE topics in a convenient manner at competitive prices.

SC Publishing develops its products by first identifying topics pertinent to
its target audiences of nurses, real estate agents and CPAs and then
contracting with qualified authors to develop a course text book and exam
materials. In some cases where products may change rapidly because of changing
regulations or knowledge, SC Publishing buys existing textbooks and contracts
with authors and/or industry experts to convert these into

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courses. All courses are reviewed by other industry experts before publishing.
SC Publishing generally prints its own materials and hence controls its own
inventory investment based on projected demand.

OPERATIONS

ORDER ENTRY AND CUSTOMER SERVICE

The Company has structured its telemarketing operation and training for its
telemarketing representatives to simplify catalog shopping by emphasizing
prompt, courteous and knowledgeable service. Customers may call toll free
telephone numbers 24 hours a day, seven days a week, to place orders or to
request a catalog. Approximately 63% of the Company's orders are placed by
telephone, with calls lasting three to four minutes. The balance of orders are
received by mail. The Company has contracted with an outside telemarketing
provider to handle calls in the event call volume exceeds the Company's
capacity during peak business hours, as well as to answer the Company's phones
during off-peak hours. Overflow situations also occur due to holidays and
operational disruptions such as poor weather.

Telemarketing representatives process orders directly into the Company's
computer system which provides customer history, product availability, product
specifications, expected ship date and order number. The telemarketing
representatives use a scripted catalog sales system, are knowledgeable in key
product specifications and features, and are trained to cross-sell accessories
and related products. In keeping with the Company's efforts to maximize
operating efficiency, representatives are trained to handle a range of
products and customer service calls, allowing the Company to shift
representatives among products as call volume requires.

The Company signed a new three year contract with AT&T in 1995 which
management believes provides the Company with long-distance rates comparable
to those enjoyed by larger users. The Company uses AT&T equipment with a 500
line capacity and presently uses about 320 lines in 86 stations. The Company's
telephone system permits flexibility in routing calls to maximize teleservice
representative efficiency.

CREDIT

Virtually all of the Company's sales are transacted by check or through
credit card, and, as a result, accounts receivable consist primarily of
amounts due from the Company's credit card processor. Credit card payments are
deposited electronically into the Company's bank account one to two days after
submission of credit card transactions. Personal checks over $200 and all
credit card charges are pre-authorized. During fiscal 1995, losses due to bad
checks amounted to less than 1% of net product sales.

In addition, purchases from SC Direct may be made by certain customers with
the Paula Young credit card, which SC Direct began testing in 1990 and in 1995
offered to all wig customers who had previously paid by check. Before
expanding the credit card program further, the Company is evaluating whether
to continue to administer the card and finance the receivables internally or
to outsource these functions.

FULFILLMENT

The Company's fulfillment goal is the prompt delivery of ordered
merchandise. The Company's investment in computer systems has resulted in
operating efficiencies in order entry and fulfillment. Orders of in-stock
merchandise received before 11:00 a.m. are shipped on the same day, usually
via bulk or priority mail. For an additional charge, the Company will ship by
overnight or second day courier. Merchandise not in stock on the date of order
is shipped for delivery on the same day it is received by the Company, or the
next business day.

The Company uses an integrated computer picking, packing and shipping
system. The system monitors the in-stock status of each item ordered,
processes the order and generates all related packing and shipping materials,
taking into account the location of items within the distribution center.
During fiscal 1995, the Company shipped an average of approximately 3,800
orders per day, with a peak of 5,473 orders shipped in one day. The Company
currently has the capacity to ship approximately 7,800 orders per day in two
shifts.

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RETURNS

The Company's return policy allows customers to return products for prompt
refund or exchange. Returns for refund and exchange over the past three years
averaged 16% and 14%, respectively, at SC Direct and 2% and 1%, respectively,
at SC Publishing. The Company believes that these return levels are normal for
mail order products of this nature. Return experience is closely monitored at
the SKU level to identify trends in product offerings, product defects and
quality issues in an attempt to assess future purchases, enhance customer
satisfaction and reduce overall returns. Returned wigs are inspected and
returned to inventory if not worn, and if worn are donated to various
hospitals' chemotherapy departments and local chapters of the American Cancer
Society. Undamaged and unmarked SC Publishing books are also returned to
inventory.

INVENTORY MANAGEMENT

The Company's inventory management goal is a high initial fulfillment rate
with reasonable levels of inventory investment and low overstocks. To achieve
this goal, the Company seeks to schedule merchandise deliveries and inventory
amounts to conform closely to sales levels. The Company typically orders
merchandise in several lots, with the sizes of reorders dependent on customer
demand.

Initial orders for wigs and hats are placed two to four months before a
catalog mailing. Initial deliveries are scheduled to occur one or two weeks
before the first mailing. Initial purchase quantities are based on a variety
of factors, including past experience with the same or similar products,
future availability, shipping time, and, with respect to hat vendors, the
Company's ability to negotiate a reorder commitment from the vendor. The
Company analyzes the initial sales and returns for each item in a catalog.
Using this information, the Company projects gross demand and returns for such
items and, based on these projections and inventory on hand and on order,
makes decisions regarding additional purchases. The Company sells overstocks
and discontinued items through targeted mailings and sale pages bound into its
full-price catalogs.

CATALOG PRODUCTION

The Company's catalogs are created in-house by the Company's graphic arts
staff of designers and production artists using a computer desktop publishing
system. The Company's in-house preparation of catalogs provides the Company
with greater control, flexibility and creativity in catalog production and
product selection, and results in significant cost savings. The Company mailed
29.2 million catalogs in fiscal 1995, compared to 22.6 million catalogs in
fiscal 1994. The Company's most active customers receive a Company catalog as
often as every two weeks.

DATABASES

The Company has developed databases consisting in aggregate of approximately
5.9 million persons, including more than 1.2 million active customers and more
than one million active inquirers. The Company markets mailing lists derived
from its databases to non-competing businesses to provide additional sources
of income after confirming that security measures are in place to protect this
proprietary data. List rental income was $200,000 in 1995. The Company has
undertaken limited exchanges of lists of inactive customers with wig
competitors.

COMPETITION

The mail order catalog business is highly competitive. The Company believes
that it competes on the basis of quality, value, service, product offerings,
advertising effectiveness, catalog design, convenience and efficiency. The
Company's wig and hat catalogs compete with other mail order catalogs, both
specialty and general, and retail stores, including department stores,
specialty stores, discount stores and hair salons and wig shops. The Company's
CE catalogs compete with other mail order catalogs, in-house CE, professional
associations, and seminar providers. The Company believes that the Company's
catalogs have a competitive advantage in providing greater selection,
convenience and privacy than traditional retail outlets. Some of the Company's
competitors have greater financial and marketing resources than the Company.
Potential competition may emerge from new distribution channels such as the
Internet and interactive television.

32
<PAGE>

EMPLOYEES

As of July 31, 1996, the Company employed a total of 278 employees,
comprising 63 salaried full-time employees, 138 full-time hourly employees,
and 77 part-time hourly employees. None of the Company's employees are covered
by a collective bargaining agreement. The Company believes that its relations
with its employees are good.

FACILITIES

The Company occupies a 43,000 square foot building in South Easton,
Massachusetts, which is utilized as one-third warehouse and two-thirds office
space. In addition, the Company also leases another 22,000 square foot
facility one block away, primarily utilized as additional warehouse space. In
June 1995, rent on the main facility was adjusted from $40,000 to $25,000 per
month, which management estimates to be slightly above market rates. The rent
on the 22,000 square foot facility is approximately at market rate. Under the
terms of the current leases, each landlord and the Company have the right to
terminate the respective lease upon four month's notice. In the event a
landlord gives the Company notice, the Company believes that it could move to
new appropriate space within four months. Nonetheless, there can be no
assurance that the Company will find appropriate space within four months. The
process of moving to and restarting operations in a new site could have a
material adverse effect on the Company's operations.

The Company is planning to expand to a larger facility to provide room for
growth and eliminate the inefficiencies of operating two warehouses.
Currently, the Company is investigating the lease of an appropriately sized
facility within a 10 to 15 mile radius of its present location. If the Company
does not locate a suitable site, it may enter into negotiations with its
present landlords for long-term leases. There can be no assurance that the
Company will be successful in locating a new facility or negotiating new
leases.

TRADEMARKS AND TRADE NAMES

The Company has registered 7 trademarks and has 3 trademark applications
pending with the U.S. Patent and Trademark Office and has 4 trademarks
registered under California state law. In the course of normal business, the
Company often utilizes new tradenames. When appropriate, the Company seeks to
register these names.

GOVERNMENT REGULATIONS

In 1994, the United States Supreme Court reaffirmed an earlier decision that
allowed direct marketers to make sales into states where they do not have a
physical presence without collecting sales taxes, but noted that Congress has
the power to change this law. The imposition of an obligation to collect sales
taxes may have a negative effect on the Company's response rates and may
require the Company to incur administrative costs in collecting and remitting
the sales taxes. The Company believes that Massachusetts is the only
jurisdiction where it is currently required to collect sales taxes.

LEGAL PROCEEDINGS

The Company is, from time to time, a party to routine litigation arising in
the normal course of its business. The Company believes that none of these
actions will have a material adverse effect on the financial condition or
results of operations of the Company.

The Company currently has several registered trademarks and may seek
additional legal protection for its products and trade names. The Company has
invested substantial resources in developing several distinctive catalog
trademarks as well as branded products and product lines. There can be no
assurance that the steps taken by the Company to protect its rights will be
sufficient to deter misappropriation. Failure to protect these intellectual
property assets could have a material adverse effect on the Company's business
operations. Moreover, although the Company does not currently know of any
lawsuit alleging the Company's infringement of intellectual property rights
that could have a material adverse effect on the Company's business, there can
be no assurance that any such lawsuit will not be filed against the Company in
the future or, if such a lawsuit is filed, that the Company would ultimately
prevail.

33
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven L. Bock........................ 42 Chairman of the Board and Chief Executive
Officer
Stephen M. O'Hara..................... 41 President and Secretary
J. William Heise...................... 48 Senior Vice President and Chief Financial
Officer
Jerral R. Pulley...................... 62 Senior Vice President
Alan S. Cooper........................ 37 Director
Martin Franklin....................... 31 Director
Samuel L. Katz........................ 31 Director
Guy Naggar............................ 55 Director
</TABLE>

STEVEN L. BOCK has been Chairman of the Board and Chief Executive Officer of
the Company (or its predecessor company) since December 1990. He has been a
director of SC Direct and SC Publishing (including the years when these
companies were under bankruptcy protection of the courts) since March 1989. SC
Direct was formed by RSG Partners, a private investment and management firm
founded by Mr. Bock and two partners in 1988. Mr. Bock was a partner in RSG
Partners from 1988 to 1990. From October 1986 to October 1988, Mr. Bock was a
vice president of TSG Holdings, Inc., the investment advisor to
Transcontinental Services Group, a U.K. listed investment holding company,
where he was responsible for initiating, financing and managing business
investments. Mr. Bock is a director of Xetex Corporation, a technology
development company. Part of Xetex's business is conducted through
SOLI.FLO SM, a 50/50 joint venture with Fluor Daniel Inc., a publicly held
engineering and construction company. Mr. Bock is a Member of SOLI.FLO's
Members Committee. Mr. Bock is a member of the Young Presidents Organization.
He graduated (summa cum laude) with a B.A. degree from SUNY at Albany and
received his J.D. degree (cum laude) from Harvard Law School.

STEPHEN M. O'HARA has been President of the Company since 1994 and was
President of Wigs by Paula, Inc., a predecessor company, from November 1991 to
November 1994 (including the years Wigs By Paula, Inc. was under the
protection of the bankruptcy courts). From May 1990 to November 1991, Mr.
O'Hara was Vice President, Marketing and Vice President, Strategy of the All
American Gourmet division of Kraft General Foods. From May 1988 to May 1990,
Mr. O'Hara was President of Quantum Investments, a venture capital firm
targeting small consumer businesses, as well as a principal in Quantum
Associates, a management consulting firm. From November 1984 to May 1988 he
served in a variety of positions with CML Group ("CML"), most recently as
President of CML's subsidiary Carroll Reed, Inc., a women's apparel retailer
and direct marketer. Prior to CML, Mr. O'Hara served in Procter and Gamble's
marketing department from 1979 to 1984. Mr. O'Hara holds A.B. and M.B.A.
degrees from Harvard University.

J. WILLIAM HEISE has been Chief Financial Officer of the Company since
August 1996 and was Acting Chief Financial Officer from March 1996 to August
1996. From November 1994 to November 1995, Mr. Heise was Vice President/Chief
Financial Officer at Sun Television and Appliances, Inc., a retailer of
consumer electronics and appliances. From October 1983 to March 1994, Mr.
Heise served in a variety of positions with Victoria's Secret Catalogue, Inc.,
including Executive Vice President/Chief Financial Officer from 1989 to 1992
and Executive Vice President/Operations from 1992 to 1994. Mr. Heise holds a
B.A. degree from Ohio University.

JERRAL R. PULLEY has been Senior Vice President of SC Publishing since
October 1995. From November 1994 to October 1995, Mr. Pulley worked as an
independent consultant. From 1990 to November 1994, Mr. Pulley served as CEO
of Polymerics, Inc. a leading manufacturer of arts and crafts supplies. From
1970 through 1990, Mr. Pulley held a variety of senior positions at Binney &
Smith, Ryder System, Perfect Building Group, Borden Inc., Lifesavers, Inc. and
Pepsi-Cola of North America. From 1958 to 1970 Mr. Pulley worked in marketing
at Procter & Gamble. Mr. Pulley holds a B.S. degree from the University of
Utah and a M.B.A. degree from U.C.L.A.

34
<PAGE>

ALAN S. COOPER has been a director of the Company since February 1996. Mr.
Cooper has been general counsel of Dickstein Partners Inc., a private
investment firm, since March 1992. Prior to joining Dickstein Partners Inc.,
he was an attorney with Rosenman & Colin in New York City from August 1983 to
February 1992. Mr. Cooper is a director of Hills Stores Company. Mr. Cooper
received his B.S. and J.D. degrees from the University of Pennsylvania.
MARTIN E. FRANKLIN has been a director of the Company since November 1994.
Mr. Franklin is currently Chairman and Chief Executive Officer of BEC Group,
Inc., a NYSE company, and non-executive Chairman of Eyecare Products plc, a
London Stock Exchange Company. Mr. Franklin was Chairman and Chief Executive
Officer of Benson Eyecare Corporation, the predecessor company to BEC Group,
from October 1992 through May 1996. Mr. Franklin has been the Chairman of the
Board and Chief Executive Officer of Pembridge Holdings, Inc. since 1990 and
sits on various other private company boards. From 1988 to 1990, Mr. Franklin
was Managing Director of Pembridge Associates, Inc. Both Pembridge Associates,
Inc. and Pembridge Holdings specialize in merchant banking and related
services. Mr. Franklin received a B.A. in Political Science from the
University of Pennsylvania.

SAMUEL L. KATZ has been a director of the Company since November 1994. He
has been the Senior Vice President-Acquisitions of HFS Incorporated, a public
corporation engaged in the lodging and real estate franchising businesses,
since January 1996. From June 1993 to December 1995, Mr. Katz was a Vice
President of Dickstein Partners Inc. From February 1992 to June 1993, Mr. Katz
was the Co-Chairman of Saber Capital Inc., a private investment firm. From
February 1988 to January 1992, Mr. Katz served as an Associate and then a Vice
President of the Blackstone Group, an investment and merchant bank, where he
focused on leveraged buy-out transactions. Mr. Katz is a director of Hills
Stores Company. Mr. Katz received his B.A. in Economics from Columbia
University in 1986.

GUY NAGGAR has been a director of the Company since November 1994. Since
1981 he has been Chairman of Dawnay, Day & Co. Limited, a U.K. investment bank
founded in 1928, which is a member of the London Investment Banking
Association. Immediately prior to becoming Chairman of Dawnay, Day & Co.
Limited, Mr. Naggar was a Director of the Charterhouse Group Limited and of
its subsidiary, Charterhouse Japhet Limited.
EMPLOYMENT AGREEMENTS

The Company has entered into an employment agreement with Steven L. Bock
pursuant to which Mr. Bock will serve as the Chairman of the Board and Chief
Executive Officer of the Company for a term expiring on December 31, 1999, at
a salary of $280,000, subject to annual increases which will bring the annual
salary in the last year of the term to $310,000. Mr. Bock will be eligible for
a performance bonus ranging between 1% to 100% of his base salary, based upon
the Company's performance against its annual plan approved by the Board. Upon
executing the employment agreement, Mr. Bock was granted options under the
Plan to purchase 75,000 shares of Common Stock at the initial public offering
price and options to purchase 75,000 shares of Common Stock at a price of
$5.33 per share, granted outside of the Plan. Options to purchase 15,000
shares of Common Stock will vest and become exercisable each year for five
years, subject to accelerated vesting under certain circumstances. Mr. Bock
will receive deferred bonus compensation of $187,500 accrued under his prior
employment agreement with the Company which will be paid in three equal
installments on January 1, 1997, June 30, 1997 and January 1, 1998. The
Company currently maintains an $8.5 million key person life insurance policy
on Mr. Bock, although this amount may be reduced.

The Company has entered into an employment agreement with Stephen M. O'Hara
pursuant to which Mr. O'Hara will serve as President of the Company for a term
expiring on December 31, 1999 at a salary of $205,000 subject to annual
increases which will bring the annual salary in the last year of the term to
$235,000. Mr. O'Hara will be eligible for a performance bonus ranging between
1% to 100% of his base salary, based upon the Company's performance against
its annual plan approved by the Board. Upon executing the employment
agreement, Mr. O'Hara was granted options under the Plan to purchase 25,000
shares of Common Stock at the initial public offering price. Options to
purchase 5,000 shares of Common Stock will vest and be exercisable each year
for five years, subject to accelerated vesting under certain circumstances.
Mr. O'Hara will receive deferred bonus compensation of $35,000 accrued under
his prior employment agreement with the Company which will be paid in three
equal installments on January 1, 1997, June 30, 1997 and January 1, 1998. The
Company currently maintains a $5.5 million key person life insurance policy on
Mr. O'Hara, although this amount may be reduced.

35
<PAGE>

The Company may terminate Mr. Bock's employment: (i) upon his death or
permanent disability; (ii) if he engages in conduct that constitutes "cause;"
(iii) if, after 1996, the Company fails to meet certain financial targets; or
(iv) upon a change of control. Mr. Bock may terminate his agreement if there
is a material reduction of his responsibilities or a material breach of the
agreement by the Company. Mr. O'Hara or the Company may terminate this
employment agreement at any time, with notice. In the event Mr. Bock's
employment is terminated for any reason other than "cause" or death, Mr. Bock
will receive a severance payment of from one year to two years of base salary.
In the event Mr. O'Hara's employment is terminated for any reason other than
"cause" or death, Mr. O'Hara will receive a severance payment of from six
months to one year of base salary. Both employment agreements contain
noncompetition restrictions effective during the term of employment and for a
period of two years thereafter.

EXECUTIVE COMPENSATION

The following table shows the cash compensation paid by the Company and its
subsidiaries, as well as certain other compensation paid or accrued, during
the fiscal years ended December 30, 1995, and December 31, 1994 and January 1,
1993 to the Chief Executive Officer of the Company and each of the other three
most highly compensated executive officers ("Named Officers").

SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
- ------------------------------------------------------------------------------
FISCAL NUMBER OF
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven L. Bock................... 1995 $ 270,294 $ 65,960 --
Chairman and Chief Executive Of-
ficer 1994 212,116 100,000 310,226(1)
1993 216,923 -- --
Stephen M. O'Hara................ 1995 $ 194,718 $ 35,000 --
President 1994 166,424 81,850 272,773(2)
1993 167,360 -- --
J. William Heise................. (3) -- -- --
Chief Financial Officer
Jerral R. Pulley................. 1995(4) $ 25,962 $ 5,000 --
Senior Vice President
</TABLE>

(1) Represents options granted in 1994 at an exercise price of $0.31 per
share, all of which will become exercisable upon the effective date of
this Offering.
(2) Represents options granted in 1994 at an exercise price of $0.31 per
share, of which options to purchase 218,218 shares will become exercisable
upon the effective date of this Offering, and options to purchase 54,555
shares will become exercisable one year from the effective date of this
Offering.
(3) Mr. Heise became acting chief financial officer in March 1996 and on
August 1, 1996, he was hired permanently at an annual salary of $130,000.
(4) Mr. Pulley was hired in October 1995 at an annual salary of $125,000.

AGGREGATED OPTION VALUES FOR FISCAL YEAR ENDED
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
NAME AT DECEMBER 30, 1995 AT DECEMBER 30, 1995($)(1)
- ----------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Steven L. Bock.......... -- 310,226 -- --
Stephen M. O'Hara....... -- 272,773 -- --
</TABLE>

(1) There was no public trading market for the Common Stock as of December 30,
1995. Accordingly, no value can be ascribed to these options.

36
<PAGE>

STOCK OPTION PLAN

The Company has adopted the Plan to attract and retain officers, non-
employee directors, employees, and consultants of the Company or any of its
subsidiaries or affiliates. The Plan authorizes the purchase of up to 500,000
shares of Common Stock through the grant of stock options and awards of
restricted stock. The Company has granted 252,150 options under the Plan to
purchase Common Stock at the initial public offering price. An additional
50,000 options may be granted within the first year following the effective
date of this Offering to new officers, directors, employees or consultants to
the Company, with the balance of the options available for issuance
thereafter. The Plan will be administered by either the Board of Directors or
a committee of two or more non-employee directors ("Administrator"). In
general, the Administrator will determine which eligible officers, directors,
employees and consultants of the Company may participate in the Plan and the
type, extent and terms of the stock option grants and awards of restricted
stock. Options granted to employees may be either incentive stock options
within the meaning of Section 422 of the Code ("ISOs") or non-ISOs. Each
option has a maximum term of ten years from the date of the grant, subject to
early termination. The exercise price of any options granted after this
Offering shall be equal to the greater of the market price per share of the
Common Stock on the date of grant or the initial public offering price. At the
discretion of the Administrator, the exercise price of the options may be paid
in cash, with shares of Common Stock having a fair market value equal to the
option exercise price, or with other property having a fair market value equal
to the option exercise price, including other vested but unexercised options.
In the event of a change in control, as defined in the Plan, all options will
become immediately vested and exercisable and the restrictions with regard to
restricted stock will lapse, unless the Administrator provides otherwise.

EMPLOYEE BENEFIT PLANS

The Company maintains a qualified defined contribution plan, under the
provisions of Section 401(k) of the Code, covering substantially all
employees. Under the terms of the plan, eligible employees may make
contributions up to 15% of pay, subject to statutory limitations.
Contributions not exceeding 5% of an employee's pay are matched 40% by the
Company. The Company may, at its discretion, make an additional year-end
contribution. Employee contributions are always fully vested. Company
contributions vest 20% for each completed year of service, becoming fully
vested after five years of service. Matching contributions by the Company
under the plan were $47,520, $59,594 and $67,188 in 1993, 1994 and 1995,
respectively. No discretionary contributions have been made to the plan.

The Company established a supplemental defined contribution plan in 1994.
Only senior employees who have not been granted stock options participate in
the plan. Under the terms of the plan, these employees may elect to defer up
to 50% of any bonus paid for that year. The Company matches 100% of all
amounts deferred. In addition, the Company pays interest on all outstanding
balances at the prime rate as reported in the Wall Street Journal, but not in
excess of 12%. A participant's rights to the deferred amount of regular bonus
and income thereon is fully vested and nonforfeitable at all times. A
participant's right to the Company's match becomes fully vested and
nonforfeitable in cumulative increments of 20% on each of the first through
fifth anniversaries of the year end of the year in which the bonus was earned.
The total cost of this plan to the Company was $0, $65,000 and $0, in 1993,
1994 and 1995, respectively. As of the date hereof there is $70,000 in accrued
and payable bonuses under the plan. The $65,000 contributed in 1994 initiated
the plan. The supplemental defined contribution plan will be terminated upon
this Offering.

COMPENSATION OF DIRECTORS

Each current non-employee director is paid annual cash compensation of
$7,500, payable quarterly, and has received options to purchase 2,500 shares
of Common Stock. These options were issued pursuant to the Plan on the date
hereof and are immediately exercisable at the initial public offering price.
All directors are reimbursed for expenses incurred on behalf of the Company.

BOARD COMMITTEES

The Board of Directors has established an Audit Committee comprised of
Messrs. Samuel L. Katz, Alan S. Cooper and Martin E. Franklin. Mr. Katz serves
as chairman of the committee. The Audit Committee is

37
<PAGE>

responsible for recommending to the Board of Directors the appointment of the
Company's outside auditors, examining the results of audits, reviewing
internal accounting controls and reviewing related party transactions. The
Board of Directors has also established a Compensation and Options Committee
consisting of Messrs. Cooper and Franklin. Mr. Cooper serves as chairman of
this committee.

The Company's executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors. All directors hold office until the
next annual meeting of the Company or until their successors have been duly
elected or qualified. There are no family relationships among any of the
executive officers or directors of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the year ended December 30, 1995, the Company did not have a
compensation committee, and all deliberations concerning executive officer
compensation for each entity were had, and all determinations with respect
thereto were made, by the Company's Board of Directors. During such period,
Mr. Bock was an executive officer and director of the Company.

38
<PAGE>

PRINCIPAL STOCKHOLDERS

The table below sets forth certain information regarding the beneficial
ownership as of the date hereof and as adjusted to reflect the sale of Common
Stock offered hereby, by (i) each person known by the Company to own
beneficially five percent or more of the Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Officers and (iv) all directors
and executive officers as a group. Except as otherwise indicated, (x) the
Company believes that each of the beneficial owners of the Common Stock listed
in the table, based on information furnished by such owner, has sole
investment and voting power with respect to such shares, and (y) the address
of the beneficial owner is the address of the principal executive offices of
the Company. The information set forth in the table and accompanying footnotes
has been furnished by the named beneficial owners.
<TABLE>
<CAPTION>
PERCENTAGE(1)
-----------------
NUMBER OF
SHARES
BENEFICIALLY BEFORE AFTER
NAME OWNED OFFERING OFFERING
- ---- ------------ -------- --------
<S> <C> <C> <C>
Steven L. Bock................................. 409,160(2) 11.7% 8.2%
Stephen M. O'Hara.............................. 218,218(3) 6.4% 4.4%
J. William Heise............................... -- -- --
Jerral R. Pulley............................... -- -- --
Alan S. Cooper................................. 2,500 * *
Dickstein Partners
9 West 57th Street
New York, New York 10019
Guy Naggar..................................... 2,500(4) * *
Dawnay, Day & Co., Ltd
15 Grosvenor Gardens
London, England SW1W09D
Samuel L. Katz................................. 93,075(4) 2.9% 2.0%
HFS, Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054
Martin Franklin................................ 230,688(5) 6.7% 4.7%
555 Theodore Fremd Avenue
Rye, New York 10580
Dickstein & Co., L.P........................... 1,347,689(6) 42.1% 28.7%
9 West 57th Street
New York, New York 10019
Dickstein International Limited................ 1,347,689(6) 42.1% 28.7%
129 Front Street
Hamilton, Bermuda
Dickstein Focus Fund L.P....................... 1,347,689(6) 42.1% 28.7%
9 West 57th Street
New York, New York 10019
Viking Holdings Limited........................ 1,483,553(7) 46.3% 31.6%
c/o Abacus Secretaries (Jersey Limited) Limited
La Motte Chambers
St. Helier, Jersey
JE1 1BS Channel Islands
All executive officers and directors as a group
(8 persons)................................... 956,141(8) 24.1% 17.5%
</TABLE>
- --------
* Less than 1%

39
<PAGE>

(1) Applicable percentage of ownership is based upon 3,201,666 shares of
Common Stock outstanding before this Offering and 4,701,666 shares
outstanding after this Offering. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission
("Commission") and generally includes voting and investment power with
respect to securities. Shares of Common Stock issued upon the exercise of
options and warrants currently exercisable or exercisable within 60 days
are deemed outstanding for computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding
for computing the percentage ownership of any other person.

(2) Includes 310,226 shares of Common Stock underlying stock options which
become exercisable upon the consummation of this Offering at a price of
$0.31 per share. Excludes 75,000 shares of Common Stock underlying stock
options granted outside of the Plan which are not currently exercisable at
a price of $5.33 per share and 75,000 shares of Common Stock underlying
stock options granted under the Plan which are not currently exercisable
at an exercise price per share equal to the initial public offering price.
All of Mr. Bock's options which are not currently exercisable vest in
increments of 20% per year, commencing on the first anniversary of the
effective date of this Offering.
(3) Includes 218,218 shares of Common Stock underlying stock options which are
immediately exercisable at a price of $0.31 per share. Excludes 54,555
shares of Common Stock underlying options granted outside of the Plan
exercisable on the first anniversary of the effective date of this
Offering at a price of $0.31 per share, and 25,000 shares of Common Stock
underlying stock options granted under the Plan which vest in increments
of 20% per year, commencing on the first anniversary of the effective date
of this Offering at an exercise price per share equal to the initial
public offering price.
(4) Includes 2,500 shares of Common Stock underlying stock options issued
under the Plan which are immediately exercisable at an exercise price per
share equal to the initial public offering price.
(5) Includes 228,188 shares of Common Stock issuable upon exercise of Warrants
and 2,500 shares of Common Stock underlying stock options issued under the
Plan which are immediately exercisable. Does not include 37,147 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Franklin's
associates.
(6) Of the 1,347,689 total shares reported, Dickstein & Co., L.P. owns
beneficially 853,153 of such shares, Dickstein Focus Fund L.P. owns
beneficially 135,881 of such shares and Dickstein International owns
beneficially 358,655 of such shares. Dickstein & Co., L.P. disclaims
beneficial ownership of 135,881 shares owned by Dickstein Focus Fund L.P.
and 358,655 shares owned by Dickstein International Limited. Dickstein
Focus Fund L.P. disclaims beneficial ownership of 853,153 shares owned by
Dickstein & Co., L.P. and 358,655 shares owned by Dickstein International
Limited. Dickstein International Limited disclaims beneficial ownership of
853,153 shares owned by Dickstein & Co., L.P. and 135,881 shares owned by
Dickstein Focus Fund L.P. Dickstein & Co., L.P., Dickstein International
Limited and Dickstein Focus Fund L.P. manage investment funds. Dickstein
Partners, L.P. is the general partner of Dickstein & Co., L.P. and
Dickstein Focus Fund L.P. Dickstein Partners Inc. is the general partner
of Dickstein Partners, L.P. and is the advisor to Dickstein International
Limited. Mark B. Dickstein is the President and sole director of Dickstein
Partners Inc.
(7) Viking is a private investment company. The principal beneficial owners of
Viking are Guy Naggar (who holds less than 35% of the outstanding voting
securities of Viking) and a trust established solely for the benefit of
Mr. Naggar's adult children. Mr. Naggar has no voting or investment
control with respect to such trust.
(8) Includes 766,444 shares of Common Stock underlying stock options which
are currently exercisable and Warrants that are held by Martin Franklin
but excludes 266,702 shares underlying options which are not currently
exercisable and Warrants which are held by Mr. Franklin's associates.

40
<PAGE>

CERTAIN TRANSACTIONS

As part of the Plan of Reorganization: (i) Mr. Bock acquired for $30,000
98,934 shares of the Company's Common Stock; (ii) Dickstein & Co. acquired for
$2,184,000 867,786 shares of the Company's Common Stock, 7,272 shares of the
Company's 13% Preferred Stock and Subordinated Indebtedness in the principal
amount of $1,190,000; (iii) Dickstein International acquired for $1,092,000
433,893 shares of the Company's Common Stock, 3,636 shares of the Company's
13% Preferred Stock and Subordinated Indebtedness in the principal amount of
$595,000; and (iv) Viking Holdings Limited acquired for $2,626,000 and the
forgiveness of a $650,000 note receivable 1,301,680 shares of the Company's
Common Stock, 10,908 shares of the Company's 13% Preferred Stock and
Subordinated Indebtedness in the principal amount of $1,785,000. All of the
Subordinated Indebtedness was transferred to SC Holdings L.L.C. shortly after
completion of the Plan of Reorganization. The owners of SC Holdings L.L.C.
control the majority of the outstanding Common Stock.

In February 1993, the Bankruptcy Court and SC Corporation agreed to lift the
stay and permit Signal to sell Stork for $950,000 to a group of investors
which included Viking and Steven Bock.

In November 1994, Messrs. Bock and O'Hara received stock options to purchase
310,226 shares and 272,773 shares, respectively, of Common Stock at an
exercise price of $0.31 per share.

On April 28, 1995, the common stock of the Company was reclassified into
three classes, Class A, Class B and Class C. The different classes of common
stock had different voting rights, with Class A, Class B, and Class C having
voting rights of one vote, one-half vote and one and one-half votes,
respectively, per share. Except for the different voting rights, the Class A,
Class B and Class C common stock had identical rights. As of the date hereof
the Class A, Class B and Class C common stock has been reclassified into
Common Stock.

On June 1, 1996, the Company entered into an agreement with Martin Franklin,
a director of the Company, and two associates of Mr. Franklin, pursuant to
which Mr. Franklin and his associates loaned the Company $495,000 in Junior
Subordinated Indebtedness. The Junior Subordinated Indebtedness has the same
interest rate as the Subordinated Indebtedness, 11.5% per annum, except that
it is junior in priority to the Subordinated Indebtedness. The Junior
Subordinated Indebtedness is due on August 12, 1999.

In connection with the Junior Subordinated Indebtedness, the Company has
issued for $5,000 to Mr. Franklin and his associates the Warrants to purchase
265,335 shares of Common Stock. The Warrants are exercisable until September
30, 1999 to purchase Common Stock at a price of $1.88 per share.

In August 1996, Messrs. Bock, O'Hara, Heise and Pulley received stock
options pursuant to the Plan to purchase 75,000, 25,000, 30,000 and 12,500
shares of Common Stock, respectively, at a price equal to the initial public
offering price.

Immediately prior to this Offering, the Company converted all of the
outstanding 13% Preferred Stock into 375,000 shares of Common Stock. The
holders of the 13% Preferred Stock, Dickstein & Co., L.P., Dickstein
International, Dickstein Focus Fund, Viking, Mark Brodsky, Samuel Katz and
Wigs L.P., received 121,248, 43,969, 16,655, 181,873, 5,552, 11,104 and 11,254
shares of Common Stock respectively.

Effective upon this Offering, Mr. Bock has received non-qualified options to
purchase 75,000 shares of Common Stock at a price of $5.33 per share. Options
to purchase 15,000 shares of Common Stock will vest each year for five years,
subject to accelerated vesting under certain circumstances. These options will
be exercisable for a period of ten years from the date of grant.

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company is 11,000,000 shares, consisting
of 10,000,000 shares of Common Stock, $.01 par value per share and 1,000,000
shares of Preferred Stock, $1.00 par value per share. As of the date hereof
there are 3,201,666 shares of Common Stock outstanding. After the completion
of this Offering there will be 4,701,666 shares of Common Stock outstanding.
As of the effective date of this Offering no shares of Preferred Stock are
outstanding.

41
<PAGE>

COMMON STOCK

The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is
no cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voted can elect all of
the directors then being elected. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining available for distribution to them after
payment of liabilities and after provision has been made for each class of
stock, if any, having preference over the Common Stock. Holders of shares of
Common Stock, as such, have no redemption, preemptive or other subscription
rights, and there are no conversion provisions applicable to the Common Stock.
All of the outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby, when issued and paid for as set forth in this
Prospectus, will be, fully paid and nonassessable.

PREFERRED STOCK

The Company's authorized shares of Preferred Stock may be issued in one or
more series, and the Board of Directors is authorized, without further action
by the stockholders, for any reason and at any time, to designate the rights,
preferences, limitations and restrictions of and upon shares of each series,
including dividend, voting, redemption and conversion rights. The Board of
Directors also may designate par value, preferences in liquidation and the
number of shares constituting any series. The Company believes that the
availability of Preferred Stock issuable in series will provide increased
flexibility for structuring possible future financings and acquisitions, if
any, and in meeting other corporate needs. It is not possible to state the
actual effect of the authorization and issuance of any series of Preferred
Stock upon the rights of holders of Common Stock until the Board of Directors
determines the specific terms, rights and preferences of a series of Preferred
Stock. However, such effects might include, among other things, restricting
dividends on the Common Stock, diluting the voting power of the Common Stock,
or impairing liquidation rights of such shares without further action by
holders of the Common Stock. In addition, under various circumstances, the
issuance of Preferred Stock may have the effect of facilitating, as well as
impeding or discouraging, a merger, tender offer, proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. Issuance of Preferred Stock could also
adversely affect the market price of the Common Stock. The Company has no
present plans to issue any shares of Preferred Stock.

WARRANTS

INDEMNIFICATION OF OFFICERS AND DIRECTORS

As permitted by the DGCL, the Company's Certificate of Incorporation, as
amended, limits the personal liability of a director or officer to the Company
for monetary damages for breach of fiduciary duty of care as a director.
Liability is not eliminated for (i) any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) unlawful payment of dividends or stock purchases or redemptions pursuant
to Section 174 of the DGCL, or (iv) any transaction from which the director
derived an improper personal benefit.

42
<PAGE>

at the request of the Company. No indemnification will be provided under the
indemnification agreements, however, to any director or executive officer in
certain limited circumstances, including on account of knowingly fraudulent,
deliberately dishonest or willful misconduct. To the extent the provisions of
the indemnification agreements exceed the indemnification permitted by
applicable law, such provisions may be unenforceable or may be limited to the
extent they are found by a court of competent jurisdiction to be contrary to
public policy.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.

DELAWARE LAW

The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person
owning 15% or more of a corporation's outstanding voting stock) from engaging
in a "business combination" with a publicly-held Delaware corporation for
three years following the date such person became an interested stockholder,
unless: (i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (subject to certain
exceptions); or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the Board of
Directors of the corporation and authorized at a meeting of stockholders by
the affirmative vote of the holders of 66% of the outstanding voting stock of
the corporation not owned by the interested stockholder. A "business
combination" includes mergers, stock or asset sales and other transactions
resulting in a financial benefit to the interested stockholder.

The provisions of Section 203 of the DGCL could have the effect of delaying,
deferring or preventing a change in control of the Company.

SHAREHOLDERS' AGREEMENT

All of the existing holders of Common Stock and options to purchase Common
Stock are parties to a Shareholders' Agreement dated November 30, 1994 which
will terminate upon the completion of this Offering. This agreement (i)
prohibits the sale, pledge, transfer or disposal of shares of Common Stock
prior to the earlier of November 24, 1997 or the date on which the Company
shall have fully utilized its Federal income tax NOL's ("Ownership Change
Date") and (ii) restricts the sale, pledge, transfer or disposal of shares of
Common Stock subsequent to the Ownership Change Date. The Shareholders'
Agreement terminates on the earliest of (i) the date of dissolution or
liquidation of the Company, (ii) such time as any one shareholder or other
person owns all the shares of Common Stock, (iii) the date of the consummation
of a public offering of Common Stock under the Securities Act or (iv) such
time as all the parties to the Shareholders' Agreement elect to terminate such
agreement.

The Shareholders' Agreement provides for Dickstein & Co., L.P., Dickstein
International Limited and Dickstein Focus Fund, L.P. (collectively
"Dickstein") and Viking each to appoint two Directors. Dickstein has appointed
Messrs. Cooper and Katz to the Board and Viking has appointed Messrs. Franklin
and Naggar to the Board.

TRANSFER AGENT

The transfer agent for the Common Stock is Continental Stock Transfer &
Trust Company, New York, New York.

43
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 4,701,666 shares of
Common Stock outstanding, not including shares of Common Stock issuable upon
exercise of the Officer's Options, Warrants and Underwriter's Purchase Option
and assuming no exercise of the over-allotment option granted to the
Underwriter and options outstanding under the Plan. Of these outstanding
shares, the 1,500,000 shares sold to the public in this Offering may be freely
traded without restriction or further registration under the Securities Act,
except that any shares that may be held by an "affiliate" of the Company (as
that term is defined in the rules and regulations under the Securities Act)
may be sold only pursuant to a registration under the Securities Act or
pursuant to an exemption from registration under the Securities Act including
the exemption provided by Rule 144 adopted under the Securities Act. 3,201,666
shares of Common Stock are "restricted securities" as that term is defined in
Rule 144 under the Securities Act ("Restricted Shares"), and may not be sold
unless such sale is registered under the Securities Act, or is made pursuant
to an exemption from registration under the Securities Act, including the
exemption provided by Rule 144. Of such shares, 3,065,803 will be available
for sale pursuant to Rule 144 commencing 1996, and 135,863 will be
available for sale pursuant to Rule 144 commencing February 1998, in each case
subject to the lock-up agreements described below.

In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
Restricted Shares for at least two years (including a stockholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within
any three-month period, that number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is given to the Commission
provided certain public information, manner of sale and notice requirements
are satisfied. A stockholder who is deemed to be an affiliate of the Company,
including members of the Board of Directors and senior management of the
Company, will still need to comply with the restrictions and requirements of
Rule 144, other than the two-year holding period requirement, in order to sell
shares of Common Stock that are not Restricted Securities, unless such sale is
registered under the Securities Act. A stockholder (or stockholders whose
shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such stockholder,
and who has beneficially owned Restricted Shares for at least three years,
will be entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. The Commission is currently considering a
reduction in the required holding periods under Rule 144.

No predictions can be made of the effect, if any, that future sales of
shares of the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
the Common Stock in the public market could adversely affect the then-
prevailing market price.

All of the officers and directors of the Company and all other stockholders
of the Company immediately prior to the effective date have agreed that for a
period of 12 months from the date of this Prospectus they will not sell any of
such shares without the consent of the Underwriter; provided, however, that
such prohibition extends for a period of only six months from the date of this
Prospectus with respect to the 375,000 shares of Common Stock acquired in the
Preferred Conversion.

In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701
under the Securities Act ("Rule 701"). Rule 701 permits affiliates to sell
their shares which are subject to Rule 701 ("Rule 701 shares") under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell Rule 701 shares in reliance on
Rule 144 without having to comply with the public information, volume
limitation or notice provisions of Rule 144. In both cases, a holder of Rule
701 shares is required to wait until 90 days after the date of this
Prospectus. All holders of stock options under the Plan have agreed not to
dispose of Rule 701 shares for a period of 12 months from the date of this
Prospectus without the consent of the Underwriter.

44
<PAGE>

REGISTRATION RIGHTS

The Company has entered into a registration rights agreement with all of its
current stockholders. Under this registration rights agreement, the Company
has provided to each of Dickstein and Viking, for so long as it owns at least
15% of the outstanding Common Stock, a "demand" registration right whereby
each of Dickstein and Viking can, with certain restrictions, on one occasion
require the Company to register under the Securities Act the Company's equity
securities it holds. All of the stockholders have "piggyback" registration
rights whereby each of them can, with certain restrictions, require the
Company to include the Company's equity securities it holds in any
registration statement filed by the Company. The Company will pay all
registration expenses related to any demand registration excluding
underwriting commissions. The Company will pay all of the expenses relating to
the registrations, other than underwriting discounts and commissions. In
connection with this Offering, the current stockholders have agreed not to
exercise their registration rights for a period of one year following this
Offering without the prior written consent of the Underwriter. The Company
will register securities pursuant to the Registration Rights Agreement on
Form S-3 or any other available form.

The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register approximately 500,000 shares underlying
options granted or to be granted under the Plan for resale under the
Securities Act. The Company has agreed with the Underwriter that it will not
file any Form S-8 registration statement for one year following the date of
this Prospectus. Shares covered by these registration statements will
thereupon be eligible for sale in the public markets to the extend applicable.

UNDERWRITING

GKN Securities Corp. ("Underwriter") has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 1,500,000 shares of Common Stock. The obligations of the Underwriter under
the Underwriting Agreement are subject to approval of certain legal matters by
counsel and various other conditions precedent, and the Underwriter is
obligated to purchase all of the shares of Common Stock offered by this
Prospectus (other than the shares of Common Stock covered by the over-
allotment option described below), if any are purchased.

The Underwriter has advised the Company that it proposes to offer the shares
of Common Stock to the public at the initial public offering price set forth
on the cover page of this Prospectus and to certain dealers at that price less
a concession not in excess of $ per share of Common Stock. The Underwriter
may allow, and such dealers may reallow, a concession not in excess of $
per share of Common Stock to certain other dealers. After this Offering, the
offering price and other selling terms may be changed by the Underwriter.

The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter an expense allowance on a nonaccountable
basis equal to 2.5% of the gross proceeds derived from the sale of the shares
of Common Stock underwritten (including the sale of any shares of Common Stock
subject to the Underwriter's over-allotment option), $50,000 of which has been
paid to date. The Company also has agreed to pay all expenses in connection
with qualifying the shares of Common Stock offered hereby for sale under the
laws of such states as the Underwriter may designate and registering this
Offering with the National Association of Securities Dealers, Inc., including
fees and expenses of counsel retained for such purposes by the Underwriter.

The Company has granted to the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus, to purchase from the Company
at the offering price, less underwriting discounts and the non-accountable
expense allowance, up to an aggregate of 225,000 additional shares of Common
Stock for the sole purpose of covering over-allotments, if any.

45
<PAGE>

In connection with this Offering, the Company has agreed to sell to the
Underwriter, for an aggregate of $100, the Underwriter's Purchase Option to
purchase up to an aggregate of 150,000 shares of Common Stock at a price of
$ per share, for a period of four years, commencing on the first and ending
on the fifth anniversary of the effective date of this Offering. The
Underwriter's Purchase Option may not be transferred, sold, assigned or
hypothecated during the one-year period following the date of this Prospectus
except to officers of the Underwriter and the selected dealers and their
officers or partners. The Underwriter's Purchase Option grants to the holders
thereof certain "piggyback" and demand rights for periods of seven and five
years, respectively, from the date of this Prospectus with respect to the
registration under the Securities Act of the shares issuable upon exercise of
the Underwriter's Purchase Option.

Pursuant to the Underwriting Agreement, all of the officers, directors and
stockholders of the Company as of the date of this Prospectus have agreed not
to sell any of their shares of Common Stock until the expiration of 12 months
from the date of this Prospectus without the prior consent of the Underwriter,
provided, however, that holders of 375,000 shares of Common Stock issued in
the Preferred Conversion shall be permitted to sell such shares commencing six
months after the effective date of this Offering. During the three year period
following the date of this Prospectus, the Underwriter shall have the right to
purchase for the Underwriter's account or to sell for the account of such
persons any securities sold by any of such persons in the open market.

The Underwriting Agreement provides that, for a period of three years from
the date of this Prospectus, the Underwriter may send a non-voting
representative to observe each meeting of the Board of Directors.

Prior to this Offering, there has been no public market for any of the
Company's Common Stock. Accordingly, the initial public offering price of the
Common Stock has been arbitrarily determined by negotiation between the
Company and the Underwriter and does not necessarily bear any relation to
established valuation criteria. Factors considered in determining such price,
in addition to prevailing market conditions, include an assessment of the
prospects for the industry in which the Company competes, the Company's
management and the Company's capital structure.

LEGAL MATTERS

The legality of the securities offered hereby will be passed upon for the
Company by Kane Kessler, P.C., New York, New York. Graubard Mollen & Miller,
New York, New York, has served as counsel to the Underwriter in connection
with this Offering.

EXPERTS

The consolidated financial statements as of December 30, 1995, December 31,
1994 and January 1, 1994 and for each of the three years in the period ended
December 30, 1995 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere. Such consolidated financial statements have been included
herein in reliance upon the reports of such firm given upon their authority as
experts in auditing and accounting.

46
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain portions having been omitted from
this Prospectus in accordance with the rules and regulations of the
Commission. For further information with respect to the Company, the
securities offered by this Prospectus and such omitted information, reference
is made to the Registration Statement, including any and all exhibits and
amendments thereto. Statements contained in this Prospectus concerning the
provisions of any documents filed as an exhibit are of necessity brief
descriptions thereof and are not necessarily complete, and in each instance
reference is made to the copy of the document filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety by
this reference.

Following the effectiveness of the Registration Statement, the Company will
be subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, New York, New York 10048.
Copies of such material, including the Registration Statement, can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
site on the World Wide Web that contains reports, proxy and information
statements and other information regarding registrants that file
electronically. The address of such site is http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements, quarterly reports containing
unaudited financial information and such other periodic reports as the Company
may determine to be appropriate or as may be required by law.

47
<PAGE>

SPECIALTY CATALOG CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Financial Statements as of December 30, 1995 and December 31, 1994 and
for the Three Years Ended December 30, 1995, December 31, 1994 and
January 1, 1993 Unaudited Financial Statements as of June 29, 1996 and
for the Six Months Ended June 29, 1996 and July 1, 1995:
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Deficit....................... F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-8
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The accompanying consolidated financial statements give effect to the
completion of the 325.51-for-one split of the Company's outstanding common
stock which will take place on the effective date of the offering. The
following report is in the form which will be furnished by Deloitte & Touche
on completion of the stock split of the Company's common stock described in
Note 15 to the consolidated financial statements and assuming that from August
16, 1996 to the date of such completion no other material events have occurred
that would affect the accompanying consolidated financial statements or
required disclosure therein.

To the Board of Directors of
Specialty Catalog Corp.

We have audited the accompanying consolidated balance sheets of Specialty
Catalog Corp. as of December 30, 1995 and December 31, 1994 and the related
consolidated statements of operations and consolidated statements of
stockholders' deficit and cash flows for the three years ended December 30,
1995, December 31, 1994 and January 1, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Specialty Catalog Corp. as of
December 30, 1995 and December 31, 1994 and the results of its operations and
its cash flows for the three years ended December 30, 1995, December 31, 1994
and January 1, 1994, in conformity with generally accepted accounting
principles.

April 19, 1996 (except for Note 15,
for which the date is August 16, 1996)

New York, New York

F-2
<PAGE>

SPECIALTY CATALOG CORP.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 30, JUNE 29, JUNE 29,
1994 1995 1996 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ 946,280 $ 113,364 $ 864,176 $ 1,364,176
Accounts receivable,
less allowance for
doubtful accounts of
$42,000, $160,000 and
$51,000 at December
31, 1994, December 30,
1995 and June 29,
1996, respectively.... 579,148 1,367,929 1,138,469 1,138,469
Inventories............ 4,221,266 5,073,743 4,090,560 4,090,560
Prepaid expenses....... 3,174,543 3,462,818 3,586,891 3,586,891
------------ ------------ ------------ ------------
Total current assets.... 8,921,237 10,017,854 9,680,096 10,180,096
------------ ------------ ------------ ------------
Fixed assets:
Property and equipment. 3,787,949 3,982,348 4,118,407 4,118,407
Less accumulated
depreciation and
amortization.......... (3,011,164) (3,040,751) (3,178,992) (3,178,992)
------------ ------------ ------------ ------------
Total fixed assets...... 776,785 941,597 939,415 939,415
------------ ------------ ------------ ------------
Deferred income taxes... 7,130,175 6,779,356 6,779,356 6,779,356
------------ ------------ ------------ ------------
Other assets............ 536,154 431,553 377,857 377,857
------------ ------------ ------------ ------------
Total assets............ $ 17,364,351 $ 18,170,360 $ 17,776,724 $ 18,276,724
============ ============ ============ ============
LIABILITIES AND STOCK-
HOLDERS' DEFICIT
Current liabilities:
Line of credit......... $ -- $ 1,050,000 $ 1,450,000 $ 1,450,000
Accounts payable and
accrued expenses...... 2,928,018 4,730,936 4,601,486 4,601,486
Liabilities to
customers............. 1,267,752 755,902 630,800 630,800
Income taxes........... 111,450 81,945 232,930 232,930
Current portion of
long-term debt........ 2,500,000 2,750,000 2,950,000 2,950,000
------------ ------------ ------------ ------------
Total current liabili-
ties................... 6,807,220 9,368,783 9,865,216 9,865,216
------------ ------------ ------------ ------------
Long-term debt.......... 11,500,000 8,750,000 7,450,000 7,450,000
Subordinated debt-re-
lated party............ 3,680,186 4,125,519 4,362,735 4,743,674
Other long-term liabili-
ties................... 31,241 341,939 511,542 --
Commitments and contin-
gencies
Stockholders' deficit:
13% preferred stock,
$100 par value: 30,000
shares authorized;
22,491 shares issued
and outstanding....... 2,249,100 2,249,100 2,249,100
Common stock, $.01 par
value: 10,000,000
shares authorized;
2,826,666 shares is-
sued and outstanding
at December 31, 1994.. 28,267 32,017
Class A common stock,
$.01 par value; 16,000
shares authorized;
6,017.77 shares issued
and outstanding at De-
cember 30, 1995....... -- 19,589 19,589
Class B common stock,
$.01 par value; 2,000
shares authorized;
1,332.94 shares issued
and outstanding at De-
cember 30, 1995....... -- 4,339 4,339
Class C common stock,
$.01 par value; 2,000
shares authorized;
1,332.94 shares issued
and outstanding at De-
cember 30, 1995....... -- 4,339 4,339
Additional paid-in cap-
ital.................. 4,934,157 4,641,774 4,495,586 7,496,789
Deferred compensation... -- -- -- (125,250)
Note receivable--stock-
holder................. (148,710) (140,174) (140,174) (140,174)
Accumulated deficit..... (11,717,110) (11,194,848) (11,045,548) (11,045,548)
------------ ------------ ------------ ------------
Total stockholders' def-
icit................... (4,654,296) (4,415,881) (4,412,769) (3,782,166)
------------ ------------ ------------ ------------
Total liabilities and
stockholders' deficit.. $ 17,364,351 $ 18,170,360 $ 17,776,724 $ 18,276,724
============ ============ ============ ============
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

SPECIALTY CATALOG CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------- ------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1994 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $33,801,265 $38,178,792 $42,568,120 $22,419,386 $18,754,741
Cost of sales (including
buying, occupancy and
order fulfillment
costs)................. 13,867,938 15,648,066 16,423,590 8,859,075 7,003,241
----------- ----------- ----------- ----------- -----------
Gross profit............ 19,933,327 22,530,726 26,144,530 13,560,311 11,751,500
----------- ----------- ----------- ----------- -----------
Operating expenses:
Selling, general and
administrative
expenses.............. 16,767,738 17,771,721 22,835,086 11,155,582 10,590,938
Restructuring charges.. -- -- 512,943 512,943 --
----------- ----------- ----------- ----------- -----------
Total operating ex-
penses................. 16,767,738 17,771,721 23,348,029 11,668,525 10,590,938
----------- ----------- ----------- ----------- -----------
Income from operations.. 3,165,589 4,759,005 2,796,501 1,891,786 1,160,562
----------- ----------- ----------- ----------- -----------
Interest expense--net... (431,322) (661,022) (1,917,664) (958,197) (909,216)
----------- ----------- ----------- ----------- -----------
Income before
reorganization items,
income taxes,
cumulative effect of
change in accounting
principle and
extraordinary item..... 2,734,267 4,097,983 878,837 933,589 251,346
Reorganization items.... 1,037,979 2,889,707 -- -- --
----------- ----------- ----------- ----------- -----------
Income before income
taxes, cumulative
effect of change in
accounting principle
and extraordinary item. 1,696,288 1,208,276 878,837 933,589 251,346
Income taxes............ 704,017 497,954 356,575 379,037 102,046
----------- ----------- ----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle
and extraordinary item. 992,271 710,322 522,262 554,552 149,300
Cumulative effect of
change in accounting
for income taxes....... 8,985,122 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income before extraordi-
nary item.............. 9,977,393 710,322 522,262 554,552 149,300
Extraordinary item--gain
on debt discharge--net
of income taxes of
$1,094,649............. -- 12,078,489 -- -- --
----------- ----------- ----------- ----------- -----------
Net income.............. $ 9,977,393 $12,788,811 $ 522,262 $ 554,552 $ 149,300
----------- ----------- ----------- ----------- -----------
Preferred stock divi-
dends.................. -- (31,241) (292,383) (146,191) (146,188)
----------- ----------- ----------- ----------- -----------
Net income available to
common shareholders.... $ 9,977,393 $12,757,570 $ 229,879 $ 408,361 $ 3,112
=========== =========== =========== =========== ===========
Per common share
Income before extraor-
dinary items.......... $ 0.33 $ 0.22 $ 0.08 $ 0.14 $ 0.00
Income from cumulative
effect................ 2.97 -- -- -- --
Net income per share.... $ 3.30 $ 4.22 $ 0.08 $ 0.14 $ 0.00
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding............ 3,020,572 3,020,572 3,020,572 3,020,572 3,577,986
=========== =========== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

SPECIALTY CATALOG CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
COMMON STOCK CLASS A CLASS B CLASS C PREFERRED STOCK ADDITIONAL
-------------------- ----------------- -------------- -------------- ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
2, 1993.......... 1,000,000 $ 10,000 -- $ -- -- $ -- -- $ -- -- $ -- $4,115,300
Net income...... -- -- -- -- -- -- -- -- -- -- --
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
Balance, January
1, 1994.......... 1,000,000 10,000 -- -- -- -- -- -- -- -- 4,115,300
Cancellation of
SC Corporation
common shares in
connection with
reorganization
and settlement
of bankruptcy
proceedings..... (1,000,000) (10,000) -- -- -- -- -- -- -- -- 10,000
Issuance of SC
Corporation
common shares in
connection with
reorganization
and settlement
of bankruptcy
proceedings..... 868,365 8,684 -- -- -- -- -- -- -- -- 859,681
Issuance of
preferred stock. -- -- -- -- -- -- -- -- 22,491 2,249,100 --
Exchange of SC
Corporation
common shares
for Specialty
Catalog Corp.
common shares at
the rate of
1/100 share of
Specialty
Catalog Corp.
stock for each
share of SC
Corporation
common stock for
one............. 1,958,301 19,583 -- -- -- -- -- -- -- -- (19,583)
Net income...... -- -- -- -- -- -- -- -- -- -- --
Redeemable
preferred stock
dividends....... -- -- -- -- -- -- -- -- -- -- (31,241)
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
Balance, December
31, 1994......... 2,826,666 28,267 -- -- -- -- -- -- 22,491 2,249,100 4,934,157
Exchange of
common shares
for Class A,
Class B, and
Class C shares.. (2,826,666) (28,267) 1,958,880 19,589 433,893 4,339 433,893 4,339 -- -- --
Net income...... -- -- -- -- -- -- -- -- -- -- --
Redeemable
preferred stock
dividends....... -- -- -- -- -- -- -- -- -- -- (292,383)
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
Balance, December
30, 1995......... -- -- 1,958,880 19,589 433,893 4,339 433,893 4,339 22,491 2,249,100 4,641,774
Net income
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Redeemable
preferred stock
dividends
(unaudited)..... -- -- -- -- -- -- -- -- -- -- (146,188)
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
Balance, June 29,
1996 (unaudited). -- $ -- 1,958,880 $19,589 433,893 $4,339 433,893 $4,339 22,491 $2,249,100 $4,495,586
========== ======== ========= ======= ======= ====== ======= ====== ====== ========== ==========
<CAPTION>
ACCUMULATED
DEFICIT
-------------
<S> <C>
Balance, January
2, 1993.......... $(34,483,314)
Net income...... 9,977,393
-------------
Balance, January
1, 1994.......... (24,505,921)
Cancellation of
SC Corporation
common shares in
connection with
reorganization
and settlement
of bankruptcy
proceedings.....
Issuance of SC
Corporation
common shares in
connection with
reorganization
and settlement
of bankruptcy
proceedings.....
Issuance of
preferred stock.
Exchange of SC
Corporation
common shares
for Specialty
Catalog Corp.
common shares at
the rate of
1/100 share of
Specialty
Catalog Corp.
stock for each
share of SC
Corporation
common stock for
one.............
Net income...... 12,788,811
Redeemable
preferred stock
dividends....... --
-------------
Balance, December
31, 1994......... (11,717,110)
Exchange of
common shares
for Class A,
Class B, and
Class C shares..
Net income...... 522,262
Redeemable
preferred stock
dividends....... --
-------------
Balance, December
30, 1995......... (11,194,848)
Net income
(unaudited)..... 149,300
Redeemable
preferred stock
dividends
(unaudited)..... --
-------------
Balance, June 29,
1996 (unaudited). $(11,045,548)
=============
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

SPECIALTY CATALOG CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------- ------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1994 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income............. $ 9,977,393 $ 12,788,811 $ 522,262 $ 554,552 $ 149,300
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Interest paid through
issuance of debt...... -- -- 445,333 211,611 237,216
Provision for bad
debts................. 26,004 34,180 146,004 12,195 --
Depreciation and amor-
tization.............. 776,440 748,628 249,127 116,878 141,536
Deferred income taxes.. 415,004 1,439,943 350,819 -- --
Cumulative effect of
change in accounting
for income taxes...... (8,985,122) -- -- -- --
Changes in operating
assets and
liabilities:
Accounts receivable... (222,666) 120,860 (934,785) (299,842) 229,460
Inventories........... (1,145,222) (817,280) (852,477) 4,714 983,183
Prepaid expenses...... (1,600,109) (120,628) (288,275) (1,358,709) (124,073)
Other assets.......... (205,745) (383,072) 104,935 57,528 53,122
Accounts payable and
accrued expenses..... 1,818,219 (1,944,118) 1,802,918 1,265,962 (129,450)
Provision for
estimated returns.... 104,000 150,299 (356,033) (522,299) (237,138)
Other liabilities to
customers............ (263,141) (8,654) (155,817) 37,399 112,036
Income taxes.......... (79,971) (43,077) (29,505) 337,984 150,985
Other long-term
liabilities.......... -- -- 18,315 5,422 23,415
Change due to
reorganization
activities:
Extraordinary gain on
debt discharge....... -- (13,173,138) -- -- --
----------- ------------ ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. $ 615,084 $ (1,207,246) $ 1,022,821 $ 423,395 $ 1,589,592
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Purchases of property
and equipment......... (268,037) (447,919) (413,146) (206,639) (138,780)
Repayments of note re-
ceivable.............. -- -- 7,409 -- --
----------- ------------ ----------- ----------- -----------
Net cash used in invest-
ing activities......... $ (268,037) $ (447,919) $ (405,737) $ (206,639) $ (138,780)
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Issuance of common
stock................. -- 827,042 -- -- --
Issuance of redeemable
preferred stock....... -- 2,142,840 -- -- --
Settlement of long-term
obligations........... -- (20,237,480) -- -- --
Issuance of long-term
debt.................. -- 17,680,186 -- -- --
Repayments of long-term
debt.................. -- -- (2,500,000) (500,000) (1,100,000)
Advances on line of
credit................ 2,972,147 -- 1,050,000 -- 400,000
----------- ------------ ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............. $ 2,972,147 $ 412,588 $(1,450,000) $ (500,000) $ (700,000)
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM REORGA-
NIZATION ACTIVITIES:
Decrease in obligations
subject to settlement
under reorganization
proceedings........... $(1,495,935) $ -- $ -- $ -- $ --
----------- ------------ ----------- ----------- -----------
Increase (decrease) in
cash................... 1,823,259 (1,242,577) (832,916) (283,244) 750,812
Cash, beginning of year. 365,598 2,188,857 946,280 946,280 113,364
----------- ------------ ----------- ----------- -----------
Cash, end of year....... $ 2,188,857 $ 946,280 $ 113,364 $ 663,036 $ 864,176
----------- ------------ ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid during the
year for:
Interest............... $ 382,754 $ 493,624 $ 1,533,826 $ 712,748 $ 592,851
=========== ============ =========== =========== ===========
Income taxes.......... $ 316,837 $ 174,735 $ 35,261 $ 41,053 $ 42,669
=========== ============ =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

SUMMARY OF NONCASH TRANSACTIONS:

During the six-month periods ended June 29, 1996 and July 1, 1995 and the
year ended December 30, 1995, the Company issued $237,216, $211,611 and
$445,333 of subordinated debt in lieu of payment of interest.

During the six-month periods ended June 29, 1996 and July 1, 1995 and the
years ended December 30, 1995 and December 31, 1994, the Company declared
dividends on preferred stock of $146,188, $146,191, $292,383 and $31,241
which have not been paid at June 29, 1996.

In 1994 the Company received a note in the amount of $147,583 in exchange
for common and preferred stock.

See notes to consolidated financial statements.

F-7
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business--Specialty Catalog Corp. (the "Company") is a direct
marketer targeting niche consumer product categories. SC Corporation, the
Company's principal operating subsidiary doing business under the name SC
Direct ("SC Direct"), is the leading U.S. retailer of women's wigs and
hairpieces. SC Publishing, Inc. ("SC Publishing"), a wholly-owned subsidiary
of SC Direct, sells continuing education courses to nurses, real estate
professionals and Certified Public Accountants.

Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company, SC Direct, and SC Publishing.
All material intercompany balances and transactions have been eliminated in
consolidation.

Pro Forma Balance Sheet--The June 29, 1996 pro forma balance sheet gives
effect to the conversion of 13% Preferred Stock ("13% Preferred Stock") into
375,000 shares of common stock, the waiver of all accrued dividends and
interest on the 13% Preferred Stock, the issuance of the stock options
described in note 15 and the issuance of debt and related warrants also
described in note 15.

Accounts Receivable--The Company records an allowance to provide for
uncollectible accounts receivable. This allowance is determined based on the
historical rate of bad debts applied to current balances. In 1995 and 1994,
the Company had write-offs of accounts receivable against this allowance of
$34,221 and $34,180, respectively. Bad debt expense for the years ended
December 30, 1995, December 31, 1994 and January 1, 1994 was $146,004,
$34,180, and $26,004, respectively. Amounts collected for previously written
off accounts are credited to miscellaneous income.

Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Inventories--Inventories are stated at the lower of first-in, first-out cost
or market. A reserve for obsolete inventory is recorded based on the expected
realizable value of merchandise. The cost of inventory includes the cost of
merchandise, freight, duty, brokerage fees and marine insurance.

Prepaid Expenses--The costs incurred to develop, print and place direct
response advertisements to obtain names of potential customers are recorded as
prepaid expenses until the time the advertisement is published, mailed or
otherwise made available to potential customers. Direct response advertising
is capitalized and amortized over the expected period of future benefit,
generally two to four months. The adoption of Statement of Principles 93-7,
"Reporting on Advertising Costs," did not have a material impact on the
calculation of deferred catalog costs since the Company employed a similar
methodology in the past. For 1993, 1994, and 1995, advertising expense was
$11.6 million, $12.2 million and $16.3 million, respectively.

Property and Equipment--Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is computed on the
straight-line method over the estimated useful lives of the respective assets.
Amortization is computed on the straight-line method over the lesser of the
estimated useful lives of the related assets or the lease terms.

F-8
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other Assets--Trademarks are stated at cost less accumulated amortization.
Amortization is computed on a straight-line basis over 37 years. At December
31, 1995 and 1994, the Company had $33,870 and $21,482 of unamortized
trademarks included in other assets.

Deferred financing costs which were incurred by the Company in connection with
the Banque Nationale de Paris ("BNP") note (Note 7) are charged to operations
as additional interest expense over the life of the underlying indebtedness
using the straight-line method. At December 30, 1995 and December 31, 1994
deferred financing costs were $397,091 and $510,545, respectively.

Income Taxes--In 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109
requires that deferred income taxes be determined based on the expected future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred income tax assets and liabilities. A valuation allowance is recorded
when realization of a deferred tax asset is not assured. In connection with
the adoption of this statement, the Company recognized a cumulative effect of
$8,985,122 in 1993.

Revenue--The Company recognizes sales and the related costs of sales at the
time the merchandise is shipped to customers. The Company allows for
merchandise returns at the customer's discretion within the period stated in
the Company's sales policy. An allowance is provided for returns based on
historical return rates applied to recent shipments.

Fair Value of Financial Instruments--SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not
recognized in the consolidated balance sheet of the Company, for which it is
practicable to estimate fair value. The estimated fair value of financial
instruments which are presented herein have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of amounts the Company could realize in a
current market exchange.

The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable, and line of credit approximate their carrying
values at December 30, 1995, due to the short-term maturities of these
investments. The carrying value and fair value of the Company's note
receivable at December 30, 1995 was $140,174. The fair value of the note
receivable is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. The fair value of the Company's
long-term debt at December 30, 1995 was $15,636,397. The carrying value of the
Company's long term debt at December 30, 1995 was $15,625,519. The fair value
of the Company's long-term debt is based on discounted future cash flows using
current interest rates for financial instruments with similar characteristics
and maturity.

Net Income Per Share--Net income per share is calculated using the weighted
average number of common shares outstanding during each of the periods
retroactively restated to give effect to the 325.51-for-one stock split.

Newly Adopted Accounting Statements--In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which was effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with

F-9
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
employees and encourages (but does not require) compensation cost to be
measured based on fair value of the equity instruments awarded. Companies are
permitted, however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its stock-
based compensation awards to employees and will disclose the required pro
forma effect on net income and earnings per share.

Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles which are to be disposed of. The adoption of this
statement had no effect on the financial position, or results of operations or
cash flows of the Company.

Fiscal Year--The Company is on a 52/53 week fiscal year, ending on the
Saturday closest to December 31. The fiscal years ended December 30, 1995,
December 31, 1994 and January 1, 1994, each consisted of 52 weeks.

Reclassifications--Certain amounts in the 1993 and 1994 financial statements
have been reclassified to conform to the 1995 presentation.

Unaudited Financial Statements--In the opinion of management of the Company,
the accompanying unaudited financial statements reflect all adjustments which
were of a normal recurring nature necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the six
months ended June 30, 1996 and June 30 1995.

2. CORPORATE ORGANIZATION AND BANKRUPTCY PROCEEDINGS

On December 28, 1992, SC Corporation and its subsidiaries Wigs by Paula,
Inc. ("Wigs"), Western Schools, Inc., the predecessor of SC Publishing, After
the Stork, Inc. ("Stork") and Brotman Acquisition Corp. ("Brotman") filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Bankruptcy") in the United States Bankruptcy Court for the
District of Connecticut, ("Bankruptcy Court"). From that date until November
23, 1994, SC Corporation operated its business as a debtor-in-possession
subject to the jurisdiction of the Bankruptcy Court. During that period, the
Company did not pay $1,030,757 and $1,688,592 of contractual interest for the
years ended December 31, 1994 and January 1, 1994 while under the protection
of Bankruptcy.

SC Corporation's Disclosure Statement with respect to the First Amended and
Restated Joint Plan of Reorganization of SC Corporation and its subsidiaries
Wigs and SC Publishing ("Plan of Reorganization") was approved by the
Bankruptcy Court on September 21, 1994. The Plan of Reorganization was
subsequently confirmed by the Bankruptcy Court on October 26, 1994 and the
reorganization of SC Corporation was consummated on November 23, 1994.

The Plan of Reorganization provided for the payment of $15,508,726 in cash,
$1,673,453 in subordinated notes, 10,227 shares of preferred stock valued at
$1,022,700 and 295,121 shares of common stock valued at

F-10
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$295,121 in settlement of $24,102,851 of secured claims, and $3,345,066 in
cash, $354,247 in subordinated notes, 2,164 shares of preferred stock valued
at $216,400 and 179,353 shares of common stock valued at $179,353 in
settlement of $11,665,353 of unsecured claims. The gain on such discharge of
pre-petition claims has been recorded as an extraordinary item, net of income
taxes of $1,094,649. The Company funded the Plan of Reorganization by selling
additional shares of common stock and 13% Preferred Stock ("13% Preferred
Stock"), entering into a new senior credit facility, and issuing subordinated
notes ("Subordinated Notes"). Subsequent to the consummation of the
reorganization, certain stockholders of the Company purchased the subordinated
notes and 13% Preferred Stock from the holder of the secured claims at their
face values and the common stock from the holders of the secured and unsecured
claims at its fair market value.

Reorganization items consist of the following:

<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Interest income................................... $ 103,308 $ 24,473
Professional fees................................. (2,133,117) (1,062,452)
Executive and employee compensation............... (533,840) --
Other............................................. (326,058) --
----------- -----------
$(2,889,707) $(1,037,979)
=========== ===========
</TABLE>

The Company was incorporated on November 30, 1994 for the purpose of
becoming the parent company of SC Corporation. On that date, the Company
issued 2,826,666 shares of its common stock and 22,491 shares of 13% Preferred
Stock to the stockholders of SC Corporation in exchange for their shares of SC
Corporation common stock and preferred stock.

3. PREPAID EXPENSES

Prepaid expenses at December 30, 1995 and December 31, 1994 consists of the
following:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred catalog costs................................ $2,320,261 $1,747,152
Prepaid advertising................................... 825,064 1,068,566
Other................................................. 317,493 358,825
---------- ----------
$3,462,818 $3,174,543
========== ==========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 30, 1995 and
December 31, 1994:

<TABLE>
<CAPTION>
USEFUL
LIFE 1995 1994
------- ----------- -----------
<S> <C> <C> <C>
Furniture and equipment.................. 7 years $ 1,139,016 $ 1,326,389
Data processing equipment................ 5 years 2,734,186 2,363,330
Leasehold improvements................... (i) 109,146 98,230
----------- -----------
3,982,348 3,787,949
Less accumulated depreciation and amorti-
zation.................................. (3,040,751) (3,011,164)
----------- -----------
$ 941,597 $ 776,785
=========== ===========
</TABLE>

(i) Lesser of the estimated useful lives of the related assets or the lease
term.

F-11
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at December 30, 1995 and December 31,
1994 consist of the following:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Accounts payable....................................... $3,368,865 $1,108,589
Accrued compensation................................... 490,227 933,087
Other accrued expenses................................. 871,844 886,342
---------- ----------
$4,730,936 $2,928,018
========== ==========
</TABLE>

6. LIABILITIES TO CUSTOMERS

Liabilities to customers at December 30, 1995 and December 31, 1994 consist
of the following:

<TABLE>
<CAPTION>
1995 1994
-------- ----------
<S> <C> <C>
Deferred revenue......................................... $114,636 $ 270,453
Reserve for returns...................................... 641,266 997,299
-------- ----------
$755,902 $1,267,752
======== ==========
</TABLE>

Deferred revenues reflect cash received from customers for backordered items
which have not yet been shipped. The reserve for returns represents estimated
merchandise to be returned for refunds in the future based on historical
return rates applied to recent shipments.

7. LONG-TERM DEBT

Long-term debt consists of the following at December 30, 1995 and December
31, 1994:

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
BNP term advance, Prime Rate plus 2% or Eurodollar
Rate plus 3.5%, payable quarterly in amounts
between $500,000 and $1,500,000 through May 22,
1999............................................... $11,500,000 $14,000,000
SC Holdings LLC Subordinated Note, 11.5%,
payable November 22, 2002.......................... 3,680,186 3,680,186
SC Holdings LLC PIK Note, 11.5%, payable November
22, 2002........................................... 445,333 --
----------- -----------
15,625,519 17,680,186
Less current portion................................ 2,750,000 2,500,000
----------- -----------
$12,875,519 $15,180,186
=========== ===========
</TABLE>

The Credit Agreement between BNP and the Company ("Agreement") has covenants
which prohibit the payment of cash dividends on the Company's Common Stock and
13% Preferred Stock and any principal or interest payments on the Subordinated
Notes and require that various financial limits and ratios be maintained.

F-12
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Agreement requires an annual prepayment of outstanding
principal equal to 75% of the Company's excess cash flow, as defined. Each
prepayment reduces pro rata the remaining scheduled term advance principal
payments.

The Agreement is secured by all assets of the Company and its subsidiaries.
In addition, the Company has pledged the shares of common stock of SC
Corporation, and SC Holdings LLC ("Holdings") has pledged its subordinated
note, to BNP as additional collateral, and the Company, its subsidiaries and
Holdings each have jointly, severally and unconditionally guaranteed the
borrowings under the Agreement, up to a certain percentage of each guarantor's
adjusted net assets, as defined. The Agreement also provides the Company with
a line of credit up to $2,000,000 for working capital and letters of credit.
The line of credit may be automatically and permanently reduced each year by a
portion of the Company's excess cash flow, as defined. The Company had
$1,050,000 and $0 outstanding under the line of credit and $536,000 and
$2,000,000 available under the line of credit at December 30, 1995 and
December 31, 1994, respectively. Borrowings under the line of credit were at
the prime rate plus 2%, which was 10.5% at December 30, 1995. Borrowings under
the term advance at December 30, 1995 due within three months are at the
three-month Eurodollar rate plus 3.5% while the remainder of the borrowings
are at the six-month Eurodollar rate plus 3.5%. Such Eurodollar rates were
9.38% and 9.19%, respectively.

The Company is obligated to pay various fees under the Agreement, including
an unused line of credit fee of 0.5% of the unused amount under the line.

Holdings is a limited liability company whose stockholders own all the
issued and outstanding shares of 13% Preferred Stock of the Company and
certain of the issued and outstanding shares of Common Stock of the Company.

The Company may, at its option through November 22, 1999, and, under certain
conditions, through November 22, 2002, pay interest on the Subordinated Notes
by issuing additional Subordinated Notes with identical terms and conditions
with an aggregate principal amount equal to the amount of interest then
payable. In 1995, the Company issued $445,333 of additional Subordinated Notes
as payment of interest for the period November 1994 through December 1995.

The aggregate maturities of long-term debt after December 30, 1995 are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -----------
<S> <C>
1996............................................................. $ 2,750,000
1997............................................................. 3,250,000
1998............................................................. 3,750,000
1999............................................................. 1,750,000
2000............................................................. --
2001 and thereafter.............................................. 4,125,519
-----------
$15,625,519
===========
</TABLE>

As described in Note 15, the Company intends to have a public offering of
its common shares in late 1996 in order to pay a portion of its outstanding
debt. In the event that this offering is not successful, the Company believes
that its present cash flows from operations are sufficient in order to meet
the above debt service requirements, however, if necessary, the Company plans
to refinance the BNP term advance.

8. PREFERRED STOCK

On November 30, 1994, the Company issued 22,491 shares of 13% Preferred
Stock.

F-13
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The 13% Preferred Stock dividends are cumulative and payable quarterly at
the end of each calendar quarter. In addition to the Credit Agreement's
prohibition of the payment of cash dividends on the Company's Common Stock and
13% Preferred Stock, the Company may not pay any dividends on any class of its
capital stock other than the 13% Preferred Stock or purchase, redeem or
otherwise acquire any shares of any class of its capital stock so long as
there are any accrued but unpaid dividends on any shares of the 13% Preferred
Stock. At December 30, 1995, there were $323,624 of cumulative 13% Preferred
Stock dividends in arrears, which is included in other long-term liabilities.

Prior to 1995, pursuant to the terms of the 13% Preferred Stock, the Company
was required to redeem all the outstanding shares of 13% Preferred Stock on
November 30, 2004 at a price equal to the par value of the outstanding shares
plus any accrued but unpaid dividends ("Redemption Price"). In 1995, the Board
and the holders of the 13% Preferred Stock elected to amend the Company's
charter by removing the mandatory redemption provision of the 13% Preferred
Stock. In addition, at any time prior to November 30, 2004, the Company may,
at its option, redeem any or all shares of the 13% Preferred Stock at the
Redemption Price.

The holders of the 13% Preferred Stock have no voting rights except as
provided by law.

In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the 13% Preferred Stock shall be
entitled to receive the Redemption Price before any distribution shall be made
to holders of common stock or other capital stock of the Company. If the
assets of the Company at such time are insufficient to pay such amounts, such
assets shall be distributed pro rata to the holders of the 13% Preferred
Stock.

9. STOCKHOLDERS' EQUITY

Issuance of Common Stock--As part of the Company's reorganization and
settlement of its bankruptcy proceedings, on November 23, 1994 SC issued
868,365 shares of common stock and canceled 1,000,000 shares of old common
stock that had been issued prior to the date that SC Corporation filed for
reorganization under Chapter 11. On November 30, 1994, the stockholders
exchanged their shares of SC Corporation common stock for the Company's common
stock at the rate of approximately 100 shares of SC Corporation's common stock
for each share of the Company's common stock.

In 1995, the Company's Board of Directors and holders of common stock
elected to recapitalize the common stock into three classes, Class A, Class B
and Class C. Holders of Class A shares are entitled to one vote per share
while holders of Class B and Class C shares are entitled to one-half vote per
share and one and one-half votes per share, respectively. All dividend and
liquidation rights remain unchanged. Upon sale, disposition or other transfer
of any share(s) of Class B common stock by the original holder thereof, (i)
such share(s) shall automatically and immediately convert into an equal number
of shares of Class A common stock, and (ii) an equal number of shares of Class
C common stock shall automatically and immediately convert into an equal
number of shares of Class A common stock. All shareholders received one share
of Class A for each share of common with the exceptions of one shareholder who
received one-half share of Class A and one-half share of Class B for each
share of common and another shareholder who received one-half share of Class A
and one-half share of Class C for each share of common.

Shareholders' Agreement--All holders of common stock and options to purchase
common stock are parties to a Shareholders' Agreement dated November 30, 1994
which (i) prohibits the sale, pledge, transfer or disposal of shares of common
stock prior to the earlier of November 24, 1997 or the date on which the
Company shall have fully utilized its Federal income tax net operating loss
carryovers ("Ownership Change Date") and (ii) restricts the sale, pledge,
transfer or disposal of shares of common stock subsequent to the Ownership
Change Date by granting to the other holders of shares of common stock the
right of first refusal on any bona fide offer to purchase shares of common
stock. The Shareholders' Agreement terminates on the earliest of (i) the date
of

F-14
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
dissolution or liquidation of the Company, (ii) such time as any one
shareholder or other person owns all the shares of common stock, (iii) the
date of the consummation of a public offering of common stock under the
Securities Act of 1933 ("Act") or (iv) such time as all the parties to the
Shareholders' Agreement elect to terminate such agreement.

Registration Rights Agreement--The Company and all holders of common stock
are parties to a Registration Rights Agreement dated November 30, 1994 which
requires the Company, if it proposes to file a registration statement with
respect to its common stock under the Act, to give all holders of common stock
the opportunity to include their shares in such registration. In addition, the
Registration Rights Agreement requires the Company, upon request from either
of its major shareholders, to use its best efforts to effect the registration
under the Act of the shares of such major stockholder and (i) to notify all
other holders of common stock of such major stockholder's request, and (ii) to
use its best efforts to effect the registration under the Act of the shares of
all other shareholders who desire such registration.

Stock Option Agreements--On November 30, 1994, the Company granted a total
of 582,999 options to purchase shares of common stock to two executive
officers. The exercise price of the options is $0.3072 per share. At December
30, 1995 and December 31, 1994, 60,618 and 30,309 options were vested,
respectively. The remaining options vest over varying periods, with 143,530
options ("Vesting Options") vesting between November 23, 1996 and November 23,
1997, and 378,851 options ("Performance Options") vesting on November 1, 2003.
The Performance Options may vest earlier than November 1, 2003 if certain
earnings or internal rate of return thresholds are met.

10. RESTRUCTURING CHARGES

During 1995, the Company restructured by consolidating its operations in one
location in order to reduce costs and utilize resources more efficiently.
Specifically, restructuring charges include:

<TABLE>
<S> <C>
Office Closure Costs................................................ $212,860
Employee Severances................................................. 300,083
--------
Total............................................................. $512,943
========
</TABLE>

Actual termination benefits paid in 1995 totaled $214,007. Included in
accrued expenses at December 30, 1995 are accrued restructuring related
charges of $151,976.

11. INCOME TAXES

The provision for income taxes consists of the following at December 30,
1995 and December 31, 1994:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $ 5,046 $ --
State........................................... 5,756 147,614 289,013
-------- -------- --------
5,756 152,660 289,013
-------- -------- --------
Deferred:
Federal......................................... 298,196 293,500 352,753
State........................................... 52,623 51,794 62,251
-------- -------- --------
350,819 345,294 415,004
-------- -------- --------
Total......................................... $356,575 $497,954 $704,017
======== ======== ========
</TABLE>

F-15
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Deferred income tax assets and liabilities consist of the following at
December 30, 1995 and December 31, 1994:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards.................... $7,229,484 $7,726,848
Operating reserves.................................. 200,165 983,769
Inventory........................................... 226,990 106,103
Other............................................... 5,044 5,046
---------- ----------
7,661,683 8,821,766
---------- ----------
Deferred income tax liabilities:
Extraordinary gain on debt discharge................ -- 1,094,649
Deferred catalog costs.............................. 850,259 551,271
Other............................................... 32,068 45,671
---------- ----------
882,327 1,691,591
---------- ----------
Net deferred income tax asset......................... $6,779,356 $7,130,175
========== ==========
</TABLE>

Reconciliation of the statutory Federal income tax rate and the effective
rate of the provision for income taxes for the years ended December 30, 1995,
December 31, 1994 and January 1, 1994 is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate.......................... 34.0% 34.0% 34.0%
State taxes, net of Federal income tax benefits............ 6.6 7.2 7.5
---- ---- ----
40.6% 41.2% 41.5%
==== ==== ====
</TABLE>

The Company has recorded a deferred tax asset of $6,779,356 reflecting the
benefit of $18,073,209 of net operating loss carryforwards which expire in
varying amounts between 2005 and 2010. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely
than not that all of the deferred tax asset will be realized.

The use of the net operating losses may be subject to certain limitations
upon a change in control of the Company.

12. RELATED PARTY TRANSACTIONS

The Company has a note receivable from a stockholder in the amount of
$140,174 at December 30, 1995. The note bears interest at 9.25% and is
repayable in varying annual installments between December 31, 1996 and
December 31, 1999.

The note was issued in November 1994 in exchange for shares of Common Stock
and 13% Preferred Stock and is collateralized by 18,365 shares of Common
Stock, 490 shares of 13% Preferred Stock and $80,186 of Subordinated Notes.

13. COMMITMENTS AND CONTINGENCIES

Operating Leases--The Company leases certain administrative, warehousing and
other facilities and equipment under operating leases. The following is a
schedule of future minimum rental payments under noncancelable operating
leases as of December 30, 1995:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996................................................................ $193,500
1997................................................................ 31,168
--------
$224,668
========
</TABLE>

F-16
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Management expects that, in the normal course of business, expiring leases
will be renewed or replaced by other leases. Rent expense under operating
leases for the year ended December 30, 1995, December 31, 1994 and January 1,
1994 was $438,450, $569,212 and $562,907, respectively.

Employment and Bonus Agreements--The Company has employment and bonus
agreements with two executive officers through December 31, 1999. The
Company's salary commitment under these agreements aggregates $2,060,000 at
December 30, 1995 as follows:

In addition, the two executive officers may earn certain other bonuses based
on the Company's achievement of certain operating criteria.

14. EMPLOYEE BENEFIT PLANS

The Company maintains a qualified defined contribution plan, under the
provisions of Section 401(k) of the Internal Revenue Code, covering
substantially all employees. Under the terms of the plan, eligible employees
may make contributions up to 15% of pay, subject to statutory limitations.
Contributions not exceeding 5% of an employee's pay are matched 40% by the
Company. The Company may, at its discretion, make an additional year-end
contribution. Employee contributions are always fully vested. Company
contributions vest 20% for each completed year of service, becoming fully
vested after five years of service. Matching contributions by the Company
under the plan were $67,188, $59,594 and $47,520 in 1995, 1994 and 1993,
respectively. No discretionary contributions have been made to the plan.

The Company established a supplemental defined contribution plan in 1994
that covers certain employees. Under the terms of the plan, these employees
may elect to defer up to 50% of any bonus paid for that year. The Company
matches 100% of all amounts deferred. In addition, the Company pays interest
on all outstanding balances at the prime rate but not in excess of 12%. A
participant's rights to the deferred amount of regular bonus and income
thereon shall be fully vested and nonforfeitable at all times. A participant's
right to the Company's match shall become fully vested and nonforfeitable in
cumulative increments of 20% on each of the first through fifth anniversaries
of the bonus date for that year. The total cost of the plan to the Company was
$0, $65,000 and $0, in 1993, 1994 and 1995, respectively. The $65,000
contributed in 1994 initiated the plan.

15. SUBSEQUENT EVENTS

On June 1, 1996, the Company entered into an agreement with a director and
two associates of the director to issue junior subordinated notes for $495,000
payable on August 12, 1999 and bearing interest at 11.5%. In connection with
the issuance of these notes, the Company agreed to issue warrants for $5,000
to purchase 265,335 shares of Class A common stock for an aggregate exercise
price of $500,000 ($1.8844 per share). The warrants expire on September 30,
1999. The note and related warrants were issued on August 12, 1996. The note
has been discounted using an effective interest rate of 21.5%, which
represented the Company's borrowing rate for junior subordinated debt at the
date of the transaction. The remainder of the value representing $114,061 was
assigned to the warrants.

In July 1996, the Company signed a letter of intent with an underwriter for
an initial public offering of 1.25 million shares of the Company's Common
Stock. At the effective date of the offering, the Company will increase

F-17
<PAGE>

SPECIALTY CATALOG CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the number of authorized shares of Common Stock from 20,000 to 10,000,000 and
preferred stock from 30,000 to 1,000,000 and effect a 325.51-for-one split.
The effect of the stock split will be to transfer $19,583 representing the par
value of the additional shares issued from additional paid in capital to
Common Stock. All numbers of common shares and per share data in the
accompanying consolidated financial statements have been retroactively
adjusted to effect the stock split. Immediately after the stock split, all
outstanding shares of preferred stock will be converted into 375,000 shares of
Common Stock. All accumulated dividends and accrued interest on those
dividends through the date of the offering have been irrevocably waived by the
13% Preferred Stockholders as of August 13, 1996. In addition, at the date of
the offering, the Company will adopt the 1996 Stock Option Plan ("Plan"). It
is anticipated that 500,000 authorized but unissued shares of Common Stock
will be reserved for issuance under the Plan. The per share exercise price of
options granted under the Plan will be not less than 100% of the fair market
value of a share of the Company's Common Stock on the date of the grant.

In August 1996, the Company amended its Credit Agreement with BNP. This
amendment included revisions of certain financial limits and ratios that must
be maintained by the Company and is retroactive to December 31, 1995.

In August 1996, the Board of Directors granted a total of 175,000 options to
purchase shares of Common Stock to two executive officers contingent on the
occurrence of the offering. Of these options, 75,000 are exercisable at $5.33
per share and the remainder at the initial public offering price. The options
vest equally over five years subject to acceleration under certain
contingencies.

16. PRO FORMA AND SUPPLEMENTAL PRO FORMA EARNINGS PER SHARE (UNAUDITED)

Pro forma earnings per share of the Company give effect to the conversion of
all 13% Preferred Stock into 375,000 Common Shares, and the exercise of
options to purchase 657,999 shares of Common Stock more fully described in
Notes 7 and 13. Historical net income has been adjusted to give effect to the
elimination of accrued dividends on the 13% Preferred Stock. Pro forma
earnings per share for the periods ended December 30, 1995 and June 29, 1996
are as follows:

<TABLE>
<CAPTION>
DECEMBER 30, JUNE 29,
1995 1996
------------ --------
<S> <C> <C>
Pro forma earnings per share........................... $0.14 $0.04
===== =====
</TABLE>

Supplemental pro forma earnings per share gives effect to the number of
shares necessary for the Company to sell at a purchase price of $7.00 per
share less the Underwriters' discount, to raise sufficient proceeds (net of
estimated offering expenses) to retire $5,900,000 of the Company's
indebtedness to BNP. The number of supplemental pro forma shares outstanding
also gives effect to the conversion of all shares of 13% Preferred Stock for
375,000 of Common Stock, the exercise of a warrant for 265,335 shares of
Common Stock (See note 15) and the exercise of options for 657,999 shares of
Common Stock (See notes 9 and 15). Historical net income has been adjusted to
give effect to the reduction of interest expense on the BNP indebtedness as a
result of repayment of such debts, and to the elimination of accrued dividends
on the preferred stock and any interest expense accrued on unpaid accumulated
dividends. Supplemental pro forma earnings per share for the periods ended
December 30, 1995 and June 29, 1996 are as follows:

<TABLE>
<CAPTION>
DECEMBER 30, JUNE 29,
1995 1996
------------ --------
<S> <C> <C>
Supplemental pro forma earnings per share.............. $0.17 $0.06
===== =====
</TABLE>

F-18
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.

---------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Reorganization............................................................ 8
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 14
Capitalization............................................................ 15
Dividend Policy........................................................... 15
Dilution.................................................................. 16
Selected Financial and Operating Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 19
Business.................................................................. 25
Management................................................................ 34
Principal Stockholders.................................................... 39
Certain Transactions...................................................... 41
Description of Securities................................................. 41
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 45
Legal Matters............................................................. 46
Experts................................................................... 46
Available Information..................................................... 47
Index to Financial Statements............................................. F-1
</TABLE>

---------------

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

1,500,000 SHARES

LOGO
SPECIALTY Catalog
CORP.

COMMON STOCK

-------------
PROSPECTUS
-------------

GKN Securities

, 1996

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the Company's estimates of the expenses to be
incurred by it in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 4,887.93
NASD registration fee........................................... 1,996.25
Nasdaq listing fee.............................................. 28,508.00
Printing registration statement and other documents............. 100,000.00*
Fees and expenses of Registrant's counsel....................... 200,000.00*
Underwriter's expense allowance................................. 262,500.00*
Accounting fees and expenses.................................... 100,000.00*
Blue Sky expenses and counsel fees.............................. 25,000.00*
Engraving....................................................... 5,000.00*
Miscellaneous................................................... 22,107.82
-----------
Total......................................................... $750,000.00
===========
</TABLE>
- --------
* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law of Delaware, as amended ("DGCL"),
authorizes a Delaware corporation to indemnify its officers, directors,
employees and agents against expenses and liabilities incurred in legal
proceedings involving such persons because of their holding or having held
such positions with the corporation and to purchase and maintain insurance for
such indemnification. The Company's By-Laws and Article Seventh of its
Certificate of Incorporation, as amended, substantively provide that the
Company indemnify its officers, directors, employees and agents to the fullest
extent permitted by Section 145 of the DGCL.

In accordance with Section 102(b)(7) of the DGCL, Article 8 of the Company's
Certificate of Incorporation, as amended, eliminates the personal liability of
directors to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director with certain limited exceptions set forth in
Section 102(b)(7).

The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand and the Underwriters
and their respective controlling persons on the other hand against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended ("Securities Act").

The Company has also entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited
circumstances, including on account of knowingly fraudulent, deliberately
dishonest or willful misconduct. To the extent the provisions of the
indemnification agreements exceed the indemnification permitted by applicable
law, such provisions may be unenforceable or may be limited to the extent they
are found by a court of competent jurisdiction to be contrary to public
policy.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Described below is information regarding all securities that have been
issued by the Company in the past three years.

1. On November 23, 1994, SC Corporation, a predecessor of the Company,
pursuant to the First Amended and Restated Joint Plan of Reorganization of SC
Corporation, Wigs by Paula, Inc., and SC Publishing, undertook a
reorganization ("Reorganization") and left the protection of the bankruptcy
court. As part of the Reorganization: (i) Mr. Bock acquired for $30,000 98,934
shares of the Company's Common Stock; (ii) Dickstein & Co. acquired for
$2,184,000 867,786 shares of the Company's Common Stock, 7,272 shares of the
Company's 13% Preferred Stock and subordinated indebtedness ("Subordinated
Indebtedness") in the principal amount of $1,190,000; (iii) Dickstein
International acquired for $1,092,000 433,893 shares of the Company's Common
Stock, 3,636 shares of the Company's 13% Preferred Stock and Subordinated
Indebtedness in the principal amount of $595,000; and (iv) Viking Holdings
Limited acquired for $2,626,000 and the forgiveness of a $650,000 note
receivable 1,301,680 shares of the Company's Common Stock, 10,908 shares of
the Company's 13% Preferred Stock and Subordinated Indebtedness in the
principal amount of $1,785,000. All of the Subordinated Indebtedness was
transferred to SC Holdings L.L.C. shortly after completion of the Plan of
Reorganization. The owners of SC Holdings L.L.C. control the majority of the
outstanding Common Stock. The Subordinated Indebtness bears interest at 11.5%
per annum and is due on December 1, 2002. The issuance of the shares and the
Subordinated Indebtness was exempt from the registration provisions of the
Securities Act pursuant to Section 3(a)(7) of the Securities Act.

2. On November 30, 1994, all of the outstanding shares of SC Corporation
common stock were exchanged for shares of Common Stock and 13% Preferred Stock
at the rate of 1/100 share of the Company's common stock for each outstanding
share of SC Corporation common stock. The forgoing transactions were exempt
from the registration provisions of the Securities Act pursuant to Section
4(2)(a) of the Securities Act.

The following table sets forth the number of shares of the Company's Common
Stock and the amount of subordinated indebtness each stockholder received
pursuant to the Reorganization. The numbers of shares owned and the conversion
of the 13% Preferred Stock into Common Stock reflect a recapitalization of the
Company whereby each share of Preferred Stock was converted into 16.67 shares
of Common Stock.

<TABLE>
<CAPTION>
AMOUNT OF
COMMON STOCK PREFERRED SUBORDINATED
NAME SHARES ISSUED SHARES ISSUED INDEBTNESS
---- ------------- ------------- ------------
<S> <C> <C> <C>
Steven L. Bock.................... 303.93 0 --
Bruce Pollack..................... 121.57 0 --
Wigs, L.P......................... 260.51 675 $ 110,406
Dickstein & Co., L.P.............. 2,665.88 7,272 $1,189,926
9 West 57th Street
New York, NY 10019
Dickstein International Limited... 1,332.94 3,636 $ 594,964
9 West 57th Street
New York, NY 10019
Viking Holdings Limited........... 3,998.82 10,908 $1,784,890
c/o Abacus Secretaries (Jersey)
Limited
La Motte Chambers
St. Helier, Jersey
JE1 1BS Channel Islands
</TABLE>

3. Mark Brodsky and Samuel Katz acquired their shares of Common Stock and
13% Preferred Stock as set forth in the following table in February 1996 from
Dickstein International. The transaction was exempt from the

II-2
<PAGE>

registration requirements of the Securities Act pursuant to the so-called
"Section 4 (1 1/2)" exemption. The following table sets forth the number of
shares of common stock and 13% Preferred each stockholder received. The
numbers of shares owned and the conversion of the 13% Preferred Stock into
Common Stock reflect a recapitalization of the Company whereby each share of
Preferred Stock was converted into 16.67 shares of Common Stock.

<TABLE>
<CAPTION>
COMMON
STOCK PREFERRED
NAME ISSUED STOCK ISSUED
---- ------ ------------
<S> <C> <C>
Mark Brodsky............................................. 122.07 332.98
Samuel Katz.............................................. 244.14 665.96
</TABLE>

4. On June 1, 1996, the Company entered into an agreement with Martin
Franklin, a director of the Company, and two associates of Mr. Franklin,
pursuant to which Mr. Franklin and his associates loaned the Company $495,000
in junior subordinated indebtedness. This loan was made on August 12, 1996,
bears interest at 11.5%, and is due August 12, 1999, provided that this loan
will not be repaid prior to the repayment of the Subordinated Indebtedness. In
connection with this loan, the Company has issued for $5,000 to Mr. Franklin
and his associates warrants to purchase 265,335 shares of Common Stock. The
warrants are exercisable until September 30, 1999 at an exercise price of
$1.88 per share.

The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act pursuant to Section 4(2) thereof.

5. On August 1, 1996, Dickstein Focus Fund acquired 999.08 shares of 13%
Preferred Stock and 366.26 shares of Common Stock from Dickstein & Co. L.P.
The transaction was exempt from the registration requirements of the
Securities Act pursuant to the so-called "Section 4(1 1/2)" exemption.

No underwriter was engaged in connection with the foregoing sales of
securities. The Company has reason to believe that all of the foregoing
purchasers were familiar with or had access to information concerning the
operations and financial conditions of the Company, and all of those
individuals purchasing securities represented that they were accredited
investors, acquiring the shares for investment and without a view to the
distribution thereof. At the time of issuance, all of the foregoing securities
were deemed to be restricted securities for purposes of the Securities Act and
the certificates representing such securities bore legends to that effect.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
***1.01 --Preliminary form of Underwriting Agreement.
***1.03 --Form of Selected Dealer Agreement.
***1.04 --Underwriter's Purchase Option.
*3.01 --Certificate of Incorporation of the Registrant, as amended.
***3.02 --By-Laws of the Registrant, as amended.
*4.01 --Specimen Certificate representing the Common Stock, par value $0.01
per share.
***5.01 --Opinion of Kane Kessler, P.C.
***10.01 --1996 Stock Option Plan.
*10.02 --Employment Agreement dated as of October 5, 1996 between the
Registrant and Steven L. Bock.
*10.03 --Employment Agreement dated as of October 5, 1996 between the
Registrant and Steven M. O'Hara.
***10.04 --Credit Agreement dated as of November 23, 1994 between Bank
Nationale de Paris ("BNP") Wigs By Paula, Inc., predecessor to the
Registrant ("Wigs").
***10.05 --First Amendment, Waiver and Consent to the Credit Agreement dated
August 16, 1995 between BNP and the Registrant.
***10.06 --Second Amendment, Waiver and Consent to the Credit Agreement dated
August 14, 1996 between BNP and the Registrant.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
***10.07 --Security Agreement dated as of November 23, 1994 between Wigs and
BNP.
***10.08 --Trademark and Copyright Security Agreement dated as of November 23,
1994 between WIGS, BNP and other guarantors named therein.
***10.09 --Pledge Agreement dated as of November 23, 1994 between SC
Corporation and BNP.
***10.10 --Pledge Agreement dated as of November 23, 1994 between the
Registrant, SC Holdings, L.L.C. and BNP.
***10.11 --Guaranty dated November 23, 1994 between the Registrant, Western
Schools, Inc., Royal Advertising & Marketing, Inc., BNP and the
Hedge Banks.
***10.12 --Guaranty dated November 23, 1994 between SC Corporation, BNP, and
the Hedge Banks.
***10.13 --Guaranty dated November 30, 1994 between the Registrant, SC
Holdings L.L.C., BNP, and the Hedge Banks.
***10.14 --Agreement dated June 1, 1996 between SC Direct, Inc., the
Registrant and Martin Franklin.
***10.15 --Debtor Securities Purchase Agreement dated November 23, 1994
between WIGS, L.P. and SC Corporation.
***10.16 --Pledge and Security Agreement dated November 30, 1994 between WIGS,
L.P. and SC Corporation.
***10.17 --Promissory Note dated November 23, 1994 in the principal amount of
$147,583 from WIGS, L.P. to SC Corporation.
***10.18 --Lease dated July 10, 1985 between Simon D. Young, Trustee of the
Sandpy Realty Trust, ("Trustee"), and Wigs for premises located at
21 Bristol Drive, South Easton, MA.
***10.19 --First Amendment of Lease, dated March 15, 1986, between the Trustee
and Wigs.
***10.20 --Second Amendment to Lease, dated March 1, 1989 between the Trustee
and Wigs By Paula, Inc.
***10.21 --Third Amendment to Lease, dated October 22, 1993 between the
Trustee and Wigs By Paula, Inc.
***10.22 --Letter Agreement, dated February 21, 1995 between the Trustee and
SC Corporation.
***10.23 --Lease, dated October 20, 1995 between Fredric Snyderman as Trustee
of JV Realty Trust and SC Direct Inc. for the premises at 23 Norfolk
Avenue.
***10.24 --Printing Agreement, dated January 1, 1995 between Quebecor Printing
(USA) Corp. and the Registrant, as amended.
***10.25 --Amended and Restated Registration Rights Agreement, dated October
3, 1996 between the Registrant and certain of the Registrant's
stockholders, as amended.
***10.26 --First Amended and Restated Joint Plan of Reorganization of SC
Corporation, Western Schools, Inc. and Wigs by Paula dated September
21, 1994.
***10.27 --AT&T Contract Tariff Order dated February 9, 1995 between AT&T and
the Registrant.
***10.28 --Shareholders' Agreement dated as of November 30, 1994 between the
Registrant, SC Holdings L.L.C., SC Corporation and certain
shareholders. ("Shareholders' Agreement").
***10.29 --Amendment No. 1 to Shareholders' Agreement.
***10.30 --SC Holdings L.L.C. Limited Liability Company Agreement, dated as of
.
***10.31 --Supplemental Defined Contribution Plan.
***10.32 --Form of Indemnification Agreement of Directors.
***10.33 --Form of Warrant.
***10.34 --Form of Junior Subordinated Note.
***11.01 --Statement Regarding Computation of per share earnings.
***21.01 --Subsidiaries of the Registrant.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
**23.01 --Consent of Kane Kessler, P.C. (included in Exhibit 5)
***23.02 --Consent of Deloitte and Touche
***24.01 --Power of Attorney (contained on page II-7)
***27.01 --Financial Data Schedule
***S-1 --Schedule II--Valuation and Qualifying Accounts
</TABLE>
- --------
* Filed herewith
** To be filed by amendment.
*** Previously filed.

ITEM 17. UNDERTAKINGS.

The Company hereby undertakes:

(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) and to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;

(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;

(4) to provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser;

(5) insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of
any action suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue;

II-5
<PAGE>

(6) for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;

(7) for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-6
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON OCTOBER 11, 1996.

Specialty Catalog Corp.

/s/ Steven L. Bock
By: _________________________________
Steven L. Bock,
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Steven Bock and Stephen O'Hara, jointly
and severally, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement and all documents relating
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.

SIGNATURE TITLE DATE

/s/ Steven L. Bock Director and Chief
- ------------------------------------- Executive Officer October 11,
/s/ Steven L. Bock (Principal 1996
Executive Officer)

/s/ Steven L. Bock, as Attorney-in- President
Fact October 11,
- ------------------------------------- 1996
/s/ Stephen M. O'Hara

/s/ Steven L. Bock, as Attorney-in- Chief Financial
Fact Officer (Principal October 11,
- ------------------------------------- Financial and 1996
/s/ J. William Heise Accounting Officer)

/s/ Steven L. Bock, as Attorney-in- Director
Fact October 11,
- ------------------------------------- 1996
/s/ Alan S. Cooper

II-7
<PAGE>

SIGNATURE TITLE DATE

/s/ Steven L. Bock, as Attorney-in- Director
Fact October 11,
- ------------------------------------- 1996
/s/ Martin Franklin

/s/ Steven L. Bock, as Attorney-in- Director
Fact October 11,
- ------------------------------------- 1996
/s/ Samuel L. Katz

/s/ Steven L. Bock, as Attorney-in- Director
Fact October 11,
- ------------------------------------- 1996
/s/ Guy Naggar

II-8
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NO.
------- ---------------------- ----
<C> <S> <C>
***1.01 --Preliminary form of Underwriting Agreement.
***1.03 --Form of Selected Dealer Agreement.
***1.04 --Underwriter's Purchase Option.
*3.01 --Certificate of Incorporation of the Registrant, as amended.
***3.02 --By-Laws of the Registrant, as amended.
*4.01 --Specimen Certificate representing the Common Stock, par
value $0.01 per share.
***5.01 --Opinion of Kane Kessler, P.C.
***10.01 --1996 Stock Option Plan.
*10.02 --Employment Agreement dated as of October 4, 1996 between the
Registrant and
Steven L. Bock.
*10.03 --Employment Agreement dated as of October 4, 1996 between the
Registrant and
Steven M. O'Hara.
***10.04 --Credit Agreement dated November 24, 1994 between Bank
Nationale de Paris ("BNP") Wigs By Paula, Inc., predecessor
to the Registrant ("Wigs").
***10.05 --First Amendment, Waiver and Consent to the Credit Agreement
dated August 16, 1995 between BNP and the Registrant.
***10.06 --Second Amendment, Waiver and Consent to the Credit Agreement
dated August 14, 1996 between BNP and the Registrant.
***10.07 --Security Agreement dated as of November 23, 1994 between
Wigs and BNP.
***10.08 --Trademark and Copyright Security Agreement dated as of
November 23, 1994 between WIGS, BNP and other guarantors
named therein.
***10.09 --Pledge Agreement dated as of November 23, 1994 between SC
Corporation and BNP.
***10.10 --Pledge Agreement dated as of November 23, 1994 between the
Registrant, SC Holdings, L.L.C. and BNP.
***10.11 --Guaranty dated November 23, 1994 between the Registrant,
Western Schools, Inc., Royal Advertising & Marketing, Inc.,
BNP and the Hedge Banks.
***10.12 --Guaranty dated November 23, 1994 between SC Corporation,
BNP, and the Hedge Banks.
***10.13 --Guaranty dated November 30, 1994 between the Registrant, SC
Holdings L.L.C., BNP, and the Hedge Banks.
***10.14 --Agreement dated June 1, 1996 between SC Direct, Inc., the
Registrant and Martin Franklin.
***10.15 --Debtor Securities Purchase Agreement dated November 23, 1994
between WIGS, L.P. and SC Corporation.
***10.16 --Pledge and Security Agreement dated November 30, 1994
between WIGS, L.P. and SC Corporation.
***10.17 --Promissory Note dated November 23, 1994 in the principal
amount of $147,583 from WIGS, L.P. to SC Corporation.
***10.18 --Lease dated July 10, 1985 between Simon D. Young, Trustee of
the Sandpy Realty Trust, ("Trustee"), and Wigs for premises
located at 21 Bristol Drive, South Easton, MA.
***10.19 --First Amendment of Lease, dated March 15, 1986, between the
Trustee and Wigs.
***10.20 --Second Amendment to Lease, dated March 1, 1989 between the
Trustee and Wigs By Paula, Inc.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NO.
------- ---------------------- ----
<C> <S> <C>
***10.21 --Third Amendment to Lease, dated October 22, 1993 between the
Trustee and Wigs By Paula, Inc.
***10.22 --Letter Agreement, dated February 21, 1995 between the
Trustee and SC Corporation.
***10.23 --Lease, dated October 20, 1995 between Fredric Snyderman as
Trustee of JV Realty Trust and SC Direct Inc. for the
premises at 23 Norfolk Avenue.
***10.24 --Printing Agreement, dated January 1, 1995 between Quebecor
Printing (USA) Corp. and the Registrant, as amended.
*10.25 --Amended and Restated Registration Rights Agreement, dated
October 3, 1996 between the Registrant and certain of the
Registrant's stockholders, as amended.
***10.26 --First Amended and Restated Joint Plan of Reorganization of
SC Corporation, Western Schools, Inc. and Wigs by Paula dated
September 21, 1994.
***10.27 --AT&T Contract Tariff Order dated February 9, 1995 between
AT&T and the Registrant.
***10.28 --Shareholders' Agreement dated as of November 30, 1994
between the Registrant, SC Holdings L.L.C., SC Corporation
and certain shareholders. ("Shareholders' Agreement").
***10.29 --Amendment No. 1 to Shareholders' Agreement.
***10.30 --SC Holdings L.L.C. Limited Liability Company Agreement,
dated as of .
***10.31 --Supplemental Defined Contribution Plan.
***10.32 --Form of Indemnification Agreement of Directors.
***10.33 --Form of Warrant, dated August 12, 1996.
***10.34 --Form of Subordinated Note, dated August 12, 1996.
*10.35 --Fee Letter
***11.01 --Statement Regarding Computation of Per Share Earnings.
***21.01 --Subsidiaries of the Registrant.
**23.01 --Consent of Kane Kessler, P.C. (included in Exhibit 5).
***23.02 --Consent of Deloitte & Touche LLP.
***24.01 --Power of Attorney (contained on page II-7).
***27.01 --Financial Data Schedule.
***S-1 --Schedule II--Valuation and Qualifying Accounts
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.

<PAGE>

EXHIBIT 3.01

CERTIFICATE OF INCORPORATION

SPECIALTY CATALOG CORP.

--------------------

The undersigned, for the purposes of organizing a corporation pursuant to
the General Corporation Law of the State of Delaware, does make and file this
Certificate of Incorporation with the Secretary of the State of Delaware and
does hereby certify as follows:

FIRST: The name of the corporation is Specialty Catalog Corp. (hereinafter
referred to as the "Corporation").

SECOND: The address of the registered office of the Corporation is to be
located at 32 Loockerman Square, Suite L-100, in the City of Dover, in the
County of Kent, in the State of Delaware 19904. The name of its registered agent
at such address is The Prentice-Hall Corporation System, Inc.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.

FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is 50,000 consisting of:

A. 20,000 shares of common stock, par value of one cent ($0.01) per
share (hereinafter referred to as "Common Stock").

(1) Subject to the restrictions set forth in Paragraph B of this
Article FOURTH, the holders of Common Stock shall be entitled to
receive such dividends as may be declared from time to time by the
Board of Directors.

(2) After distribution in full of the preferential amount (fixed in
accordance with the provisions of Paragraph B of this Article FOURTH),
if any, to be distributed to the holders of Preferred Stock in the
event of voluntary or involuntary liquidation, distribution or sale of
assets, dissolution or winding-up of the Corporation, the holders of
the Common Stock shall be entitled to receive all the remaining assets
of the Corporation, tangible and intangible, or whatever kind
available for distribution to stockholders ratably in proportion to
the number of shares of Common Stock held by them, respectively.

B. 30,000 shares of preferred stock, par value one hundred dollars
($100.00) per share (hereinafter referred to as "Preferred Stock").
<PAGE>

(1) Dividends. Each holder of Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds at the time legally available therefor, dividends at the rate of
(i) $13.00 per annum per share and (ii) 13% per annum (compounded
quarterly) on any accrued dividends on such shares, whether or not
declared, that remain unpaid beyond the next succeeding Dividend
Payment Date (as defined herein). Dividends on shares of Preferred
Stock shall accrue and be cumulative from the date of issuance of such
shares. Dividends shall be payable quarterly in cash in arrears on
March 31, June 30, September 30 and December 31 of each year
commencing December 31, 1994 (except that if any such date is a
Saturday, Sunday or legal holiday, then such dividend shall be payable
on the next day that is not a Saturday, Sunday or legal holiday) (each
such date a "Dividend Payment Date") to holders of record as they
appear on the stock books of the Corporation on such record dates as
are fixed by the Board of Directors. For purposes hereof, the term
"legal holiday" shall mean any day on which banking institutions are
authorized to close in New York. The amount of dividends payable per
share of Preferred Stock for each quarterly dividend period shall be
computed by dividing the annual amount by four. The amount of
dividends payable for the initial dividend period and any period
shorter than a full semi-annual dividend period shall be computed on
the basis of a 365-day year and the number of days actually elapsed in
such period. Dividends in arrears may be declared and paid at any time
to holders of record on the record date therefor.

So long as any Preferred Stock shall remain outstanding, the
Corporation shall not, directly or indirectly, (i) pay, declare or set
apart for payment any dividend or make any other distribution (in each
case, whether payable in cash, in property, in securities of the
Corporation or otherwise) on or in respect of any class of capital
stock of the Corporation other than the Preferred Stock, and (ii)
purchase, redeem or otherwise acquire (or pay or make available any
monies for a sinking fund for the purchase, redemption or acquisition
of) any shares of any class of capital stock of the Corporation, in
each case if there shall then be any accrued dividends on any shares
of Preferred Stock accrued to the date of such action that have not
been declared and paid or set apart for payment; except that this
subparagraph shall not prohibit a dividend or distribution payable in
Common Stock or in rights or warrants to purchase Common Stock.

If at any time the Corporation pays less than the total amount of
dividends then accrued with respect to Preferred Stock, such payment
shall be distributed pro rata to the holders of Preferred Stock based
upon the aggregate accrued and unpaid dividends no the shares held by
each such holder.

(2) Redemption. The Corporation, at its option, may redeem at any
time in whole or from time to time in part, the Preferred Stock on any
date set by the Board of Directors, at a price equal to the par value
per share of any share redeemed, plus, in each case, an amount in cash
equal to all dividends on the Preferred Stock accrued and unpaid
thereon, whether or not declared or due,

-2-
<PAGE>

pro rata to the date fixed for redemption, such sum being hereinafter
referred to as the "Redemption Price". Unless earlier called for
redemption in accordance with the provisions hereof, on tenth
anniversary of date of issuance, or, if such date is not a business
day, the next succeeding day that is a business day, each outstanding
share of Preferred Stock shall be mandatorily redeemed at the
Redemption Price, payable in cash.

In case of the optional redemption of less than all of the then
outstanding Preferred Stock, the Corporation shall effect such
redemption pro rata.

Not more than 60 nor less than 10 days prior to any redemption
date, notice by first class mail, postage prepaid, shall be given to
each holder of record of the Preferred Stock to be redeemed, at such
holder's address as it shall appear upon the stock transfer books of
the Corporation. Each such notice of redemption shall specify (i) the
date fixed for redemption, (ii) the Redemption Price, (iii) the place
or places of payment, (iv) that payment will be made upon presentation
and surrender of the certificate(s) evidencing the shares of Preferred
Stock to be redeemed) the number of shares of Preferred Stock to be
redeemed and, if fewer than all of the shares to be redeemed from such
holder, and (vi) that on and after the redemption date, dividends will
cease to accrue on such shares.

Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the
holder of the Preferred Stock receives such notice; and failure to
give such notice by mail, or any defect in such notice, to the holders
of any shares designated for redemption shall not (a) affect the
validity of the proceedings for the redemption of any other shares of
Preferred Stock or (b) prejudice the rights of any holders of
Preferred Shares to cause the Corporation to redeem any such shares
held by them. On or after the date fixed for redemption as stated in
such notice, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at
the place designated in such notice and shall thereupon be entitled to
receive payment of the Redemption Price. If less than all the shares
represented by any such surrendered certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. If, on
the date fixed for redemption, funds necessary for the redemption
shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing
any shares so called for redemption shall not have been surrendered,
the dividends with respect to the shares so called shall cease to
accrue after the date fixed for redemption, the shares shall no longer
be deemed outstanding, the holders thereof shall cease to be
stockholders with respect to the shares so called and all rights
whatsoever with respect to the shares so called for redemption (except
the right of the holders to receive the Redemption Price without
interest upon surrender of their certificates therefor) shall
terminate.

The holder of any shares of Preferred Stock redeemed upon any
exercise of the Corporation's redemption right shall not be entitled
to receive

-3-
<PAGE>

payment of the Redemption Price for such shares until such holder
shall cause to be delivered to the place specified in the notice given
with respect to such redemption (i) the certificate(s) representing
such shares of Preferred Stock redeemed and (ii) transfer
instrument(s) satisfactory to the Corporation and sufficient to
transfer such shares of Preferred Stock to the Corporation free of any
adverse interest. No interest shall accrue on the Redemption Price of
any share of Preferred Stock after its redemption date.

(3) Voting Rights. The holders of shares of Preferred Stock shall not
be entitled to any voting rights except as provided by law.

(4) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, the holders of the Preferred Stock shall be entitled
to receive, out of the assets of the Corporation, the amount of
$100.00 in cash for each share of Preferred Stock, plus the dividends
accrued and unpaid thereon to the date of final distribution to such
holders, before any distribution shall be made to the holders of any
Common Stock or other capital stock of the Corporation ranking junior
to the Preferred Stock as to the distribution of assets upon the
liquidation, dissolution or winding up of the Corporation. If, upon
any liquidation, dissolution or winding up of the Corporation, the
assets distributable among the holders of the Preferred Stock shall be
insufficient to permit the payment in full to the holders of the
Preferred Stock of all preferential amounts payable to all such
holders, then the distributable assets of the Corporation shall be
distributed ratably among the holders of the Preferred Stock in
proportion to the respective amounts that would have been payable per
share if such assets had been sufficient to permit payment in full.
Except as otherwise provided in this Paragraph B(4) of this Article
FOURTH, holders of Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of
the affairs of the Corporation. For the purposes of this Paragraph
B(4) of this Article FOURTH, neither the voluntary sale, lease,
conveyance, exchange or transfer (for cash, securities or other
consideration) of all or substantially all the property or assets of
the Corporation, nor the consolidation, merger or business combination
of the Corporation with or into one or more other corporations, shall
be deemed to be a liquidation, dissolution or winding up of the
Corporation (unless in connection therewith the liquidation of the
Corporation is specifically approved). No interest shall accrue on any
payment upon liquidation after the due date thereof.

(5) Cancellation of Reacquired Preferred Stock. Shares of Preferred
Stock that have been issued and reacquired by the Corporation in any
manner, including shares purchased or redeemed, shall be canceled on
the books of the Corporation and shall not be reissued.

-4-
<PAGE>

FIFTH: A. The business and affairs of the Corporation shall be managed
by the Board of Directors, and the directors need not be elected by ballot
unless required by the By-Laws of the Corporation.

B. The Board of Directors is expressly authorized to adopt, amend
or repeal the By-Laws of the Corporation subject to the power of the
stockholders to alter or repeal the By-Laws made or altered by the Board of
Directors.

C. The name and address of the sole incorporator is as follows:

John Hoffman
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue
New York, New York 10022

SIXTH: A. No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation law is amended after this
Certificate of Incorporation becomes effective to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.

B. No repeal or modification of the foregoing Paragraph A of this
Article SIXTH and no amendment, repeal or termination of any law authorizing
such Paragraph shall adversely affect any right or protection of any director of
the Corporation for or with respect to any act or omission occurring prior to
such amendment, repeal or termination of effectiveness.

SEVENTH: A. The Corporation shall, to the fullest extent to which it is
empowered to do so by the General Corporation Law of Delaware or any other
applicable laws as may from time to time be in effect, indemnify any person, or
the personal representative thereof, who was or is a party to any or threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director or officer of the Corporation,
against losses, liabilities, judgments, fines (including excise tax assessed on
such a person in connection with service to an employee benefit plan or
otherwise), amounts paid in settlement and expenses (including, without
limitation, court costs, attorneys' fees and disbursements and those of
accountants and other experts and consultants), actually and reasonably incurred
by such person as a result of or in connection with such action, suit or
proceeding or any appeal therein all of which expenses as incurred shall be
advanced by the Corporation pending the final disposition of such action, suit
or

-5-
<PAGE>

proceeding upon receipt of an undertaking by or on behalf of the director or
officer who may be entitled to such indemnification, to repay such amount if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation. The Corporation's obligation to indemnify and to
prepay expenses hereunder (i) shall inure to the benefit of the heirs, executors
and administrators of any person who has ceased to be a director or officer of
the Corporation, (ii) shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of this Certificate
of Incorporation, By-Law, agreement, vote of stockholders or directors or
otherwise, and (iii) shall arise, and all rights granted to directors and
officers hereunder shall vest, at the time of the occurrence of the transaction
or event to which such action, suit or proceeding relates, or at the time that
the action or conduct to which such action, suit or proceeding relates was first
taken or engaged in (or omitted to be taken or engaged in), regardless of when
such action, suit or proceeding is first threatened, commenced or completed.
Notwithstanding any other provision of this Certificate of Incorporation or the
By-Laws of the Corporation, no action taken by the Corporation, either by
amendment of this Certificate of Incorporation or the By-Laws of the
Corporation, or otherwise, shall diminish or adversely affect any rights to
indemnification or prepayment of expenses granted under this Article SEVENTH
that shall have become vested as aforesaid prior to the date such amendment or
other corporate action is taken. Nothing contained in this Article SEVENTH shall
be construed in such a manner as to prohibit the Corporation from granting any
additional right of indemnification to any director or officer of the
Corporation by agreement, vote of stockholders or directors or otherwise.

B. If the Delaware General Corporation Law is amended hereafter
to expand or limit the indemnification a corporation may provide to a director
or officer, then the indemnification of a director or officer of the Corporation
shall be expanded to the fullest extent so permitted or limited to the least
extent so required by the Delaware General Corporation Law, as so amended.

C. The Corporation may, by agreement, vote of stockholders or
directors or otherwise, indemnify its employees and agent and the personal
representatives thereof to the fullest extent permitted under Delaware Law.

IN WITNESS WHEREOF, the undersigned, being the sole incorporator,
hereby declares and certifies that the facts herein stated are true, and
accordingly has hereto set his hand this 30th day of November, 1994.

By: /s/ John Hoffman
--------------------
John Hoffman
Incorporator

-6-
<PAGE>

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SPECIALTY CATALOG CORP.

Adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware

It is hereby certified that:

1. The present name of the corporation is Specialty Catalog Corp.
(the "Corporation").

2. The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on November 29, 1994.

3. Article FOURTH of the Certificate of Incorporation is hereby
amended to read in its entirety as follows:

"FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is 50,000, consisting of:

(a) 30,000 shares of preferred stock, par value one hundred
dollars ($100.00) per share (the "Preferred Stock"); and

(b) 16,000 shares of Class A Common Stock, par value of one
cent ($.01) per share (the "Class A Common Stock"), 2,000 shares of
Class B Common Stock, par value of one cent ($.01) per share (the "Class
B Common Stock"), and 2,000 shares of Class C Common Stock, par value of
one cent ($0.1) per share (the "Class C Common Stock"; collectively,
with the Class A Common Stock and the Class B Common Stock, the "Common
Stock").

The following is a statement of the designations, rights,
preferences, qualifications, limitations and restrictions in respect of
each class of capital stock of the Corporation.

<PAGE>

A. PREFERRED STOCK

(1) Dividends. Each holder of Preferred Stock shall be entitled to
---------
receive, when, as and if declared by the Board of Directors out of funds
at the time legally available therefor, dividends at the rate of (i)
$13.00 per annum per share and (ii) 13% per annum (compounded quarterly)
on any accrued dividends on such shares, whether or not declared, that
remain unpaid beyond the next succeeding Dividend Payment Date (as
defined herein). Dividends on shares of Preferred Stock shall accrue and
be cumulative from November 23, 1994, except that dividends on shares of
Preferred Stock that are issued after January 1, 1995 shall accrue and
be cumulative from the date of issuance of such shares. Dividends shall
be payable quarterly in cash in arrears on March 31, June 30, September
30 and December 31 of each year commencing December 31, 1994 (except
that if any such date is a Saturday, Sunday or legal holiday, then such
dividend shall be payable on the next day that is not a Saturday, Sunday
or legal holiday) (each such date a "Dividend Payment Date") to holders
of record as they appear on the stock books of the Corporation on such
record dates as are fixed by the Board of Directors. For purposes
hereof, the term "legal holiday" shall mean any day on which banking
institutions are authorized to close in New York. The amount of
dividends payable per share of Preferred Stock for each quarterly
dividend period pursuant to clause (i) of the first sentence of this
paragraph shall be computed by dividing the annual amount by four. The
amount of dividends payable for the initial dividend period and any
period shorter than a full quarterly dividend period shall be computed
on the basis of a 365-day year and the number of days actually elapsed
in such period. Dividends in arrears may be declared and paid at any
time to holders of record on the record date therefor.

So long as any Preferred Stock shall remain outstanding, the
Corporation shall not, directly or indirectly, (i) pay, declare or set
apart for payment any dividend or make any other distribution (in each
case, whether payable in cash, in property, in securities of the
Corporation or otherwise) on or in respect of any class of capital stock
of the Corporation other than the Preferred Stock, and (ii) purchase,
redeem or otherwise acquire (or pay or make available any monies for a
sinking fund for the purchase, redemption or acquisition of) any shares
of any class of capital stock of the Corporation, in each case if there
shall then be any accrued dividends on any shares of Preferred Stock
accrued to the date of such action that have not been declared and paid
or set apart for payment; except that this subparagraph shall not
prohibit a dividend or distribution payable in Common Stock or in rights
or warrants to purchase Common Stock.

If at any time the Corporation pays less than the total amount
of dividends then accrued with respect to Preferred Stock, such payment
<PAGE>

shall be distributed pro rata to the holders of Preferred Stock based
upon the aggregate accrued and unpaid dividends on the shares held by
each such holder.

(2) Redemption. The Corporation, at its option, may redeem at any time
----------
in whole or from time to time in part, the Preferred Stock on any date
set by the Board of Directors, at a price equal to the par value per
share of any share redeemed, plus, in each case, an amount in cash equal
to all dividends on the Preferred Stock accrued and unpaid thereon,
whether or not declared or due, pro rata to the date fixed for
redemption, such sum being hereinafter referred to as the "Redemption
Price".

In case of the redemption of less than all of the then
outstanding Preferred Stock, the Corporation shall effect such
redemption pro rata.

Not more than 60 nor less than 10 days prior to any redemption
date, notice by first class mail, postage prepaid, shall be given to
each holder of record of the Preferred Stock to be redeemed, at such
holder's address as it shall appear upon the stock transfer books of the
Corporation. Each such notice of redemption shall specify (i) the date
fixed for redemption, (ii) the Redemption Price, (iii) the place or
places of payment, (iv) that payment will be made upon presentation and
surrender of the certificate(s) evidencing the shares of Preferred Stock
to be redeemed, (v) the number of shares of Preferred Stock to be
redeemed and, if fewer than all of the shares held by such holder are to
be redeemed from such holder, the number of shares to be redeemed from
such holder, and (vi) that on and after the redemption date, dividends
will cease to accrue on such shares.

Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder
of the Preferred Stock receives such notice; and failure to give such
notice by mail, or any defect in such notice, to the holders of any
shares designated for redemption shall not (a) affect the validity of
the proceedings for the redemption of any other shares of Preferred
stock or (b) prejudice the rights of any holders of Preferred Shares to
cause the Corporation to redeem any such shares held by them. On or
after the date fixed for redemption as stated in such notice, each
holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price. If less than all the shares represented
by any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares. If, on the date
fixed for redemption, funds necessary for the redemption shall be
available therefor and shall have been irrevocably deposited or set
aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends
with respect

<PAGE>

to the shares so called shall cease to accrue after the date fixed for
redemption, the shares shall no longer be deemed outstanding, the
holders thereof shall cease to be stockholders with respect to the
shares so called and all rights whatsoever with respect to the shares so
called for redemption (except the right of the holders to receive the
Redemption Price without interest upon surrender of their certificates
therefor) shall terminate.

The holder of any shares of Preferred Stock redeemed upon any
exercise of the Corporation's redemption right shall not be entitled to
receive payment of the Redemption Price for such shares until such
holder shall cause to be delivered to the place specified in the notice
given with respect to such redemption (i) the certificate(s)
representing such shares of Preferred Stock redeemed and (ii) transfer
instrument(s) satisfactory to the Corporation and sufficient to transfer
such shares of Preferred Stock to the Corporation free of any adverse
interest. No interest shall accrue on the Redemption Price of any share
of Preferred Stock after its redemption date.

(3) Voting Rights. The holders of shares of Preferred Stock shall not
-------------
be entitled to any voting rights except as provided by law.

(4) Liquidation Preference. In the event of any voluntary or
----------------------
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of the Preferred Stock shall be entitled to
receive, out of the assets of the Corporation, the amount of $100.00 in
cash for each share of Preferred Stock, plus the dividends accrued and
unpaid thereon to the date of final distribution to such holders, before
any distribution shall be made to the holders of any Common Stock or
other capital stock of the Corporation ranking junior to the Preferred
Stock as to the distribution of assets upon the liquidation, dissolution
or winding up of the Corporation. If, upon any liquidation, dissolution
or winding up of the Corporation, the assets distributable among the
holders of the Preferred Stock shall be insufficient to permit the
payment in full to the holders of the Preferred Stock of all
preferential amounts payable to all such holders, then the distributable
assets of the Corporation shall be distributed ratably among the holders
of the Preferred Stock in proportion to the respective amounts that
would have been payable per share if such assets had been sufficient to
permit payment in full. Except as otherwise provided in this Paragraph
A(4) of this Article FOURTH, holders of Preferred Stock shall not be
entitled to any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation . For the purposes of this
Paragraph A(4) of this Article FOURTH, neither the voluntary sale,
lease, conveyance, exchange or transfer (for cash, securities or other
consideration) of all or substantially all the property or assets of the
Corporation, nor the consolidation, merger or business combination of

<PAGE>

the Corporation with or into one or more other corporations, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation
(unless in connection therewith the liquidation of the Corporation is
specifically approved). No interest shall accrue on any payment upon
liquidation after the due date thereof.

(5) Cancellation of Reacquired Preferred Stock. Shares of Preferred
------------------------------------------
Stock that have been issued and reacquired by the Corporation in any
manner, including shares purchased or redeemed, shall be cancelled on
the books of the Corporation and shall not be reissued.

B. COMMON STOCK:

(1) Dividends. Subject to the restrictions set forth in Paragraph A of
---------
this Article FOURTH, the holders of Common Stock shall be entitled to
receive, ratably on all shares, regardless of whether such shares are
shares of Class A Common Stock, Class B Common Stock or Class C Common
Stock, such dividends as may be declared from time to time by the Board
of Directors.

(2) Voting Rights. The holders of Class A Common Stock, Class B Common
-------------
Stock and Class C Common Stock shall have the right to vote on all
matters to be voted on by the stockholders of the Corporation and shall
vote as a single class; provided, however, that on every matter that may
-------- -------
be voted on by the holders of the Common Stock, (i) each holder of Class
A Common Stock shall be entitled to one vote per share, (ii) each holder
of Class B Common Stock shall be entitled to one-half vote per share and
(iii) each holder of Class C Common Stock shall be entitled to one and
one-half votes per share.

(3) Liquidation. After distribution in full of the preferential amount
-----------
(fixed in accordance with the provisions of Paragraph A of this Article
FOURTH), if any, to be distributed to the holders of Preferred Stock in
the event of voluntary or involuntary liquidation, distribution or sale
of assets, dissolution or winding-up of the Corporation, the holders of
the Common Stock shall be entitled to receive all the remaining assets
of the Corporation, tangible and intangible, of whatever kind available
for distribution to stockholders ratably on all shares, regardless of
whether such shares of Class A Common Stock, Class B Common Stock or
Class C Common Stock.

(4) Conversion. Upon the sale, disposition or other transfer of any
----------
share(s) of Class B Common Stock by the original holder thereof, (i)
such share(s) of Class B Common Stock shall automatically and
immediately convert (and be deemed to be converted) into an equal

<PAGE>

number of shares of Class A Common Stock, and (ii) an equal number of
shares of Class C Common Stock shall automatically and immediately
convert (and be deemed to be converted) into an equal number of shares
of Class A Common Stock, and the Corporation promptly shall give notice
of such conversion to the holder or holders thereof. If more than one
such holder exists, then the conversion of shares of Class C Common
Stock into shares of Class A Common Stock shall be effected pro rata
among the shares of Class C Common Stock owned by such holders. The
notice delivered by the Corporation to the holder(s) of Class C Common
Stock shall (x) state that the certificate(s) representing such shares
are cancelled effective as of the date of the disposition or other
transfer of the shares of Class B Common Stock, representing from that
date forward only the right to receive new certificates, as set forth
herein, and (y) set forth the number of shares of Class A Common Stock
and the number of shares of Class C Common Stock, if any, to be received
by such holder(s) upon such holder(s) surrender of the certificate(s)
representing the shares of Class C Common Stock owned by such holder(s).

Promptly after any sale, disposition or other transfer of shares
of Class B Common Stock by the original holder thereof, such original
holder shall deliver notice thereof to the Corporation and shall cause
the transferee(s) of such shares to surrender the certificate(s)
representing such shares to the Corporation at its principal office at
any time during its usual business hours, stating in such notice the
name or names in which the certificate(s) for Class A Common Stock (and
the certificate(s) for Class B Common Stock, if less than all shares of
Class B Common Stock represented by the surrendered certificate have
been transferred) shall be issued and the address to which such
certificate(s) shall be delivered. As soon as practicable after such
surrender of such certificate(s), (i) the Corporation shall issue and
deliver at such address as is specified by such transferee(s)
certificate(s) for the number of shares of Class A Common Stock to which
such transferee(s) shall be entitled as aforesaid, and (ii) if less than
all shares of Class B Common Stock represented by the surrendered
certificate(s) have been transferred, the Corporation shall issue and
deliver to the original holder of such shares a certificate for the
number of shares of Class B Common Stock that such original holder still
owns.

Promptly after its receipt of notice from the Corporation as
provided above of any conversion of its shares of Class C Common Stock
into shares of Class A Common Stock, the holder(s) thereof promptly
shall surrender the certificate(s) representing such shares of Class C
Common Stock to the Corporation at its principal office at any time
during its usual business hours, stating in a notice the name or names
in which the certificate(s) for Class A Common Stock and the
certificate(s) for Class C Common Stock, if any, shall be issued and the
address(es) to which such certificate(s) shall be delivered. As soon as

<PAGE>

practicable after such surrender of such certificate(s), the Corporation
shall issue and deliver at such address(es) as is specified by such
holder(s) a certificate or certificates for the number of shares of
Class A Common Stock and the number of shares of Class C Common Stock,
if any, to which such holder(s) shall be entitled as aforesaid.

The Corporation shall at all times reserve and keep available,
out of its authorized and unissued shares, shares of Class A Common
Stock, solely for issuance upon the conversion of shares of Class B
Common Stock or shares of Class C Common Stock as herein provided. All
shares of Class A Common Stock issuable upon any conversion described
herein shall, when issued, be duly and validly issued and fully paid and
non-assessable. The Corporation will take such action as may be
necessary to assure that all such shares of Class A Common Stock may be
so issued without violation of any applicable requirements of any
national stock exchange upon which the shares of Class A Common Stock of
the Corporation may be listed. The issuance of certificates for shares
of Class A Common Stock upon conversion of shares of Class B Common
Stock or shares of Class C Common Stock shall be made without charge to
the holders of such converted shares for any issuance tax in respect
thereof.

All shares of Class B Common Stock and all shares of Class C
Common Stock that are converted into shares of Class A Common Stock
shall be retired and cancelled and shall not be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to reduce the number of authorized shares of Class B Common
Stock and/or Class C Common Stock accordingly."

4. The foregoing amendment to the Certificate of Incorporation of the
Corporation was declared advisable by the Board of Directors of the Corporation
pursuant to a resolution duly adopting the amendment on April __, 1995, and was
duly adopted in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware by the affirmative vote of the
holders of all of the outstanding stock of the Corporation entitled to vote
thereon.

<PAGE>

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Steven L. Bock, its Chief Executive Officer, and Stephen O'Hara, its
Secretary, this ___ day of ________, 1995.

[CORPORATE SEAL]

SPECIALTY CATALOG CORP.

/s/ Steven L. Bock
---------------------------
Steven L. Bock
Chief Executive Officer

Attest:

/s/ Stephen O'Hara
- ------------------------
Stephen O'Hara
Secretary
<PAGE>

CERTIFICATE OF AMENDMENT OF

CERTIFICATE OF INCORPORATION OF

SPECIALTY CATALOG CORP.

Adopted in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware

IT IS HEREBY CERTIFIED THAT:

1. The present name of the corporation is Specialty Catalog Corp.
(the "Corporation").

2. The certificate of incorporation of the Corporation was filed
with the Secretary of State of Delaware on November 29, 1994.

3. All of the issued and outstanding shares of class A, class B and
class C common stock, are hereby redesignated as Common Stock. All other
authorized but not issued shares of class A, class B and class C common stock
are hereby cancelled and retired.

4. Prior to this amendment the Corporation has issued and has
presently outstanding 22,491 shares of Preferred Stock earning a dividend of
13% per annum ("13% Preferred Stock"). As of the date hereof all outstanding
shares of 13% Preferred Stock shall be converted on a pro rata basis among the
13% Preferred Stock stockholders into 1,152.0383 shares of Common Stock. The
remaining 7,508 authorized but unissued shares of 13% Preferred Stock are hereby
retired and cancelled.

5. As of the date hereof, each share of Common Stock (including
those shares of Common Stock outstanding upon redesignation of class A, class B
and class C common stock and your conversion of 13% Preferred Stock into Common
Stock) shall be changed into 325.51 shares of Common Stock, par value one cent
($.01).

6. In order to effect the foregoing amendments, Article FOURTH of
the Certificate of Incorporation of the Corporation, as amended, is hereby
amended to read in its entirety as follows:

<PAGE>

"FOURTH: the total number of shares of stock that the Corporation is
authorized to issue is 11 million, consisting of:

a. 10 million shares of common stock, par value of one
cent ($.01) per share ("Common Stock");

b. 1 million shares of preferred stock, par value of one
dollar ($1.00) per share (the "Preferred Stock"). There
is hereby expressly vested in the Board of Directors the
authority to fix in the resolution or resolutions
providing for the issue of each series of such Preferred
Stock, the voting power and the designations,
preferences and relative, participating, optional or
other rights of each such series, and the
qualifications, limitations or restrictions thereof.
Shares of Preferred Stock may be issued from time to
time in one or more series as may from time to time be
determined by the Board of Directors, each such series
to be distinctly designated."

7. The Articles of Incorporation are hereby amended to add the
following new articles EIGHTH and NINTH:
------ -----

EIGHTH: From time to time any provisions of this Certificate
------
of Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article EIGHTH.
------

8. NINTH: Whenever a compromise or arrangement is proposed
-----
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or

<PAGE>

arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all stockholders or class of stockholders of this Corporation, as the case may
be, and also on this Corporation.

9. The foregoing amendment to the Certificate of Incorporation of
the Corporation was declared advisable by the Board of Directors of the
Corporation pursuant to a resolution duly adopting the amendment on August 13,
1996, and was duly adopted in accordance with the provisions of Sections 228 and
242 of the General Corporation Law of the State of Delaware by the affirmative
vote of the holders of all outstanding stock of the Corporation entitled to vote
thereon on August 6, 1996.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Steven L. Bock, its Chief Executive Officer, and Stephen O'Hara, its
Secretary and President, this 10th day of October, 1996.

SPECIALTY CATALOG CORP.

/s/ Steven L. Bock
--------------------------------
Steven L. Bock
Chief Executive Officer

Attest:

/s/ Stephen O'Hara
____________________________
Stephen O'Hara
Secretary

<PAGE>

EXHIBIT 4.01

NUMBER SHARES
[ ] [ ]
INCORPORATED UNDER THE LAWS [S] [C] PAR VALUE
OF THE STATE OF DELAWARE SPECIALTY CATALOG $.01 PER SHARE
C O R P.

SEE REVERSE FOR
CERTAIN DEFINITIONS

CUSIP 84748Q 10 3

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF

SPECIALTY CATALOG CORP., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Certificate of Incorporation and By-Laws of the Corporation, each as from time
to time amended (copies of which are on file with the Transfer Agent and
Registrar), to all of which the holder by acceptance hereof assents. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.

C E R T I F I C A T E O F S T O C K

WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.

Dated:

[(SPECIALTY CATALOG CORP.)
(CORPORATE SEAL 1994 DELAWARE)]

/s/ /s/ Steven L. Bock
PRESIDENT AND SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT AND REGISTRAR,

AUTHORIZED OFFICER

<PAGE>

EXHIBIT 10.02

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT dated as of October 11, 1996 (the "Agreement") by and
between SPECIALTY CATALOG CORP., a Delaware corporation ("Specialty") having its
offices at 21 Bristol Drive, South Easton, Massachusetts, SC CORPORATION, a
Delaware corporation ("SC"; together with Specialty, sometimes referred to as
the "Corporation") having its offices at 21 Bristol Drive, South Easton,
Massachusetts, and STEVEN L. BOCK, an individual having an address at 10
Graystone Lane, Weston, Massachusetts 02193 ("Executive").

W I T N E S S E T H :
- - - - - - - - - -

WHEREAS, the Corporation entered into an Employment Agreement (the "Prior
Employment Agreement"), Bonus Agreement and Stock Option Agreement with
Executive as of November 30, 1994 (as heretofore amended, taken together, the
"Prior Employment Agreements");

WHEREAS, the Corporation intends in the immediate future to engage in an
initial public offering in which it will offer its common stock to the public
pursuant to a Registration Statement on Form S-1 (which was filed with
Securities and Exchange Commission on August 26, 1996), the effective date of
such registration statement being referred to herein as the "Effective Date" and
the date of closing of such initial public offering being referred to herein as
the "Closing Date";

WHEREAS, the parties hereto wish to consolidate the Prior Employment
Agreements and to amend certain provisions thereof, substantially effective upon
the Effective Date;

WHEREAS, the Corporation desires to continue to employ Executive in an
executive capacity and to be assured of his services as such on the terms and
conditions hereinafter set forth; and

WHEREAS, Executive is willing to accept such employment on the terms and
conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, and intending to be legally bound hereby,
the Corporation and Executive hereby covenant and agree as follows:

1. Term.
----

(a) On the terms and subject to the conditions set forth in this
Agreement, the Corporation offers and Executive accepts employment with the
Corporation, effective as of the Effective Date. The terms of this Agreement
shall become effective on and as of the Effective Date, excepting only the terms
of Section 1.(b), which become effective as therein provided, and the Prior
Employment Agreements shall on the Effective Date be superseded hereby and be
and be deemed null and void for all purposes.
<PAGE>

(b) Until the Effective Date, Executive's employment shall continue
pursuant to the Prior Employment Agreements. Anything contained herein to the
contrary notwithstanding, if the Effective Date shall not have occurred on or
before November 4, 1996, this Agreement (other than this Section 1.(b), which
shall be effective immediately upon execution and delivery of this Agreement)
shall be null and void, and Executive's employment shall continue pursuant to
the Prior Employment Agreements, provided, however, that, effective at the time
-------- -------
(the "Execution Date") of execution and delivery of this Agreement, Section
8(a)(vii) of the Prior Employment Agreement is hereby amended by deleting the
date "June 30, 1996" on the first line thereof and replacing the same with the
date "March 31, 1998." This modification shall take effect on the Execution Date
regardless whether the remaining provisions of this Agreement ever become
effective.

(c) Subject to earlier termination as hereinafter provided, the term of
this Agreement shall commence on the Effective Date and shall end (unless notice
of expiration shall not have been timely given by the Corporation or Executive,
as hereinafter provided in this Section 1,(c)) at the close of business on
December 31, 1999 (as such term may be extended or earlier terminated, the
"Term"). Either the Corporation or Executive may cause the Term to expire at the
end of any calendar year ending on or after December 31, 1999 by giving not less
than six months' notice of expiration in writing to the other party. For
purposes of this Employment Agreement, a "Term Year" shall be a period during
the Employment Term commencing on January 1, 1997 (or any anniversary thereof)
and ending on the date immediately preceding the next anniversary of such date,
it being understood that, for purposes of this Agreement, the portion of any
calendar year following the last full calendar year of the Term shall be deemed
a Term Year, except that vacation pursuant to Section 2.(d) for any Term Year of
less than a full calendar year in duration shall be prorated.

2. Employment.
----------

(a) Effective upon the Effective Date, the Corporation hereby employs
Executive, and Executive agrees to serve, as Chief Executive Officer and
Chairman of the Board of Directors of the Corporation and of the Corporation's
subsidiary, SC PUBLISHING, INC., a Delaware corporation ("Publishing").

(b) Subject to the control of the Board of Directors of the Corporation,
Executive shall exercise general direction and control over all of the business,
operations and affairs of the Corporation and Publishing and have such powers
and duties as generally pertain to a chief executive officer.

(c) Executive shall be responsible for duties consistent with his
executive position and of such nature as are usually associated with his office
as may be designated from time to time by the Board of Directors, but neither
the Board of Directors nor the Corporation will assign Executive any duties
inconsistent with his status as Chief Executive Officer and Chairman of the
Board of Directors of the Corporation or will substantially alter the nature or
status of his responsibilities. Such duties shall be performed primarily in the
Corporation's facility in South

-2-
<PAGE>

Easton, Massachusetts, subject to reasonable travel outside of this area as may
be necessary for Executive to perform his duties.

(d) Executive shall faithfully and diligently discharge his duties
hereunder and use his best efforts to implement the policies established by the
Board of Directors of the Corporation. Executive agrees to devote substantially
all of his time and attention exclusively to the rendering of services
hereunder, subject to four weeks vacation per Term Year and reasonable time to
engage in other business, charitable and professional activities which are not
inconsistent with his duties hereunder (including but not limited to his
covenant under Section 10), including but not limited to participation on the
boards of directors of one or more companies.

3. Base Salary. During the Term of Executive's employment hereunder, the
-----------
Corporation shall cause Executive to receive a base salary at the rate set forth
in Exhibit 1. Such base salary in effect at any given time is referred to
herein as the "Base Salary." The Base Salary shall be payable in accordance
with the present payroll practices of the Corporation. In addition, Executive
may receive such additional compensation (in the form of bonuses and the like)
that the Corporation's Board of Directors shall, in the exercise of its good
faith and reasonable discretion, determine (including, but not limited to, the
Bonus Compensation described at Section 4).

4. Bonus Compensation. In addition to the Base Salary payable to Executive
------------------
pursuant to Section 3, the Corporation shall cause Executive to receive the
following additional compensation:

(a) Deferred Bonus. The Corporation shall pay or cause Executive to
--------------
receive a bonus (the "Deferred Bonus") in the aggregate amount of $187,500,
payable in three (3) equal installments of $62,500 each on January 1, 1997, June
30,1997 and January 1, 1998.

(b) Performance Bonus. For each fiscal year (a "Fiscal Year") of the
-----------------
Corporation during the Term hereof, Executive shall be entitled to receive
incentive compensation (as described below) to be paid on or before the 90th day
following the end of the Corporation's Fiscal Year. The incentive compensation
payable hereunder in respect of the 1996 Fiscal Year shall be at the discretion
of the Board of Directors. Commencing with the Fiscal Year beginning January 1,
1997, Executive's entitlement to incentive compensation for any Fiscal Year of
the Corporation shall be predicated upon the successful accomplishment of
annual, business-related performance goals for the Corporation established by
the Board of Directors of the Corporation in Management's annual budget or plan,
as approved by the Board of Directors of the Corporation (each such annual
budget or plan being referred to, for the relevant year, as the "Plan"). For
each such year, Executive shall earn a Performance Bonus equal to the percentage
of Base Salary set forth in Exhibit 2. The incentive compensation payable
hereunder in respect of any period constituting less than an entire Fiscal Year
(a "Partial Year") shall be based upon the Corporation's actual level of
performance for the full Fiscal Year in which the date of termination occurred,
measured against the Plan, and prorated for the Partial Year by multiplying the
full incentive bonus by a fraction, the numerator of which shall be the number
of days in such Partial Year and the denominator of which shall be 365.

-3-
<PAGE>

(c) Certain Adjustments. In the event that the Corporation shall acquire
-------------------
one or more additional businesses during any year, the parties acknowledge that
the Plan must be adjusted, either upward or downward, to set the formula so that
Management may be compensated for improvements in performance after giving
effect to the pertinent transaction. Similar adjustments shall be necessitated
by one or more dispositions of businesses by the Corporation. Therefore, the
Plan shall be appropriately adjusted, in light of the facts and circumstances of
the particular situation, for acquisitions and dispositions by the Corporation
of businesses. In the event that Executive and the Corporation shall dispute
the computation of the calculation of the Performance Bonus or appropriate
adjustments to the Plan for acquisitions or dispositions, such dispute shall be
resolved by arbitration as provided in Section 20, except that the arbitrator
shall be one certified public accountant acceptable to both the Corporation and
Executive.

(d) Certain Bonuses under Prior Employment Agreements. Except as provided
-------------------------------------------------
herein, as of the Effective Date, all bonuses to which Executive was entitled
under the Prior Agreements, whether earned or unearned, accrued or otherwise,
are hereby waived and are of no further force or effect.

5. Working Facilities and Benefits.
-------------------------------

(a) Working Facilities. The Corporation shall furnish or cause to be
------------------
furnished to Executive a suitable office, and such other facilities, equipment
and secretarial and other services, as are suitable to his position and are
adequate for the performance of his duties hereunder.

(b) Reimbursement of Expenses. The Corporation shall promptly reimburse
-------------------------
to Executive, or cause Executive to be reimbursed for, all reasonable expenses
paid or incurred by Executive in connection with the performance of his duties
hereunder, including but not limited to the reasonable costs and expenses of his
business travel and entertainment incurred on behalf of or in connection with
the providing of services for the Corporation.

(c) Memberships. The Corporation shall reimburse Executive annual dues
-----------
and reasonable out-of-pocket expenses attributable to Executive's membership in
the "Young President's Organization," annual dues and reasonable out-of-pocket
expenses attributable to Executive's membership in the "Association for
Corporate Growth," and annual dues and reasonable out-of-pocket expenses
attributable to Executive's membership in such other professional organizations
and associations as may be appropriate.

(d) Fringe Benefits. Executive shall be entitled to receive such fringe
---------------
benefits normally provided by the Corporation to executives in his position
(including life insurance and disability coverage, vacation, sick leave, medical
and dental insurance, travel and accident insurance, participation in the
Corporation's 401(k) Plan, and stock options). During the Term, the Corporation
will retain, maintain and not terminate any compensation plan or benefit program
(including but not limited to certain life and disability insurance policies in
effect on the date of this Agreement) in which Executive participates, and will
not terminate Executive's participation

-4-
<PAGE>

in any such plan or program, unless an equitable agreement embodied in an
ongoing substitute or alternative plan or program has been made.

(e) Life Insurance and Death Benefit. The Corporation shall obtain and
--------------------------------
maintain in full force and effect at all times during the Term (and for any
period thereafter during which the Corporation is obligated to pay severance) a
life insurance policy on the life of Executive, which will provide a death
benefit to Executive's designee (or, if none, Executive's estate) of One Million
Dollars ($1,000,000.00). In the event that the Corporation shall for any reason
whatsoever fail to maintain such an insurance policy on Executive's life at all
such times as provided under this Section 5.(e), then the Corporation shall be
obligated, upon Executive's death during any such time, to pay to Executive's
designee (or, if none, Executive's estate) a death benefit of One Million
Dollars ($1,000,000.00).

6. Stock Options.
-------------

(a) Effective upon the Closing Date, all 310,226 options granted to
Executive pursuant to the Prior Employment Agreements, which are exercisable at
an exercise price of $.3072 per share,/1/ shall automatically vest and all
restrictions against exercising such options (except such as may be required by
law) shall thereupon lapse.

(b) Prior to the Effective Date, the Corporation shall grant to Executive:
(i) options, qualifying as incentive stock options ("ISO Options") pursuant to
the Corporation's 1996 Stock Option Plan (the "1996 Stock Option Plan"), to
purchase 75,000 shares of Common Stock at an exercise price equal to the price
at which the Corporation's Common Stock will be offered in its initial public
offering, exercisable for a period of ten (10) years from the date of grant, and
(ii) non-qualified options ("NQS Options"), which shall not be granted pursuant
to the Plan, to purchase 75,000 shares of Common Stock underlying such options
at a purchase price of $5.33 per share, exercisable for a period of ten (10)
years from the date of grant, such options to be granted pursuant to option
agreements in the forms of Exhibits 3 and 4. If the Effective Date shall not
have occurred on or before November 4, 1996, all such ISO Options and NQS
Options shall lapse and terminate immediately, without further action on the
part of the Corporation.

(c) Subject to possible earlier vesting or forfeiture as may otherwise be
provided in this Agreement, each option granted under Section 6.(b) shall vest
at the rate of 15,000 shares per year for five years commencing on the date of
grant, after which time all such options shall be fully vested in Executive.
Executive shall remain eligible to receive additional options at the discretion
of the Board of Directors and/or the administrators of the Plan.

7. Termination. Any other provision of this Agreement to the contrary
-----------
notwithstanding, Executive's employment may be terminated only as follows:

(a) At the option of the Corporation, only in the event of:

(i) the death of Executive.

(ii) Executive's permanent disability, which shall mean Executive's
inability for a period of six consecutive months, because of a physical or
mental condition, to render the services required hereunder (all as
certified by either Executive's attending physician or a licensed physician
retained by the Corporation for the purposes of making such determination).
In the event of any disagreement between Executive's attending physician
and such physician retained by the

- --------------------
/1/ After the stock split contemplated in connection with the intended initial
public offering.

-5-
<PAGE>

Corporation, the matter shall be resolved by arbitration as hereinafter
provided, except that the arbitrator shall be one licensed physician
acceptable to both the Corporation and Executive.

(iii) (A) The commission by Executive of a fraud or serious crime or
(B) Executive's knowing and chronic violation of law that results in the
Corporation's having (1) material risk of substantial damages or (2) actual
and substantial liability or loss from such damages.

(iv) any material breach by Executive of the terms hereof, which
Executive shall not have cured after reasonable notice and a reasonable
opportunity to cure.

(v) Executive chronically abuses alcohol during business hours or
chronically conducts business under the undue influence of alcohol or his
abuse of alcohol chronically and adversely affects his ability to perform
his duties, which Executive shall not have cured after reasonable notice
and a reasonable opportunity to cure.

(vi) Executive chronically abuses drugs during business hours or
chronically conducts business under the undue influence of such drugs or
his abuse of such drugs chronically affects his ability to perform his
duties, which Executive shall not have cured after reasonable notice and a
reasonable opportunity to cure.

(vii) upon notice given prior to the release by the Corporation of
its EBITDA on a consolidated quarterly basis for the next succeeding fiscal
quarter, if both:
----

(A) EBITDA for the period of six consecutive fiscal
quarters (the first such quarter being the three months ended December
31, 1996) for which quarterly results have been reported immediately
preceding the giving of such notice shall be less than 75% of the
amount of EBITDA projected by the Corporation for such period in the
annual budgets of the Corporation as approved by or amended with the
approval of the Board of Directors of the Corporation, and
---

(B) EBITDA on a cumulative basis for the period from October 1,
1996 through the end of the quarter for which quarterly results have
been reported immediately preceding the giving of such notice shall be
less than 85% of the amount of EBITDA projected by the Corporation for
such period in the annual budgets of the Corporation as approved by or
amended with the approval of the Board of Directors of the
Corporation.

-6-
<PAGE>

For all purposes of this Agreement, "EBITDA" for any period shall mean
the aggregate earnings of the Corporation, on a consolidated basis, for the
relevant period, before interest, taxes, depreciation and amortization, all
as determined in accordance with generally accepted accounting principles
applied on a basis consistent with the manner in which such principles have
heretofore been applied by the independent public accountants of the
Corporation, except that: (1) charges, if any, against income arising
------
from the existence of outstanding executive options shall not be taken into
account; (2) gains and losses on acquisitions and dispositions of capital
assets outside the ordinary course of business shall not be taken into
account; (3) extraordinary items of income, gain, loss or expense (as so
characterized by generally accepted accounting principles applied on a
consistent basis) shall not be taken into account; and (4) changes in
accounting principles adopted by the Corporation which differ from those
accounting principles used in preparing the Plan shall not be taken into
account.

(viii)(A) all or substantially all of the capital stock or assets of
the Corporation are sold, transferred or otherwise conveyed in an arm's-
length transaction, or (B) a "Change of Control" (as hereinafter defined)
shall have occurred. For purposes of this Agreement, a "Change of Control"
of the Corporation shall be deemed to have occurred if i) any "Person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other
than Dickstein & Co., L.P., any entity controlling, under common control
with or controlled by Dickstein & Co., L.P. or Viking Holdings, Limited, or
any entity controlling, under common control with or controlled by Viking
Holdings, Limited) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
Specialty, SC or the Corporation representing more than fifty per cent
(50%) of the combined voting power of the Corporation's then outstanding
securities; or ii) a slate of directors other than a slate proposed or
supported by management of the Corporation has been elected or designated
to the Board of Directors of the Corporation by any "Person" (including,
without limitation, any persons or entities affiliated with such persons,
other than Dickstein & Co., L.P., any entity controlling, under common
control with or controlled by Dickstein & Co., L.P. or Viking Holdings,
Limited, or any entity controlling, under common control with or controlled
by Viking Holdings, Limited).

(b) At the option of Executive, only in the event of:

(i) any material breach by the Corporation of the terms hereof
(including, without limitation, termination by the Corporation of
Executive's employment for any reason not expressly set forth in Section
7,(a)), which the Corporation shall not have cured after reasonable notice
and a reasonable opportunity to cure; or

-7-
<PAGE>

(ii) any material reduction or diminution of Executive's
responsibilities or authority (including but not limited to relieving him
of the title of Chief Executive Officer or Chairman of the Board of
Directors of Specialty, SC or the Corporation) for overall management of
the Corporation, which the Corporation shall not have cured after
reasonable notice and a reasonable opportunity to cure.

8. Certain Effects of Termination.
------------------------------

(i) Executive or his designee (or, if none, Executive's estate) shall
receive any Base Salary accrued to the effective date of such
termination;

(ii) Executive shall receive severance in an amount equal to Base Salary
for two years or such lesser period remaining until the expiration of the
Term (but in any event not less than one year) at the then current Base
Salary rate as set forth at Exhibit 1.;

(iii) Executive or his designee (or, if none, Executive's estate) shall
receive or retain, as the case may be, all options, including but not
limited to ISO Options and NQS Options granted pursuant to Section 6.(b),
which shall accelerate and vest in their entirety as of the termination
date;

(iv) Executive shall receive a pro rata portion of any Performance Bonus
based upon the Corporation's performance through the effective date of such
termination; /2/

- --------------------
/2/ For purposes of this Agreement, the "pro rata portion" of any bonus shall
mean a. the actual amount of a full bonus based upon the Corporation's actual
EBITDA for the fiscal year in which termination occurred, multiplied by b. a
fraction, the numerator of which shall be the whole number of full or partial
days during such year in which Executive was employed by the Corporation and the
denominator of which shall be the number of days in such fiscal year. For
example:

if Executive were to die on the 26th of January in any Fiscal Year (other
than a leap year) otherwise expiring on December 31, the "pro rata portion"
of Executive's Performance Bonus for such year would be (a) an amount equal
to the entire Performance Bonus amount, based upon actual EBITDA for the
entire year, multiplied by (b) 26/365, or .07.

-8-
<PAGE>

(v) Executive shall receive the unpaid balance, if any, of the entire
Deferred Bonus, as provided by Section 4.(a), without regard to such
termination; and

(vi) Executive and his family shall receive health benefits for two years
or such lesser period remaining until the expiration of the Term (but in
any event not less than one year), as provided (or required to be provided)
pursuant to this Agreement.

In each case, all payments pursuant to Sections 8.(a)(i) (salary, 8(a)(ii)
(severance) and 8.(a)(v) (deferred bonus) shall be paid at the times and in the
fashion the same would have been paid if Executive's employment had continued
pursuant to this Agreement.

(b) In the event that Executive's employment shall be terminated by the
Corporation during any Term Year as permitted by Section 7.(a)(i), Executive's
designee (or, if none, Executive's estate) shall be entitled to receive the
payments and benefits set forth in Section 8.(a), except that:

(i) the amount specified under Section 8.(a)(ii) (severance) shall be
forfeited;

(ii) any Performance Bonus otherwise afforded under Section 8.(a)(iv)
shall be forfeited; and

(iii) any Deferred Bonus otherwise afforded under Section 8.(a)(v) shall
be forfeited.

(c) In the event that Executive's employment shall be terminated by the
Corporation during any Term Year as permitted by Section 7.(a)(iii), 7.(a)(iv),
7.(a)(v) or 7.(a)(vi), Executive shall be entitled to receive the payments and
benefits set forth in Section 8.(a), except that:

(i) the amount specified under Section 8.(a)(ii) (severance) shall be
forfeited;

(ii) of the options specified under Section 8.(a)(iii), Executive shall
receive or retain, as the case may be, only those options, including but
not limited to ISO Options and NQS Options, which shall have vested prior
to the effective date of termination; provided, however, that 50% of such
-------- -------
vested options shall expire if unexercised within six months after the date
of termination, and the remaining 50% of such vested options shall expire
if unexercised within one year after the date of termination;

(iii) any Performance Bonus otherwise afforded under Section 8.(a)(iv)
shall be forfeited; and

(iv) the provisions of Section 8.(a)(vi) to the contrary notwithstanding,
neither Executive nor his family shall receive any health benefits.

-9-
<PAGE>

(d) In the event that Executive's employment shall be terminated by the
Corporation during any Term Year as permitted by Section 7.(a)(vii), Executive
shall be entitled to receive the payments and benefits set forth in Section
8.(a), except that:

(i) of the options specified under Section 8.(a)(iii), Executive shall
receive or retain, as the case may be, only those options, including but
not limited to ISO Options and NQS Options, which shall have vested prior
to the effective date of termination; provided, however, that 50% of such
-------- -------
vested options shall expire if unexercised within six months after the date
of termination, and the remaining 50% of such vested options shall expire
if unexercised within one year after the date of termination; and

(ii) any Performance Bonus otherwise afforded under Section 8.(a)(iv)
shall be forfeited.

(e) In the event that Executive's employment shall be terminated by the
Corporation during any Term Year as permitted by Section 7.(a)(viii), Executive
shall be entitled to receive the payments and benefits set forth in Section
8.(a), except that:

(i) Executive or his designee shall receive severance in an amount equal
to Base Salary for two years at the then current Base Salary rate as set
forth at Exhibit 1.; and

(ii) Executive and his family shall receive health benefits for two years,
as provided (or required to be provided) pursuant to this Agreement; and

(iii) all payments pursuant to Sections 8.(a)(i) (salary), 8(a)(ii)
(severance) (as modified hereby) and 8.(a)(v) (deferred bonus) shall be
paid promptly upon termination and all other payments shall be paid and
benefits provided at the times and in the fashion the same would have been
paid or provided if Executive's employment had continued pursuant to this
Agreement.

Executive's stock shall be sold in any such sale on the same terms as other
shares of the same class sold in such transaction, and Executive may exercise
Executive's options and participate in the sale as a holder of stock; provided,
--------
however, that, to the extent that, in the good faith judgment of the Board of
- -------
Directors of the Corporation, it is practicable for Executive to participate in
the sale (with respect to Executive's options) on a "cashless exercise" basis
(as if shares of Stock were issued solely in respect of the gain underlying the
options, and then such

-10-
<PAGE>

shares participated in the sale/3/), the Corporation shall afford Executive the
opportunity to participate in that fashion.

(f) Upon termination of Executive's employment with the Corporation by
reason of expiration of the Term without renewal, or expiration of any extension
of the Term without subsequent renewal, Executive shall be entitled to receive
the payments and benefits set forth in Section 8.(a), except that:

(i) the amount specified under Section 8.(a)(ii) (severance) shall be
limited to Base Salary for one year at the then current Base Salary rate,
as set forth at Exhibit 1.; and

(ii) the health benefits specified under Section 8.(a)(vi) shall be limited
to one year's health benefits, as provided (or required to be provided)
pursuant to this Agreement.

(g) In the event that any amounts or other benefits are payable hereunder
to or for Executive (or to Executive's designee or, if none, his estate) in
respect of any period following the termination of his employment hereunder,
such amounts or other benefits shall not be reduced in any manner by reason of
any other earnings, income or benefits of or to Executive from any other source.

9. Intellectual Property Rights. All rights in inventions, designs and
----------------------------
intellectual property (including without limitation in patents, copyright, trade
mark, registered designs, design rights and know-how) to which Executive may
become entitled by reason of activities in the course of Executive's employment
shall vest automatically in the Corporation and Executive shall, at the request
and expense of the Corporation, provide the Corporation with all information,
drawings and documents requested by the Corporation and execute such documents
and do such things as may be reasonably required by the Corporation to evidence
such vesting. The provisions of this Section 9 shall survive the termination
of this Agreement.

10. Non-Competition Covenant.
------------------------

- ---------------------
/3/ For purposes of this provision, the shares of stock "issued solely in
respect of the gain underlying an option" shall mean that number of shares
having a value (based on the selling price per share in the sale) equal to the
total number of shares covered by the option, multiplied by the excess of 1. the
selling price per share in the sale, over 2. the exercise (or purchase) price
per share under the option.

-11-
<PAGE>

importing, producing or selling, by direct mail solicitation including but not
limited to catalogs (provided, in each case, that the Corporation derives 5% or
--------
more of its revenues at the time from such products or business), wigs, wiglets,
ladies' fashion hats, continuing education courses and any other products or
businesses in which the Corporation may then be engaged, or (ii) directly or
indirectly, engage, employ, recruit, or solicit to engage, employ or recruit,
any person who was employed by the Corporation at any time during the nine-month
period immediately preceding such engagement, employment, recruitment or
solicitation; except that Executive shall not be precluded or prevented from (A)
------
owning not more than 2% of the common stock of one or more public companies
engaging in any such business, or (B) engaging or becoming interested in or
employed by a company which includes such a business so long as (1) such
----------
business does not generate more than 5% of the revenues of such company, and (2)
such business does not generate more than $5,000,000 in revenues for such
company, and (3) Executive is not involved in starting, managing or increasing
any such business in other than an insubstantial way.

(b) Anything contained in Section 10 to the contrary notwithstanding, the
terms of Section 10 shall be of no force or effect after termination of the
Term unless:
------

(i) Executive's employment shall have been properly terminated pursuant to
and in accordance with Section 7.(a)(ii), 7.(a)(iii), 7.(a)(iv), 7.(a)(v)
or 7.(a)(vi), and

(ii) the Corporation shall be and remain, in all material respects, in
compliance with all of its obligations under this Agreement;

provided that, in the event of termination of Executive's employment with
-------- ----
the Corporation by reason of expiration of the Term without renewal, or
expiration of any extension of the Term without subsequent renewal, or pursuant
to Section 7.(a)(vii), the duration of the covenant set forth in this Section
10 shall be limited to the Term and a period of twelve months thereafter.

11. Confidential Information. Executive acknowledges that, as a result of his
------------------------
employment by the Corporation, Executive has obtained and will obtain secret and
confidential information concerning the business of the Corporation, including
without limitation the identity of customers and sources of supply, their needs
and requirements, the nature and extent of the Corporation's arrangements with
them, and related cost, price and sales information. Executive also
acknowledges that the Corporation would suffer substantial damage if, during the
period of his employment with the Corporation or thereafter, Executive should
divulge secret and confidential information relating to the business of the
Corporation acquired by him in the course of his employment. Therefore,
Executive agrees that he will not at any time, whether during the Term of this
Agreement or thereafter, disclose or divulge at any time to any person, firm or
corporation, any secret or confidential information obtained by Executive while
employed by the Corporation, including but not limited to operational,
financial, business or other affairs of the Corporation, trade "know how" or
secrets, customer lists, sources of supply, pricing policies, operational
methods or technical processes, except (a) in the course of performing his
duties for the Corporation; (b) with the Corporation's consent; (c) to the
extent that any such information is in the public domain other than as a result
of Executive's breach of his obligation hereunder; (d) where required to be
disclosed by court order, subpoena or other government process; or (e) where
otherwise required to be disclosed by law or administrative rule or regulation.
In the event

-12-
<PAGE>

that Executive shall be required to make disclosure pursuant to the provisions
of Section 11.(d) or 11.(e), above, Executive shall promptly notify the
Corporation thereof and shall, in each case at the Corporation's expense, (A)
take all reasonable necessary steps requested by the Corporation to defend
against the enforcement of such subpoena, court order or other government
process, and (B) permit the Corporation, at its expense, to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof. Upon termination of his employment with the Corporation, or
at any time the Corporation may so request, Executive will promptly deliver to
the Corporation all memoranda, notes, records, reports, manuals, drawings,
blueprints and other documents (and all copies thereof) relating to the business
of the Corporation which he may then possess or maintain under his control.

12. Specific Performance. The Executive acknowledges that in the event of a
--------------------
breach by him of any of the covenants contained in Section 10 or Section 11,
the Corporation shall be entitled to immediate relief enjoining such violations
in any court or before any judicial body having jurisdiction over such a claim.

13. Successors; Binding Agreement.
-----------------------------

(a) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation expressly to
assume and agree to perform this Agreement in the manner and to the same extent
that the Corporation would be required to perform it if no such succession had
taken place. Failure of the Corporation to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement, and for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date of termination. As
used in this Agreement, "the Corporation" shall mean the Corporation as
hereinbefore defined and any successor to its business and/or assets, as
aforesaid, which assumes and agrees to perform this Agreement by operation of
law or otherwise.

(b) This Agreement shall inure to the benefit of and be enforceable by the
Corporation, its successors and assigns, and by Executive, his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.

14. Indemnification. The Corporation hereby undertakes and agrees to indemnify
---------------
and hold Executive harmless, to the fullest extent permitted under applicable
law, from, against and in respect of (and shall on demand reimburse Executive
for) any and all loss, liability, cost, expense or damage (and any and all
actions, suits, proceedings, claims, demands, assessments, judgments, costs and
expenses, including, without limitation, legal fees and expenses, incident to
any of the foregoing) suffered or incurred by Executive arising out of or in
connection with (a) his performance of his duties with or for the Corporation or
Publishing, (b) his holding any office, title or capacity with the Corporation
or Publishing at any time, or (c) by reason of any act or omission of the
Corporation or Publishing; provided that Executive did not act in bad faith or
--------
in a manner he reasonably believed to be opposed to the best interests of the
Corporation.

-13-
<PAGE>

15. Notices. For purposes of this Agreement, all notices and other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopied (receipt
acknowledged) or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt, and
provided that all notices to the Corporation shall be directed to the attention
- --------
of the Board with a copy to the Secretary of the Corporation, and that copies of
all notices to Executive shall be given to Jack M. Platt, Esq., One Rockefeller
Plaza, New York, New York 10020 (telecopier: (212) 332-3315).

16. Miscellaneous. No provision of this Agreement may be modified, waived or
-------------
discharged unless such waiver, modification or discharge is agreed to, in
writing, and signed by Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. Each party
acknowledges that the services to be rendered under this Agreement are unique
and of extraordinary character, and in the event of a breach by either party of
any of the terms of this Agreement, the other party shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either at law or in equity, to obtain damages for any breach of
the terms and provisions hereunder, to require and obtain specific performance
by the breaching party of its obligations hereunder, and to enjoin the breaching
party from acting in violation of this Agreement. Such remedies are in addition
to those otherwise available at law or in equity to the Corporation. The
validity, interpretation, construction and performance of this Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the Commonwealth of Massachusetts (other than the choice of law principles
thereof). References in this Agreement to Sections and Exhibits are to Sections
of and Exhibits to this Agreement unless otherwise specified or unless the
context otherwise requires.

17. Severability; Validity. If any term or provision of this Agreement is
----------------------
invalid or unenforceable in any jurisdiction, (a) the remaining terms and
provisions hereof shall be unimpaired; (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction; and (c) the invalid or
unenforceable term shall, for purposes of such jurisdiction, be deemed replaced
by a term or provision, as determined by a court or pursuant to an arbitration
proceeding, that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision (but such
replacement shall not in any event be more restrictive or burdensome upon
Executive).

-14-
<PAGE>

18. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

19. Prior Employment Agreements. Upon the effectiveness of this Agreement, the
---------------------------
Prior Employment Agreements will be superseded, terminated and of no further
force or effect, and Executive thereupon shall have released, and be deemed to
have released, such claims as he may have thereunder.

20. Arbitration; Certain Expenses. Any and all disputes which may arise under
-----------------------------
Section 4.(c) or 7.(a)(ii) of this Agreement (but no other Section hereof), to
the extent set forth in such sections, shall be submitted to and settled by
arbitration in Boston, Massachusetts in accordance with the procedural rules
then obtaining of the American Arbitration Association and any successor
thereto, except as may be specifically set forth in the relevant Sections of
this Agreement. The decision of the arbitrator or arbitrators (whether
accountants or physicians, as the case may be) shall be final, conclusive and
binding upon the parties, and a judgment may be obtained thereon in any court
having jurisdiction.

21. Legal and Other Costs. (a) In the event that (i) the Corporation defaults
---------------------
materially in any obligation under this Agreement and fails to cure such default
within thirty days after notice by or on behalf of Executive, and Executive
seeks legally to enforce his rights hereunder, or (ii) the Corporation seeks to
enforce any rights hereunder but shall fail to prevail in the proceeding in
which such rights are sought to be enforced, then, in either such event, in
addition to all damages and other remedies to which Executive is or may be
entitled hereunder, the Corporation shall promptly pay to Executive an amount
equal to all costs and expenses (including but not limited to reasonable fees
and expenses of counsel) paid or incurred by Executive in connection with such
enforcement or proceeding.

(b) In the event that (i) Executive defaults materially in any obligation
under this Agreement and fails to cure such default within thirty days after
notice by or on behalf of the Corporation, and the Corporation seeks legally to
enforce its rights hereunder, or (ii) Executive seeks to enforce any rights
hereunder but shall fail to prevail in the proceeding in which such rights are
sought to be enforced, and, in either such case, claims or defenses asserted by
Executive shall have been finally determined by a court having jurisdiction in
the matter to be "frivolous" under applicable law, rule or regulation, then, in
either such event, in addition to all damages and other remedies to which the
Corporation is or may be entitled hereunder, Executive shall promptly pay to the
Corporation an amount equal to all costs and expenses (including but not limited
to reasonable fees and expenses of counsel) paid or incurred by the Corporation
in connection with such enforcement or proceeding.

IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Employment Agreement as of the date first above written.

SPECIALTY CATALOG CORP.

By:_________________________________________
Name:
Title:

SC CORPORATION

By:_________________________________________
Name:
Title:

-15-
<PAGE>

---------------------------------------------
Steven L. Beck

-16-
<PAGE>

EXHIBIT 1.

BASE SALARY
-----------

Base
Year Salary
------------ --------

1996 $280,000
1997 $290,000
1998 $300,000
1999 $310,000
Thereafter $310,000

-17-
<PAGE>

EXHIBIT 2.

PERFORMANCE BONUS
-----------------

For periods commencing January 1, 1997:

Corporation's Actual EBITDA Percentage Of Base Salary To Be
As A Percentage Of Plan EBITDA Awarded As A Performance Bonus
- -------------------------------- --------------------------------

90% 10.0%
100% 25.0%
115% 50.0%
130% 75.0%
150% 100.0%

In the event that the Corporation's Actual EBITDA as a percentage of Plan
EBITDA is greater than 90% but falls between any percentages set forth in the
left column, then the percentage of Base Salary to be awarded as a Performance
Bonus shall be prorated between the immediately lower and immediately higher
entries in the right column. For example, if actual EBITDA is exactly 95% of
Plan EBITDA, or halfway between 90% and 100% in the left column, then the
Performance Bonus would be exactly halfway between the corresponding percentages
in the right column, or 17.5% of Base Salary.

-18-

<PAGE>

EXHIBIT 10.03

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT dated as of October 11, 1996 (the "Agreement") by and
between SPECIALTY CATALOG CORP., a Delaware corporation ("Specialty") having its
offices at 21 Bristol Drive, South Easton, Massachusetts, SC CORPORATION, a
Delaware corporation ("SC"; together with Specialty, sometimes referred to as
the "Corporation") having its offices at 21 Bristol Drive, South Easton,
Massachusetts, and STEPHEN M. O'HARA, an individual residing at 20 Pleasant
Heights Drive, North Easton, Massachusetts 02356 ("Executive").

W I T N E S S E T H :
- - - - - - - - - -

WHEREAS, the parties hereto wish to consolidate the Prior Employment
Agreements and to amend certain provisions thereof, substantially effective upon
the Effective Date;

WHEREAS, the Corporation desires to continue to employ Executive in an
executive capacity and to be assured of his services as such on the terms and
conditions hereinafter set forth; and

WHEREAS, Executive is willing to accept such employment on the terms and
conditions hereinafter set forth.

1. Term.
----

Date, and the Prior Employment Agreements shall on the Effective Date be
superseded hereby and be and be deemed null and void for all purposes.

(c) Subject to earlier termination as hereinafter provided, the term of
this Agreement shall commence on the Effective Date and shall end (unless notice
of expiration shall not have been timely given by the Corporation or Executive,
as hereinafter provided in this Section 1.(c)) at the close of business on
December 31, 1999 (as such term may be extended or earlier terminated, the
"Term"). Either the Corporation or Executive may cause the Term to expire at the
end of any calendar year ending on or after December 31, 1999 by giving not less
than six months' notice of expiration in writing to the other party. For
purposes of this Employment Agreement, a "Term Year" shall be a period during
the Employment Term commencing on January 1, 1997 (or any anniversary thereof)
and ending on the date immediately preceding the next anniversary of such date,
it being understood that, for purposes of this Agreement the portion of any
calendar year following the last full calendar year of the Term shall be deemed
a Term Year, except that vacation pursuant to Section 2.(c) for any Term Year of
less than a full calendar year in duration shall be prorated.
.
2. Employment.
----------

(a) Effective upon the Effective Date, the Corporation hereby employs
Executive, and Executive agrees to serve, as President of the Corporation.
Subject to the control of the Board of Directors and the Chief Executive Officer
of the Corporation, Executive shall have such powers and duties as generally
pertain to a president.

(b) Executive shall be responsible for duties consistent with his
executive position and of such nature as are usually associated with his office
as may be designated from time to time by the Board of Directors or the Chief
Executive Officer, but neither the Board of Directors, the Chief Executive
Officer nor the Corporation will assign Executive any duties inconsistent with
his status as President of the Corporation. Such duties shall be performed
primarily in the Corporation's facility in South Easton, Massachusetts, subject
to reasonable travel outside of this area as may be necessary for Executive to
perform his duties.

(c) Executive shall faithfully and diligently discharge his duties
hereunder and use his best efforts to implement the policies established by the
Board of Directors and the Chief Executive Officer of the Corporation. Executive
agrees to devote substantially all of his time and attention exclusively to the
rendering of services hereunder, subject to four weeks vacation per Term Year
and reasonable time to engage in other business, charitable and professional
activities which are not inconsistent with his duties hereunder (including but
not limited to his

-2-
<PAGE>

covenant under Section 10), including but not limited to participation on the
boards of directors of one or more companies.

(a) Deferred Bonus. The Corporation shall pay or cause Executive to
--------------
receive a bonus (the "Deferred Bonus") in the aggregate amount of $35,000
payable in three (3) equal installments of $11,666.67 each on January 1, 1997,
June 30,1997 and January 1, 1998.

-3-
<PAGE>

Executive and the Corporation shall dispute the computation of the calculation
of the Performance Bonus or appropriate adjustments to the Plan for acquisitions
or dispositions, such dispute shall be resolved by arbitration as provided in
Section 20, except that the arbitrator shall be one certified public accountant
acceptable to both the Corporation and Executive.

5. Working Facilities and Benefits.
-------------------------------

(c) Fringe Benefits. Executive shall be entitled to receive such fringe
---------------
benefits normally provided by the Corporation to executives in his position
(including life insurance and disability coverage, vacation, sick leave, medical
and dental insurance, travel and accident insurance, participation in the
Corporation's 401(k) Plan, and stock options). During the Term, the Corporation
will retain, maintain and not terminate any compensation plan or benefit program
(including but not limited to certain life and disability insurance policies in
effect on the date of this Agreement) in which Executive participates, and will
not terminate Executive's participation in any such plan or program, unless an
equitable agreement embodied in an ongoing substitute or alternative plan or
program has been made.

(d) Life Insurance. The Corporation shall obtain and maintain in full
--------------
force and effect at all times during the Term (and for any period thereafter
during which the Corporation is obligated to pay severance) a life insurance
policy on the life of Executive, which will provide a death benefit to
Executive's designee (or, if none, Executive's estate) of One Million Dollars
($1,000,000.00).

6. Stock Options.
-------------

(a) Effective upon the Closing Date, of the options previously granted to
Executive pursuant to the Prior Employment Agreements to purchase 272,773 shares
of Common Stock at an exercise price of $.3072 per share,/1/ options to purchase
218,218 of such shares shall automatically vest and all restrictions against
exercising such options (except such as may be required by law) shall thereupon
lapse; and the options to purchase the remaining 54,555 such shares shall vest
upon the first anniversary of the Effective Date.

- ----------

/1/After the stock split contemplated in connection with the intended initial
public offering.

-4-
<PAGE>

(b) Prior to the Effective Date, the Corporation shall grant to Executive
options, qualifying as incentive stock options ("ISO Options") pursuant to the
Corporation's 1996 Stock Option Plan (the "1996 Stock Option Plan"), to purchase
25,000 shares of Common Stock at an exercise price equal to the price at which
the Corporation's Common Stock will be offered in its initial public offering,
exercisable for a period of ten (10) years from the date of grant. If the
Effective Date shall not have occurred on or before November 4, 1996, all such
ISO Options shall lapse and terminate immediately, without further action on the
part of the Corporation.

(c) Subject to possible earlier vesting or forfeiture as may otherwise be
provided in this Agreement, the option granted under Section 6.(b) shall vest at
the rate of 5,000 shares per year for five years commencing on the date of
grant, after which time all such options shall be fully vested in Executive.
Executive shall remain eligible to receive additional options at the discretion
of the Board of Directors and/or the administrators of the Plan.

7. Termination. Any other provision of this Agreement to the contrary
-----------
notwithstanding, Executive's employment may be terminated at the option of the
Corporation or at the option of Executive, in either case at any time.

8. Certain Effects of Termination.
------------------------------

(a) In addition to any amounts payable under any other Section of this
Agreement, and subject to certain qualifications and limitations set forth in
other subsections of this Section 8, termination of Executive's employment with
the Corporation for any reason at any time (other than by reason of expiration
of the Term without renewal, or expiration of any extension of the Term without
subsequent renewal) shall have the following consequences:

(i) Executive or his designee (or, if none, Executive's estate) shall
receive any Base Salary accrued to the effective date of such
termination;

(ii) Executive shall receive severance in an amount equal to Base Salary
for one year or such lesser period remaining until the expiration of the
Term (but in any event not less than six months) at the then current Base
Salary rate as set forth at Exhibit 1.;

(iii) Executive or his designee (or, if none, Executive's estate) shall
receive or retain, as the case may be, the 54,555 of the previously granted
options referred to in Section 6.(a) (which, if then unvested, shall
accelerate and vest in their entirety as of the termination date), and
those options, including but not limited to ISO Options, which shall have
vested prior to the effective date of termination; provided, however, that
-------- -------
50% of such options shall expire if unexercised within six months after the
date of termination, and the remaining 50% of such vested options shall
expire if unexercised within one year after the date of termination;

-5-
<PAGE>

(iv) Executive shall receive a pro rata portion of any Performance Bonus
based upon the Corporation's performance through the effective date of such
termination;/2/

(v) Executive shall receive the unpaid balance, if any, of the entire
Deferred Bonus, as provided by Section 4.(a), without regard to such
termination; and

(vi) Executive and his family shall receive health benefits for one year or
such lesser period remaining until the expiration of the Term (but in any
event not less than six months), as provided (or required to be provided)
pursuant to this Agreement.

In each case, all payments pursuant to Sections 8.(a)(i) (salary),
8.(a)(ii) (severance) and 8.(a)(v) (deferred bonus) shall be paid at the times
and in the fashion the same would have been paid if Executive's employment had
continued pursuant to this Agreement.

(b) In the event that Executive's employment shall be terminated by the
Corporation during any Term Year for "Cause," as hereinafter defined, or by the
Executive during any Term Year for any reason, then:

(i) the amount specified under Section 8.(a)(ii) (severance) shall be
forfeited;

(ii) of the options specified under Section 8.(a)(iii), Executive shall
receive or retain, as the case may be, only those options, including but
not limited to ISO Options, which shall have vested prior to the effective
date of termination; provided, however, that 50% of such vested options
-------- -------
shall expire if unexercised within six months after the date of
termination, and the remaining 50% of such vested options shall expire if
unexercised within one year after the date of termination;

- ----------

/2/ For purposes of this Agreement, the "pro rata portion" of any bonus shall
mean a. the actual amount of a full bonus based upon the Corporation's actual
EBITDA for the fiscal year in which termination occurred, multiplied by b. a
fraction, the numerator of which shall be the whole number of full or partial
days during such year in which Executive was employed by the Corporation and the
denominator of which shall be the number of days in such fiscal year. For
example:

-6-
<PAGE>

(iii) any Performance Bonus otherwise afforded under Section 8.(a)(iv)
shall be forfeited;

(iv) any Deferred Bonus otherwise afforded under Section 8.(a)(v) shall
be forfeited; and

(v) the provisions of Section 8.(a)(vi) to the contrary notwithstanding,
neither Executive nor his family shall receive any health benefits.

(i) (A) The commission by Executive of a fraud or serious crime; or
(B) Executive's knowing and chronic violation of law that results in the
Corporation's having (1) material risk of substantial damages or (2) actual
and substantial liability or loss from such damages.

(ii) any material breach by Executive of the terms hereof, which
Executive shall not have cured after reasonable notice and a reasonable
opportunity to cure.

(iii) Executive chronically abuses alcohol during business hours or
chronically conducts business under the undue influence of alcohol or his
abuse of alcohol chronically and adversely affects his ability to perform
his duties, which Executive shall not have cured after reasonable notice
and a reasonable opportunity to cure.

(iv) Executive chronically abuses drugs during business hours or
chronically conducts business under the undue influence of such drugs or
his abuse of such drugs chronically affects his ability to perform his
duties, which Executive shall not have cured after reasonable notice and a
reasonable opportunity to cure.

(d) In the event that Executive's employment shall be terminated during any
Term Year as a result of his death, Executive's designee (or, if none,
Executive's estate) shall be entitled to receive the payments and benefits set
forth in Section 8.(a), except that:

(i) the amount specified under Section 8.(a)(ii) (severance) shall be
forfeited;

(ii) any Performance Bonus otherwise afforded under Section 8.(a)(iv)
shall be forfeited; and

(iii) any Deferred Bonus otherwise afforded under Section 8.(a)(v) shall
be forfeited.

(e) Upon termination of Executive's employment with the Corporation by
reason of expiration of the Term without renewal, or expiration of any extension
of the Term without subsequent renewal, Executive shall be entitled to receive
severance in an amount equal to Base Salary for six months at the then current
Base Salary rate as set forth at Exhibit 1. All payments pursuant to this
Section 8.(e) shall be paid at the times and in the fashion the same would have
been paid if Executive's employment had continued pursuant to this Agreement.

(f) In the event that any amounts or other benefits are payable hereunder
to or for Executive (or to his designee (or, if none, Executive's estate)) in
respect of any period following the termination of his employment hereunder,
such amounts or other benefits shall not be reduced in any manner by reason of
any other earnings, income or benefits of or to Executive from any other source.

-7-
<PAGE>

10. Non-Competition Covenant.
------------------------

(a) During the Term, and (subject to the terms of Section 10.(b)) for a
period of twenty-four months thereafter, Executive shall not, directly or
indirectly, (i) engage or become interested in (as owner, stockholder, partner,
director, officer, employee, consultant or otherwise) the business, in the
United States or anywhere else in the world, of marketing, manufacturing,
importing, producing or selling, by direct mail solicitation including but not
limited to catalogs (provided, in each case, that the Corporation derives 5% or
--------
more of its revenues at the time from such products or business), wigs, wiglets,
ladies' fashion hats, continuing education courses and any other products or
businesses in which the Corporation may then be engaged, or (ii) directly or
indirectly, engage, employ, recruit, or solicit to engage, employ or recruit,
any person who was employed by the Corporation at any time during the nine-month
period immediately preceding such engagement, employment, recruitment or
solicitation; except that Executive shall not be precluded or prevented from (A)
------
owning not more than 2% of the common stock of one or more public companies
engaging in any such business, or (B) engaging or becoming interested in or
employed by a company which includes such a business so long as (1) such
-------
business does not generate more than 5% of the revenues of such company, and (2)
such business does not generate more than $5,000,000 in revenues for such
company, and (3) Executive is not involved in starting, managing or increasing
any such business in other than an insubstantial way.

(b) Anything contained in Section 10 to the contrary notwithstanding, the
terms of Section 10 shall be of no force or effect after termination of the
Term unless:
------

(i) Executive's employment shall have been properly terminated pursuant to
and in accordance with this Agreement; and

(ii) the Corporation shall be and remain, in all material respects, in
compliance with all of its obligations under this Agreement;

provided that, in the event of termination of Executive's employment with
-------- ----
the Corporation by reason of expiration of the Term without renewal, or
expiration of any extension of the Term without subsequent renewal, the duration
of the covenant set forth in this Section 10 shall be limited to the Term and a
period of twelve months thereafter.

-8-
<PAGE>

and sources of supply, their needs and requirements, the nature and extent of
the Corporation's arrangements with them, and related cost, price and sales
information. Executive also acknowledges that the Corporation would suffer
substantial damage if, during the period of his employment with the Corporation
or thereafter, Executive should divulge secret and confidential information
relating to the business of the Corporation acquired by him in the course of his
employment. Therefore, Executive agrees that he will not at any time, whether
during the Term of this Agreement or thereafter, disclose or divulge at any time
to any person, firm or corporation, any secret or confidential information
obtained by Executive while employed by the Corporation, including but not
limited to operational, financial, business or other affairs of the Corporation,
trade "know how" or secrets, customer lists, sources of supply, pricing
policies, operational methods or technical processes, except (a) in the course
of performing his duties for the Corporation; (b) with the Corporation's
consent; (c) to the extent that any such information is in the public domain
other than as a result of Executive's breach of his obligation hereunder; (d)
where required to be disclosed by court order, subpoena or other government
process; or (e) where otherwise required to be disclosed by law or
administrative rule or regulation. In the event that Executive shall be required
to make disclosure pursuant to the provisions of Section 11.(d) or 11.(e),
above, Executive shall promptly notify the Corporation thereof and shall, in
each case at the Corporation's expense, (A) take all reasonable necessary steps
requested by the Corporation to defend against the enforcement of such subpoena,
court order or other government process, and (B) permit the Corporation, at its
expense, to intervene and participate with counsel of its choice in any
proceeding relating to the enforcement thereof. Upon termination of his
employment with the Corporation, or at any time the Corporation may so request,
Executive will promptly deliver to the Corporation all memoranda, notes,
records, reports, manuals, drawings, blueprints and other documents (and all
copies thereof) relating to the business of the Corporation which he may then
possess or maintain under his control.

13. Successors; Binding Agreement.
-----------------------------

-9-
<PAGE>

14. Indemnification. The Corporation hereby undertakes and agrees to indemnify
---------------
and hold Executive harmless, to the fullest extent permitted under applicable
law, from, against and in respect of (and shall on demand reimburse Executive
for) any and all loss, liability, cost, expense or damage (and any and all
actions, suits, proceedings, claims, demands, assessments, judgments, costs and
expenses, including, without limitation, legal fees and expenses, incident to
any of the foregoing) suffered or incurred by Executive arising out of or in
connection with (a) his performance of his duties with or for the Corporation,
(b) his holding any office, title or capacity with the Corporation at any time,
or (c) by reason of any act or omission of the Corporation; provided that
--------
Executive did not act in bad faith or in a manner he reasonably believed to be
opposed to the best interests of the Corporation..

16. Miscellaneous. No provision of this Agreement may be modified, waived or
-------------
discharged unless such waiver, modification or discharge is agreed to, in
writing, and signed by Executive and the Chief Executive Officer or such other
officer as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. Each party acknowledges that the services to be
rendered under this Agreement are unique and of extraordinary character, and in
the event of a breach by either party of any of the terms of this Agreement, the
other party shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either at law or in equity,
to obtain damages for any breach of the terms and provisions hereunder, to
require and obtain specific performance by the breaching party of its
obligations hereunder, and to enjoin the breaching party from acting in
violation of this Agreement. Such remedies are in addition to those otherwise
available at law or in equity to the Corporation. The validity, interpretation,
construction and performance of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the Commonwealth
of Massachusetts (other than the choice of law principles thereof). References
in this Agreement to Sections and Exhibits are

-10-
<PAGE>

to Sections of and Exhibits to this Agreement unless otherwise specified or
unless the context otherwise requires.

20. Arbitration; Certain Expenses. Any and all disputes which may arise under
-----------------------------
Section 4.(c) of this Agreement (but no other Section hereof), to the extent set
forth in such section, shall be submitted to and settled by arbitration in
Boston, Massachusetts in accordance with the procedural rules then obtaining of
the American Arbitration Association and any successor thereto, except as may be
specifically set forth in this Agreement. The decision of the arbitrator or
arbitrators (whether accountants or physicians, as the case may be) shall be
final, conclusive and binding upon the parties, and a judgment may be obtained
thereon in any court having jurisdiction.

IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Employment Agreement as of the date first above written.

SPECIALTY CATALOG CORP.

By:
--------------------------------
Name:
Title:

SC CORPORATION

By:
--------------------------------
Name:

-11-
<PAGE>

Title:

--------------------------------
Stephen M. O'Hara

-12-
<PAGE>

EXHIBIT 1.

BASE SALARY
-----------

Year Base
---- ----
Salary
------
[S] [C]
1996 $205,000
1997 $215,000
1998 $225,000
1999 $235,000
Thereafter $235,000

-13-
<PAGE>

EXHIBIT 2.

PERFORMANCE BONUS
-----------------

For periods commencing January 1, 1997:

Corporation's Actual EBITDA Percentage Of Base Salary To Be
As A Percentage Of Plan EBITDA Awarded As A Performance Bonus
- ------------------------------ -------------------------------

90% 10.0%
100% 25.0%
115% 50.0%
130% 75.0%
150% 100.0%

-14-

<PAGE>

EXHIBIT 10.25

AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT

This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is made and entered
into as of September, 1996, among Specialty Catalog Corp., Delaware corporation
(the "Company"), Dickstein & Co. L.P., a Delaware limited partnership
("Dickstein"), Viking Holdings Limited, a British Virgin Islands corporation
("Viking"), and each of the other securityholders which are signatories hereto
(collectively, "Securityholders" and individually, a "Securityholder").

WHEREAS, the Company and the certain of the Securityholders ("Original
Securityholders") entered into a Registration Rights Agreement dated November
30, 1994 as amended by an Amendment to Registration Rights Agreement dated as of
August 16, 1995 (collectively, the "Prior Registration Rights Agreement"); and

WHEREAS, the Original Securityholders thereto wish to amend and restate
their Prior Registration Rights Agreement and;

WHEREAS, each Securityholder is the beneficial owner of certain
Registrable Securities (as defined below) issued by the Company. The Company
and the Securityholders deem it to be in their respective best interests to set
forth the rights of the Securityholders in connection with public offerings and
sales of the Registrable Securities.

NOW, THEREFORE, in consideration of the premises and mutual covenants and
obligations hereinafter set forth, the Company and the Securityholders,
intending legally to be bound, hereby covenant and agree that the Prior
Registration Rights Agreement is hereby amended and replaced in its entirety
with this Amended and Restated Registration Rights Agreement, as follows:

SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
-----------
shall have the following meanings:

"Affiliate" of any person shall mean any other person who either directly
or indirectly is in control of, is controlled by, or is under common control
with such person, and "Affiliated" shall have the corresponding meaning;

provided, that for purposes of this definition, an investment entity shall be
- --------
deemed to be controlled by each of its investment manager, investment advisor
and general partner.

"Common Stock" shall mean the common stock, par value $.01 per share, of
the Company.

"Company" shall mean Specialty Catalog Corp., a Delaware corporation.
<PAGE>

"Dickstein Group" shall mean (i) Dickstein, (ii) Dickstein International
Limited, (iii) Dickstein Focus Fund, L.P., (iv) any investment fund for which
Dickstein or any Affiliate of Dickstein acts as investment manager, and (iv) any
partnership or other entity for which any of the foregoing acts directly or
indirectly as general partner or controlling stockholder, and any other Person
otherwise Affiliated with any of the foregoing, or successors holding more than
50% of the voting control of any such entity.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"GKN" shall mean GKN Securities Corp.

"Holder" shall mean any Person that owns Registrable Securities, including
such successors and assigns as acquire Registrable Securities, directly or
indirectly, from such Person. For purposes of this Agreement, the Company may
deem the registered holder of a Registrable Security as the Holder thereof.

"Other Approved Holders" shall mean Martin Franklin, Jonathan E. Franklin,
and Ian G. H.Ashken and such other holders of Common Stock or options or
warrants exercisable for shares of Common Stock having registration rights with
respect to the Common Stock, other than under this Agreement, which registration
rights have been consented to in writing by the Principal Holders. Nothing in
this Agreement shall be construed to classify or characterize GKN as an Other
Approved Holder.

"Person" shall mean an individual, partnership, limited partnership,
corporation, limited liability company, joint venture, trust or unincorporated
organization, a government or agency or political subdivision thereof or any
other entity.

"Principal Holders" shall mean (i) the Dickstein Group and (ii) the Viking
Group, and "Principal Holder" shall mean either of such groups individually.

"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by a prospectus supplement with respect to
the terms of the offering of any portion of the Registrable Securities covered
by such Registration Statement and by all other amendments and supplements to
the prospectus, including but not limited to post-effective amendments and all
material incorporated by reference in such prospectus.

"Registrable Securities" shall mean (i) the Common Stock held by the
Securityholders on the date hereof; (ii) any other securities issued or issuable
as a result of or in connection with any combination of shares,
recapitalization, reclassification, merger or consolidation, exchange or
distribution in respect of the securities referred to in clause (i) above; and
(iii) shares of Common Stock issuable upon exercise of any options or warrants
granted to any Securityholder. For purposes of this Agreement, a Registrable
Security ceases to be a Registrable Security when either it has been (x)
registered under the Securities Act and sold or distributed to any Person
pursuant to an effective Registration Statement covering it or (y) sold or
distributed to any Person pursuant to Rule 144 or Rule 145(d).

-2-
<PAGE>

"Registration Expenses" shall have the definition set forth in Section 5.

"Registration Statement" shall mean any Registration Statement which covers
any of the Registrable Securities and shares of Common Stock to be registered by
Other Approved Holders pursuant to the provisions of this Agreement, including
the Prospectus included therein, all amendments and supplements to such
Registration Statement, including but not limited to post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.

"Rule 144" and "Rule 145" shall mean, respectively, Rule 144 and Rule 145,
each promulgated under the Securities Act, as amended from time to time, or any
similar successor rule thereto that may be promulgated by the SEC.

"SEC" shall mean the Securities and Exchange Commission.

"Securities Act" shall mean the Securities Act of 1933, as amended.

"Securityholder" shall have the meaning set forth in the first paragraph.

"Viking Group" shall mean Viking and any Affiliate thereof, and any
partnership or other entity for which Viking or any entity controlled by Viking
acts directly or indirectly as general partner or controlling stockholder or
successors holding more than 50% of the voting control of Viking.

SECTION 2. REGISTRATION RIGHTS.
-------------------

(a) Demand Registration. At any time after the completion of the initial
-------------------
public offering of the Common Stock, subject to such lock up agreements that may
be entered into by the Principal Holders upon request by the underwriter of an
initial Public Offering, upon written notice to the Company from either
Principal Holder requesting that the Company effect, pursuant to this Section 2,
the registration of Registrable Securities owned by such Principal Holder which
constitutes on the date of such notice an aggregate of at least 5% of the Common
Stock outstanding on such date or, if less than such percentage, all of the
Registrable Securities then owned by such Principal Holder (which notice shall
specify (A) the proposed amounts of Registrable Securities for which
registration is requested, and (B) the intended method or methods of disposition
by such Principal Holder (including whether or not the proposed offering is to
be underwritten)), the Company shall promptly (but in any event within 20 days)
give written notice of such requested registration to all other Holders and all
Other Approved Holders, and thereupon the Company shall, as expeditiously as
possible, use its best efforts to effect the registration under the Securities
Act of:

(x) the Registrable Securities that the Principal Holder has
requested the Company to register, for disposition in accordance with
the intended method of disposition stated in its notice to the
Company; and

-3-
<PAGE>

(y) all other Registrable Securities ("Non-Principal
Securities"), the Holders of which shall have made a written request
to the Company for registration thereof (which request shall specify
the proposed amounts thereof) within thirty (30) days after the
receipt of such written notice from the Company; and

(z) all shares of Common Stock, the Other Approved Holders of
which shall have made a written request to the Company for
registration thereof (which request shall specify the proposed amounts
thereof) within thirty (30) days after the receipt of such written
notice from the Company.

all to the extent requisite to permit the disposition (in accordance with the
method of disposition specified in the notice given to the Company by the
selling Principal Holders) by Holders of the securities then constituting
Registrable Securities and by Other Approved Holders of shares of Common Stock
so to be registered; provided, however, that the Company shall not be obligated
-------- -------
to (x) file a Registration Statement pursuant to this Section 2(a) within the
period commencing on the filing of any registration statement of the Company
which related solely to the registration of Common Stock and ending one hundred
eighty (180) days after, the effective date of such registration statement; or
(y) effect more than one (1) demand registration pursuant to this Section 2(a)
on behalf of each of the Dickstein Group and the Viking Group.

(b) "Piggyback" Registration Rights. The Company shall, at least
-------------------------------
thirty (30) days prior to the filing of any Registration Statement under the
Securities Act (other than a Registration Statement on Form S-4 or S-8 or any
successor forms) relating to the public offering of any class of its equity
securities by the Company or any Holder or any Other Approved Holder, give
written notice of such proposed filing and of the proposed date thereof to each
Holder and to all Other Approved Holders, and if, on or before the tenth (l0th)
day following the date on which such notice is given, the Company shall receive
a written request from any Holder or any Other Approved Holder, requesting that
the Company include among the securities covered by such Registration Statement
some or all of the Registrable Securities owned by such Holder or shares of
Common Stock owned by Other Approved Holders, the Company shall include such
Registrable Securities and shares of Common Stock owned by Other Approved
Holders in such Registration Statement, if filed. Except as may otherwise be
provided in this Agreement, Registrable Securities and shares of Common Stock
owned by Other Approved Holders with respect to which a request for registration
has been received will be registered by the Company and offered to the public on
the same terms and subject to the same conditions applicable to the piggyback
registration to be sold by the Company or by the other Persons selling under
such piggyback registration. The Company shall be under no obligation to
complete any offering of its securities it proposes to make under this
subparagraph (b) and shall incur no liability to any Holder or any Other
Approved Holder for its failure to do so, notwithstanding the request of any
such Holder or any Other Approved Holder to participate therein in accordance
with this Section 2(b). In connection with any registration covered by this
subparagraph (b) involving any underwriting of securities, the Company shall not
be required to include any Holder's Registrable Securities or shares of

-4-
<PAGE>

Common Stock owned by other Approved Holders in such registration unless such
Holder or other Approved Holder accepts the terms of the underwriting as agreed
upon between the Company (or other persons who have the right to agree upon the
underwriting terms relating to such offering) and the underwriters.

(c) Each Security Holder hereby waives all of its registration rights
under the Prior Registration Rights Agreement with respect to Registrable
Securities, all of which are hereby terminated, except as set forth herein.

(d) The Security Holders hereby consent to the registration rights
granted to Messrs. Martin Franklin, Jonathan Franklin and Ian Ashken pursuant to
certain Warrants dated August 12, 1996 to purchase an aggregate of 265,335
shares of Common Stock ("Franklin Warrants").

SECTION 3. REGISTRATION PROCEDURES.
-----------------------

In connection with any Registration Statement filed pursuant to this Agreement,
the following provisions shall apply:

(a) If such Registration Statement shall be filed pursuant to
Paragraph 2(a) or (b) hereof, all Holders owning Registrable Securities and all
Other Approved Holders owning Common Stock shall, if requested by the managing
underwriter, agree not to sell publicly any Registrable Securities (other than
the Registrable Securities so registered) or shares of Common Stock, as the case
may be, for the same period as may be agreed to by the Company, or by the
Holders selling Registrable Securities and Other Approved Holders selling shares
of Common Stock pursuant to the Registration Statement, following the effective
date of the Registration Statement relating to such offering.

(b) If such Registration Statement shall be filed pursuant to
Paragraph 2(a) or (b) hereof and if the managing underwriter advises that the
inclusion in such registration of some or all of the Registrable Securities
sought to be registered by the Securityholders or Other Approved Holders seeking
to register shares of Common Stock pursuant to Paragraph 2(a) or (b), creates a
substantial risk that the proceeds or price per share to be derived from such
registration by the party initiating the filing of such Registration Statement
will be reduced or that the number of shares sought to be registered is too
large a number to be reasonably sold, the number of shares of Registrable
Securities and Common Stock sought to be registered for the accounts of all
Holders and all Other Approved Holders shall be reduced, pro rata in proportion
to the number of shares of Registrable Securities and Common Stock sought to be
registered by all such persons, to the extent necessary to reduce the number of
all such shares to be registered for the accounts of all Holders and all Other
Approved Holders to the number recommended by the managing underwriter (which
amount may be zero), subject to GKN's piggyback registration rights pursuant to
the Underwriter's Purchase Option to be entered into between GKN and the Company
in connection with the Company's initial public offering; provided, however, in
no event shall the number of shares

-5-
<PAGE>

of Common Stock sought to be registered by the Company be reduced pursuant to
any provision of this Section 3.

(c) If such Registration Statement shall be filed pursuant to
paragraph 2(a), hereof and covers only securities to be sold by the Company and
Registrable Securities and if the managing underwriter advises that the
inclusion in such registration of some or all of the Registrable Securities
creates a substantial risk that the proceeds or price per share to be derived
from such registration by the Company, will be reduced or that the number of
shares sought to be registered is too large a number to be reasonably sold, the
number of shares of Registrable Securities sought to be registered by the
Holders shall be reduced, pro rata to the extent necessary to reduce the number
of all shares of Registrable Securities to be registered to the number (which
may be zero) recommended by the managing underwriter, subject to GKN's piggyback
registration rights pursuant to the Underwriter's Purchase Option to be entered
into between GKN and the Company in connection with the Company's initial
public offering.

(d) It shall be a condition to the Company's obligations under this
Agreement that Holders seeking to register Registrable Securities and other
Approved Holders seeking to register Common Stock will promptly provide the
Company with such information as it shall reasonably request in order to prepare
such Registration Statement.

(e) Following the effective date of any Registration Statement
hereunder, the Company shall, upon the request of any Holder seeking to register
Registrable Securities and other Approved Holders seeking to register Common
Stock, forthwith supply such number of prospectuses (including preliminary
prospectuses and amendments and supplements thereto) meeting the requirements of
the Securities Act and such other documents as are referred to in the prospectus
as shall be reasonably requested by any such Holder or Other Approved Holder to
permit such Holder or Other Approved Holder to make a public distribution of its
Registrable Securities or Common Stock, as the case may be, provided that such
Holder or Other Approved Holder furnishes the Company with such appropriate
information relating to such Person's intentions in connection therewith as the
Company shall reasonably request.

(f) The Company shall prepare and file such amendments and supplements
to such Registration Statement filed hereunder as may be necessary to keep such
Registration Statement effective and to comply with the provisions of the
Securities Act and applicable "Blue Sky" laws with respect to the offer and sale
or other disposition of the Registrable Securities or Common Stock, as the case
may be, covered by such Registration Statement during the period required for
distribution of the Registrable Securities or Common Stock, as the case may be,
(except in the case of a Demand Registration pursuant to Paragraph 2(a) hereof,
for the period specified in such paragraph), and shall promptly as practicable
after filing same with the Commission, deliver copies of such documents to each
Holder holding Registrable Securities for Other Approved Holder holding Common
Stock covered by such Registration Statement.

-6-
<PAGE>

(g) The Principal Holders seeking to register Registrable Securities
to be included in a Registration Statement filed under the provisions of
Paragraph 2(a), shall select the underwriter or underwriters, if any, who are to
undertake the offering and distribution of the Registrable Securities, to be
included in a Registration Statement filed under the provisions of Paragraph
2(a),subject to the Company's prior approval of the underwriter, which approval
shall not be unreasonably withheld, but the Company alone shall make such
selection with respect to a Registration Statement as to which Holders may have
registration rights pursuant to Paragraph 2(b).

(h) If a request for registration is made pursuant to Paragraph 2(a),
the Company may postpone the filing of a Registration Statement if, based on the
good faith judgment of the Company's Board of Directors, (A) for up to 90 days
from the date of request if such postponement is necessary in order to avoid
premature disclosure of a matter involving a material transaction then
undertaken by the Company that the Board has determined would not be in the best
interest of the Company to disclose prematurely or (B) for a period of up to 90
days from the end of the Company's fiscal year if the filing of a Registration
Statement at the time of such request would require duplicative year-end audit
and accounting expenses, provided that in no event shall the Company be
permitted to postpone the filing of a Registration Statement pursuant to this
subparagraph (h) more than once in any twelve month period.

(i) The Company shall use its best efforts to register the Registrable
Securities of the Principal Holders seeking to register Registrable Securities
covered by any such Registration Statement under such securities or Blue Sky
laws in such jurisdictions as the Principal Holder may reasonably request;
provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph (i) or (B) consent to general
service of process or subject itself to taxation in any such jurisdiction.

(j) The Company shall cooperate with the Holders holding Registrable
Securities and the Other Approved Holders holding Common stock covered by any
Registration Statement hereunder and the managing underwriter or underwriters,
if any, to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to be sold
under such Registration Statement and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or selling Persons may request;

(k) The Company, any Holder seeking to register Registrable Shares and
any Other Approved Holders seeking to register Common Stock pursuant to section
2 shall enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Principal
Holders of the Registrable Securities being sold or the underwriters retained by
Holders participating in an underwritten public offering, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities or Common Stock, as the case may be.

-7-
<PAGE>

(l) At the Company's option, the Company may register (on a pro rata
--------
basis) any of the Registrable Securities and any shares of Common Stock held by
Other Approved Holders in any Registration Statement filed by the Company,
provided, however, while such Registration Statement is effective, the Demand
Registration Right pursuant to section 2(a) and the Piggyback Registration right
pursuant to Paragraph 2(b) shall be inapplicable with respect to the Registrable
Securities covered by such Registration Statement. Except as herein provided,
such registration shall not limit or diminish any of the Holders' rights under
this Agreement.

(m) In connection with any offering of Registrable Securities and any
shares of Common Stock held by Other Approved Holders to be registered under
this Agreement, each Holder of Registrable Securities and each Other Approved
Holder of Common Stock included or to be included in such registration shall:

(A) If such registration is being made pursuant to any underwritten
offering, enter into and perform its obligations under any underwriting
agreement to which it is a party.

(B) Upon receipt of any notice from the Company of the happening of
any event as a result of which the prospectus included in the Registration
Statement as then in effect includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, forthwith discontinue its disposition of Registrable Securities
pursuant to the Registration Statement relating thereof until its receipt of the
copies of the supplemented or amended prospectus and, if so directed by the
Company, deliver to the Company all copies then in its possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice.

(C) At the end of any period during which the Company is obligated to
keep any Registration Statement current and effective, discontinue sales of
shares pursuant to such Registration Statement upon receipt of notice from the
Company of its intention to remove from registration the shares covered by such
Registration Statement which remain unsold, and notify the Company of the number
of shares registered which remain unsold promptly after receipt of such notice
from the Company.

(n) In connection with the Company's registration obligations
pursuant to Section 2 hereof, except as otherwise expressly provided herein, the
Company will prepare and file and/or use its best efforts to cause to become
effective, a Registration Statement with respect to applicable Registrable
Securities and Common Stock and to keep effective the Registration Statement to
permit the sale of such Registrable Securities and Common Stock in accordance
with the intended method or methods of distribution thereof.

SECTION 4. HOLDBACK AGREEMENT.
------------------

-8-
<PAGE>

(a) Restrictions on Public Sales by Holders and Other Approved
----------------------------------------------------------
Holders. To the extent not inconsistent with applicable law, each Holder and
Other Approved Holders that is timely notified in writing by the Company or the
managing underwriter or underwriters, shall not effect any public sale or
distribution (including a sale pursuant to Rule 144) of any issue being
registered in an underwritten offering (other than pursuant to an employee stock
option, stock purchase, stock bonus or similar plan, or pursuant to a merger,
exchange offer or a transaction of the type specified in Rule 145(a), or
pursuant to a "shelf" registration), any securities of the Company similar to
any such issue or any securities of the Company convertible into or exchangeable
or exercisable for any such issue, during the period commencing on the filing of
the Registration Statement and ending one hundred eighty (180) days after the
effective date of the applicable Registration Statement, except as part of such
registration.

SECTION 5. REGISTRATION EXPENSES.
---------------------

All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees (excluding the registration and filing fees applicable to the Registrable
Securities sought to be registered by Holders or common stock sought to be
registered by Other Approved Holders), fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel to the Company or the underwriter in connection with blue sky
qualifications or registrations (or the obtaining of exemptions therefrom) of
the Registrable Securities or Common Stock), printing expenses (including
expenses of printing Prospectuses), messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting duties), fees
and disbursements of the Company's counsel and its independent certified public
accountants (including the expenses of any special audit or "comfort" letters
required by or incident to such performance or compliance), securities acts
liability insurance (if the Company elects to obtain such insurance), reasonable
fees and expenses of any special experts retained by the Company in connection
with any registration hereunder, reasonable fees and expenses of other Persons
retained by the Company, and reasonable out-of-pocket expenses of the Holders
(excluding (i) salaries of officers and/or employees of the Holders and Other
Approved Holders, (ii) any travel costs, unless incurred in connection with
travel requested by the Company and (iii) any professional fees incurred by the
Holders and Other Approved Holders) (all such expenses being referred to as
"Registration Expenses"), shall be borne by the Company; provided, that
--------
Registration Expenses shall not include any underwriting discounts, commissions
or fees attributable to the sale of the Registrable Securities or Common Stock
sold by Other Approved Holders.

SECTION 6. INDEMNIFICATION; CONTRIBUTION.
-----------------------------

(a) Indemnification by the Company. In connection with any
------------------------------
Registration Statement, the Company shall indemnify, to the full extent
permitted by law, each Holder and Other Approved Holder, its officers,
directors, employees, general partners, limited partners, representatives and
agents, each Person who controls such Holder and Other Approved

-9-
<PAGE>

Holder, (within the meaning of the Securities Act) and any investment adviser
thereof or agent therefor, against all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation and legal fees and
expenses) arising out of or based upon any untrue or alleged untrue statement of
a material fact contained in any Registration Statement, any related Prospectus
or preliminary prospectus, or any amendment or supplement thereto, or any
omission or alleged omission to state in any thereof a material fact required to
be stated therein or necessary to make the statements therein (in the case of a
Prospectus, in light of the circumstances under which they were made) not
misleading, except in each case insofar, but only insofar, as the same arises
out of or is based upon an untrue statement or alleged untrue statement of a
material fact or an omission or alleged omission to state a material fact in
such Registration Statement, Prospectus, preliminary prospectus, amendment or
supplement, as the case may be, made or omitted, as the case may be, in reliance
upon and in conformity with written information furnished to the Company by such
Holder and Other Approved Holder, expressly for use therein. This indemnity is
in addition to any liability that the Company may otherwise have. The Company
shall also indemnify any underwriters of the Registrable Securities and Common
Stock, selling brokers, dealer managers and similar securities industries
professionals participating in the distribution and their officers, directors,
employees, general partners, limited partners, representatives and agents, and
each Person who controls such underwriters or other Persons (within the meaning
of the Securities Act) to the same extent as provided above with respect to the
indemnification of Holders and Other Approved Holders and other specified
Persons.

(b) Indemnification by Holders and Other Approved Holders. In
-----------------------------------------------------
connection with any Registration Statement, each Holder and Other Approved
Holders any of whose Registrable Securities or Common Stock are covered thereby
shall furnish to the Company in writing such information and affidavits with
respect to such Holder and Other Approved Holders as the Company reasonably
requests for use in connection with such Registration Statement, any related
Prospectus or preliminary prospectus, or any amendment or supplement thereto,
and shall indemnify, to the full extent permitted by law, the Company, the
Company's directors, officers, employees and agents, each Person who controls
the Company (within the meaning of the Securities Act) and any investment
adviser thereof or agent therefor, against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and legal
expenses) arising out of or based upon any untrue or alleged untrue statement of
a material fact contained in any Registration Statement, any related Prospectus
or preliminary prospectus, or any amendment or supplement thereto, or any
omission or alleged omission to state in any thereof a material fact required to
be stated therein or necessary to make the statements therein (in the case of a
Prospectus, in light of the circumstances under which they were made) not
misleading, in each case to the extent, but only to the extent, that the same
arises out of or is based upon an untrue statement or alleged untrue statement
of a material fact or an omission or alleged omission to state a material fact
in such Registration Statement or in such related Prospectus, preliminary
prospectus, amendment or supplement, as the case may be, made or omitted, as the
case may be, in reliance upon and in conformity with written information
furnished to the Company by such Holder or Other Approved Holder expressly for
use therein. This indemnity is in addition to any liability that a Holder or
Other Approved Holder may otherwise have. Each Holder or Other Approved Holder
participating

-10-
<PAGE>

in an offering of Registrable Securities or Common Stock shall, if requested by
the managing underwriter or underwriters of such offering, also indemnify any
underwriters of such Registrable Securities or Common Stock, selling brokers,
dealer managers and similar securities industries professionals participating in
the distribution of such Registrable Securities or Common Stock and their
officers and directors and each Person who controls such underwriters or other
Persons (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the Company and other
specified Persons. Notwithstanding any other provision hereof, in no event shall
the indemnification obligation of any Holder or Other Approved Holder be greater
in amount than the dollar amount of the net proceeds received by such Holder or
Other Approved Holder upon the sale of the Registrable Securities or Common
Stock giving rise to such obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any Prospectus or Registration
Statement.

(c) Conduct of Indemnification Proceedings. Any Person entitled to
--------------------------------------
indemnification under this Section 6 agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim indemnification or contribution
pursuant to this Agreement and, unless in the written opinion of counsel to such
indemnified party a conflict of interest exists between such indemnified party
and the indemnifying party with respect to such claim, permit the indemnifying
party to assume the defense of such claim with counsel reasonably satisfactory
to such indemnified party (which may be regular counsel to the Company). If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, it shall not be obligated to pay the fees and expenses of more than one
counsel with respect to such claim, unless in the written opinion of counsel
such indemnified party, a conflict of interest exists between such indemnified
party and any other indemnified party with respect to such claim, in which event
the indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels (which shall be limited to one counsel per
indemnified party). The indemnifying party shall not be subject to any
liability for any settlement made without its consent, which consent shall not
be unreasonably withheld or delayed.

(d) Contribution.
------------

(i) If the indemnification provided for in this Section 6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions that resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by

-11-
<PAGE>

reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 6(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding;

(ii) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 6(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding any other provision hereof, in no event shall the contribution
obligation of any Holder be greater in amount than the excess of (A) the dollar
amount of the net proceeds received by such Holder or Other Approved Holder upon
the sale of the Registrable Securities or Common Stock giving rise to such
contribution obligation over (B) the dollar amount of any damages that such
Holder or Other approved Holder has otherwise been required to pay by reason of
the untrue or alleged untrue statement or omission or alleged omission giving
rise to such obligation. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation; and

(iii) If indemnification is available under this Section 6, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Sections 6(a) and 6(b) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 6(d).

-12-
<PAGE>

SECTION 7. COOPERATION WITH THE COMPANY.
----------------------------

The offering and sale of Registrable Securities by any Holder or
Common Stock by any Other Approved Holder shall comply in all respects with the
applicable terms, provisions and requirements set forth in this Agreement, and
such Holder and Other Approved Holder shall cooperate with the Company in
respect thereof. Without limiting the generality of the foregoing, such Holder
and Other Approved Holder shall promptly and timely provide the Company with all
information and materials required to be included in a Registration Statement
that (a) relate to the offering, (b) are in possession of such Holder and Other
Approved Holder, and (c) relate to such Holder and Other Approved Holder, and
shall take all such action as may be required in order not to delay the
registration and offering of securities by the Company. The Company shall have
no obligation to include in any Registration Statement, Registrable Securities
of a Holder or Common Stock by any Other Approved Holder that has failed to
furnish such information which, in the reasonable opinion of the Company, is
required in order for the Registration Statement to comply in all material
respects with the requirements of the Securities Act or any applicable state
securities or "blue sky" laws.

SECTION 8. NO INCONSISTENT AGREEMENTS. The Company (i) has not
--------------------------
previously entered into any agreement that is still in effect on the date of
this Agreement pursuant to which it has granted registration rights to any
Person who holds any of its securities, other than the Franklin Warrants and
(ii) shall not enter into any other agreement with respect to its securities
which is inconsistent with the rights granted to the Holders and the Other
Approved Holders, from time to time, in this Agreement or otherwise conflicts
with the provisions hereof; except (x) as may be provided in any agreement with
commercial lenders presently in effect or hereinafter entered into; or (y) with
GKN pursuant to the Underwriting Agreement and the Underwriter's Purchase Option
to be entered into in connection with the Company's Registration Statement on
Form S-1, File No. 333-10793. Nothing contained in this Agreement shall be
construed to reduce or limit in any way the rights of GKN pursuant to such
Underwriting Agreement and Underwriter's Purchase Option.

SECTION 9. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
----------------------
including the provisions of this Section 9, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the prior written consent of
(i) the Principal Holders and (ii) any other party who may be adversely affected
by any such amendment, modification, supplement, waiver or consent.

SECTION 10. REMEDIES. Each Holder and Other Approved Holder having
--------
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically or to recover damages or to exercise any other remedy
available to it at law or in equity. The foregoing rights and remedies shall be
cumulative and the exercise of any right or remedy provided herein shall not
preclude any Person from exercising any other right or remedy provided herein.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.

-13-
<PAGE>

SECTION 11. NOTICES. All notices, requests and other communications
-------
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, telecopier, or air-courier guaranteeing
overnight delivery and shall be effective upon receipt:

(a) If to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 11, which
address initially is, with respect to each Securityholder, the address set forth
on Schedule I of this Agreement.

(b) If to the Company, initially at its address set forth on Schedule
I of this Agreement and thereafter at such other address as may be designated
from time to time by notice given in accordance with the provisions of this
Section 11.

SECTION 12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
----------------------
benefit of and be binding upon the parties hereto, the successors and assigns of
each of the parties hereto, including any successors by merger to the Company,
and Other Approved Holders registering shares of Common Stock in accordance with
the terms hereof. Nothing contained in this Agreement shall be construed to
reduce or limit in anyway the rights of GKN pursuant to such Underwriting
Agreement and Underwriter's Purchase Option.

SECTION 13. COUNTERPARTS. This Agreement may be executed in any
------------
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.

SECTION 14. HEADINGS; CONSTRUCTION. The headings in this Agreement
----------------------
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof. Unless the context otherwise requires, all references to
Sections are to Sections of this Agreement, "or" is inclusively disjunctive, and
words in the singular include the plural and vice versa. In computing any
---- -----
period of time specified in this Agreement or in any notices, the date of the
act or event from which such period of time is to be measured shall be included,
any such period shall expire at 5:00 p.m., New York City time, on the last day
of such period, and any such period denominated in months shall expire on the
date in the last month of such period that has the same numerical designation as
the date of the act or event from which such period is to be measured; provided,
--------
however, that if there is no date in the last month of such period that has the
- -------
same numerical designation as the date of such act or event, such period shall
expire on the last day of the last month of such period.

SECTION 15. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
regard to the principles of the conflict of laws thereof.

-14-
<PAGE>

SECTION 16. JURISDICTION; FORUM.
-------------------

(a) Each party hereto consents and submits to the jurisdiction of any
state court sitting in the County of New York or federal court sitting in the
Southern District of the State of New York in connection with any dispute
arising out of or relating to this Agreement. Each party hereto waives any
objection to the laying of venue in such courts and any claim that any such
action has been brought in an inconvenient forum. To the extent permitted by
law, any judgment in respect of a dispute arising out of or relating to this
Agreement may be enforced in any other jurisdiction within or outside the United
States by suit on the judgment, a certified copy of such judgment being
conclusive evidence of the fact and amount of such judgment.

(b) Each party hereto agrees that personal service of process may be
effected by any of the means specified in Section 11, addressed to such party.
The foregoing shall not limit the rights of any party to serve process in any
other manner permitted by law.

SECTION 17. SEVERABILITY. If one or more of the provisions hereof,
------------
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect, for any reason, the validity, legality and
enforceability of the remaining provisions hereof shall not be in any way
affected or impaired thereby, and the provision held to be invalid, illegal or
unenforceable shall be reformed to the minimum extent necessary, and in a manner
as consistent with the purposes thereof as is practicable, so as to render it
valid, legal and enforceable, it being intended that all of the rights and
privileges of the Holders hereunder shall be enforceable to the fullest extent
permitted by law.

SECTION 18. ENTIRE AGREEMENT. This Agreement is intended by the
----------------
parties hereto as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

-15-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

SPECIALTY CATALOG CORP.

By: ___________________________________
Name:
Title:

SECURITYHOLDERS: DICKSTEIN & CO., L.P.

By: DICKSTEIN PARTNERS, L.P., ITS
GENERAL PARTNER

By: DICKSTEIN PARTNERS INC., its
general partner

By: ____________________________________
Vice President

DICKSTEIN INTERNATIONAL LIMITED

By: DICKSTEIN PARTNERS INC., its agent

By: ____________________________________
Vice President

DICKSTEIN FOCUS FUND, L.P.

By: DICKSTEIN PARTNERS INC., its agent

By:_____________________________________
Vice President

-16-
<PAGE>

VIKING HOLDINGS LIMITED

By:___________________________________
Name:
Title:

WIGS, L.P.

By:____________________________________
Name: Arthur Kowaloff
Title: General Partner

_______________________________________
Steven L. Bock

_______________________________________
Bruce Pollack

HFS INCORPORATED

By:___________________________________
Samuel L. Katza

______________________________________
Mark Brodsky

-17-
<PAGE>

Schedule I
Addresses

Specialty Catalog Corp. 21 Bristol Drive
South Easton, Massachusetts 02375

Dickstein & Co., L.P. 9 West 57th Street
Dickstein International Limited New York, NY 10019
and Dickstein Focus Fund, L.P.

Wigs, L.P. 445 Park Avenue
11th Floor
New York, NY 10022

Steven L. Bock c/o 21 Bristol Drive
South Easton, Massachusetts 02375

Bruce Pollack c/o Centre Partners
30 Rockefeller Plaza
Suite 5050
New York, NY 10020

Viking Holdings Limited La Motte Chambers
La Motte Street
St. Helier
Jersey JE1 1BJ
Channel Islands

Samuel L. Katz HFS Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054

Mark Brodsky [ADDRESS]

-18-
<PAGE>

FORM OF REGISTRATION RIGHTS WAIVER
----------------------------------

September ___, 1996

Specialty Catalog Corp.
21 Bristol Drive
South Easton, Massachusetts 02375

Ladies and Gentlemen:

Reference is hereby made to that certain Amended and Restated Registration
Rights Agreement (the "Registration Rights Agreement"), dated as of September
___, 1996, by and between the undersigned and Specialty Catalog Corp., (the
"Company"). The undersigned hereby waives its registration rights under Section
2 of the Registration Rights Agreement arising in connection with the proposed
underwritten public offering of 1,500,000 shares of the Company's Common Stock,
par value $.01 per share.

Very truly yours,

By:________________________

-19-

<PAGE>

EXHIBIT 10.35

FEE LETTER

November 22, 1994

Wigs by Paula, Inc.
21 Bristol Drive
South Easton, MA 02375

Wigs by Paula, Inc.
------------------

Ladies and Gentlemen:

This letter sets forth certain fees payable by Wigs by Paula, Inc. (the
"Borrower") in connection with the financing being provided pursuant to the
--------
Credit Agreement dated the date hereof (the "Credit Agreement") among the
----------------
Borrower, certain Banks named therein and Banque Nationale de Paris, New York
Branch, as agent (the "Agent") for the Lenders (as defined therein). Terms
-----
defined in the Credit Agreement are used herein as therein defined. By entering
into the Credit Agreement, you agree to pay the nonrefundable fees set forth in
this letter in accordance with its terms and to abide by the other terms and
conditions hereof. The terms and provisions of this letter shall supersede the
terms and provisions of the Commitment Letter relating to the fees provided for
herein.

Annual Loan
Monitoring Fee: The Borrower shall pay to the Agent for its own account
a load monitoring fee of $50,000 per annum, payable in
advance on the date hereof and on each subsequent
anniversary of the date hereof occurring prior to the
Termination Date.

Facility Fee: The Borrower shall pay to the Agent for its own account
on the date hereof a Facility Fee equal to $520,000.

Commitment Fee: The Borrower shall pay to the Agent for its own account
a Commitment Fee on the $16,000,000 commitment of the
Agent from October 20, 1994 through the date hereof at
the rate of 1/2 of 1% per annum, payable on the date
hereof.

Additional Fee: The Borrower shall pay to the Agent for its own account
an additional fee of $1,000,000 on the fifth anniversary
of the date hereof, unless at any time prior thereto an
Acceleration Event shall have occurred, in which case
the Borrower shall within the Applicable Period
following the occurrence of such Acceleration Event, pay
to the Agent for its own account (in lieu of such

<PAGE>

additional fee of $1,000,000) the amount set forth below
opposite the date such Acceleration Event occurs:

Date of Acceleration Event Additional Fee
-------------------------- --------------

From the date hereof until the first
anniversary of the date hereof $450,000 11/95

From the first anniversary of the date
hereof until the second anniversary of
the date hereof $625,000 11/96

From the second anniversary of the date
hereof until the third anniversary of the
date hereof $775,000 11/97

From the third anniversary of the date
hereof until the fourth anniversary of the
date hereof $937,500 11/98

On and after the fourth anniversary of
the date hereof. $1,000,000 11/98

Acceleration
Event: For purposes of this fee letter. "Acceleration Event" shall mean
the earliest to occur of either of the following events:

(a) a Change of Control (as hereinafter defined):

(b) the occurrence of the Termination Date prior to May 22,
1999.

Applicable
Period: For purposes of this fee letter, "Applicable Period" shall mean:

(a) in the event that an Acceleration Event is occasioned by the
occurrence of the Termination Date as a result of a mandatory
commitment reduction pursuant to Section 2.05(b) of the Credit
Agreement, 6 months; and

(b) in all other cases, 30 days.

Change of
Control: For purposes of this fee letter, "Change of Control" shall mean
the occurrence of any Event of Default under the provisions of
Section 6.01(l) of the Credit Agreement.
<PAGE>

If the Agent in its sole discretion elects to do so, the Agent may allocate the
foregoing fees to the Lenders in such relative amounts as the Agent may
determine.

You agree that this letter is for your confidential use only and will
not be disclosed by you to any person other than your accountants, attorneys and
other advisors, and then only in connection with the Transaction and on a
confidential basis, except that you may make such disclosure of the aggregate
amount of fees payable pursuant to this letter as you are required by law, in
the opinion of your counsel, to make. You also agree that this letter shall be
binding on your successors and assigns to the extent permitted by the Credit
Agreement.

Please evidence your receipt of this letter by signing the enclosed copy
of this letter and returning it to the undersigned.

Very truly yours,

BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH

By /s/ Christopher J. Kiely
----------------------------
Title: Vice President

By /s/ Alan Mustatchi
----------------------------
Title:

RECEIPT ACKNOWLEDGED:

WIGS BY PAULA, INC.

By /s/ Steven Bock
-----------------------------
Title:

<PAGE>

EXHIBIT 23.02

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors of
Specialty Catalog Corp.

We consent to the use in this Registration Statement of Specialty Catalog
Corp. on Form S-1 of our report dated April 19, 1996 (except for Note 15, for
which the date is August 16, 1996), appearing in the Prospectus, which is a
part of this Registration Statement, and to the references to us under the
heading "Experts" in such Prospectus.

Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Specialty Catalog
Corp., listed in Item 16. This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

/s/ Deloitte & Touche LLP
------------------------------------------
Deloitte & Touche LLP

New York, New York

October 11, 1996