DM MANAGEMENT CO /DE/, 424B4, 1997-10-30

DM MANAGEMENT CO /DE/
424B4, 1997-10-30
CATALOG & MAIL-ORDER HOUSES

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<PAGE>

[IMAGE OF WOMAN APPEARS BEHIND TEXT ON THIS PAGE]

2,752,404 Shares

Filed pursuant to Rule 424(b)(4)
Registration No. 333-35267

LOGO

Common Stock

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

Of the 2,752,404 shares of Common Stock offered hereby, 1,000,000 shares are
being sold by DM Management Company ("DM Management" or the "Company") and
1,752,404 shares are being sold by the Selling Stockholders. The Selling
Stockholders will not own any shares immediately after the completion of this
offering. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders.

The Common Stock is traded on the Nasdaq National Market under the symbol
"DMMC." On October 29, 1997, the last reported sale price for the Common Stock
on the Nasdaq National Market was $14. See "Price Range of Common Stock."

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

FOR INFORMATION CONCERNING CERTAIN RISKS RELATED TO THIS OFFERING, SEE "RISK
FACTORS"
BEGINNING ON PAGE 6 OF THIS PROSPECTUS.

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

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.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
PRICE UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
TO PUBLIC AND COMMISSIONS (1) COMPANY (2) SELLING STOCKHOLDERS

- -------------------------------------------------------------------------------
Per Share.. $13.50 $0.745 $12.755 $12.755

- -------------------------------------------------------------------------------
Total (3).. $37,157,454 $2,050,541 $12,755,000 $22,351,913
</TABLE>

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- -------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $500,000 payable by the Company.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to 412,861 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $42,731,077, $2,358,122, $18,021,042 and $22,351,913, respectively. See
"Underwriting."

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

The shares of Common Stock are offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to cancel or modify such offer or to reject any
order in whole or in part. It is expected that delivery of the shares of
Common Stock will be made through the offices of Wessels, Arnold & Henderson,
L.L.C. ("Wessels, Arnold & Henderson"), Minneapolis, Minnesota, on or about
November 4, 1997.

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

Wessels, Arnold & Henderson

NationsBanc Montgomery Securities, Inc.

The date of this Prospectus is October 30, 1997.
<PAGE>

[IMAGES OF DM MANAGEMENT'S CATALOGS]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, THE ENTRY OF STABILIZING
BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK OF THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
<PAGE>

[IMAGE OF WOMAN]

UPSCALE STYLE

[IMAGE OF WOMAN]

NATURAL ACCESSORIES

[IMAGE OF JEWELRY]

[IMAGE OF NICOLE SUMMERS CATALOGS]

SIMPLE STYLE

[IMAGE OF SHOES, PURSE AND OTHER
ACCESSORIES]

[IMAGE OF WOMAN]

POLISHED ACCESSORIES

[IMAGE OF J. JILL CATALOGS]

GLAMOROUS GIFTS

HOME AT LAST [IMAGE OF CANDLESTICKS]

[IMAGE OF CHAIR]

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus or
incorporated by reference herein. Except as otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option. In January 1997 the Company changed its fiscal year end from
the last Saturday in June to the last Saturday in December. References in this
Prospectus to fiscal 1994, fiscal 1995 and fiscal 1996 mean the Company's
fiscal year ended in June 1994, 1995 and 1996, respectively, references to the
transition periods mean the six-month transition period ended December 28, 1996
and the comparable six-month period ended December 30, 1995, and references to
fiscal 1997 mean the Company's fiscal year ending December 27, 1997.

THE COMPANY

DM Management Company ("DM Management" or the "Company") is a leading
specialty direct marketer of high quality women's apparel, accessories, shoes
and gifts. The Company currently markets its products through two discrete
catalog concepts, J. Jill and Nicole Summers. These concepts are designed to
appeal to active, affluent women age 35 and older, with each concept aimed at a
distinct lifestyle segment within this demographic group. DM Management's
objective is to be a fashion authority for its target market. The Company seeks
to distinguish its catalogs and reinforce the brand identity of the J. Jill and
Nicole Summers names through exclusive private label merchandise offerings, a
broad assortment of extended sizes, "total look" wardrobing and editorial
lifestyle photography.

The J. Jill concept is characterized by the simple, comfortable style of its
apparel offerings, which range from relaxed career wear to weekend wear. These
apparel offerings are predominantly private label, with emphasis on natural
fibers and creative details. The J. Jill concept's target customers are active,
affluent women age 35 to 55. During the six months ended June 28, 1997, J. Jill
net sales accounted for approximately 42% of the Company's total net sales, up
from approximately 24% for the comparable period of the prior year. The Company
believes that this growth is being driven by the emerging market for more
casual apparel, particularly for the workplace, and the need active, working
women have for comfortable, versatile clothing. The Company also believes that
this market has not been well served by other direct marketers or retailers.

The Nicole Summers concept is characterized by its edited assortment of
updated classic apparel. Its target customers are affluent women age 45 and
older who have an active but formal lifestyle and, most importantly, are
younger in their outlook than their peers in previous generations. Since
January 1996, the merchandise assortment and creative presentation in the
Nicole Summers catalogs have been updated in a continuing effort to align the
concept with the changing tastes and evolving lifestyle needs of these
customers. The Company believes that these women are not well served by the
direct marketers and department stores that have traditionally served older
women and that the design and creative presentation of the Nicole Summers
catalogs differentiate the concept in its target market.

3
<PAGE>

ongoing expansion of its private label and extended size merchandise offerings.
The Company has combined these creative and merchandising strategic initiatives
with a shift in circulation strategy designed to curtail unproductive cross-
catalog mailings to existing customers and has reinvested the resulting
circulation cost savings in increased prospect mailings. The Company believes
that these changes in management and strategy have strengthened the competitive
position of its two catalog concepts and positioned the Company for continued
growth.

Since beginning to implement these strategic initiatives, the Company has
experienced five consecutive quarters of dramatic profit improvement as
compared to the comparable quarter of the prior year. Most recently, in the
quarter ended September 27, 1997 net sales increased 54.1% to $31.6 million
from $20.5 million during the corresponding quarter of the prior year and net
income rose 176.4% to $0.7 million from $0.3 million during the corresponding
quarter of the prior year.

At June 28, 1997, the Company's customer database contained approximately 2.2
million individual customer names, including approximately 724,000 individuals
who had made a purchase within the previous 24 months. Catalog circulation for
the Company was 37.9 million for calendar 1996 and 21.5 million for the first
six months of 1997.

The Company is a Delaware corporation incorporated in 1987. The Company's
executive offices are located at 25 Recreation Park Drive, Hingham,
Massachusetts 02043, and its telephone number is (781) 740-2718.

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

J. Jill Ltd. and Nicole Summers are registered trademarks and service marks
of the Company in the United States. This Prospectus also includes trade names,
trademarks and service marks of companies other than DM Management.

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

This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which involve risks and uncertainties. For this purpose, any
statements contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the generality of the foregoing, the words "believes," "anticipates,"
"plans," "expects" and similar expressions are intended to identify forward-
looking statements. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."

4
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THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company................. 1,000,000 shares
Common Stock Offered by the Selling Stockholders.... 1,752,404 shares
Common Stock to be Outstanding after the Offering... 5,672,786 shares (1)
Use of Proceeds..................................... Purchase and development of new
fulfillment center, working capital
and general corporate purposes,
including potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market Symbol....................... DMMC
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
TRANSITION PERIOD
FISCAL YEAR ENDED ENDED SIX MONTHS ENDED
-------------------------- ------------------ ------------------
JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1994 1995 1996 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $63,337 $72,691 $80,585 $39,267 $43,324 $41,318 $57,428
Income (loss) from
continuing operations.. 3,269 765 235 (560) 11,563 795 1,746
Net income (loss)....... 3,269 773 (9,350) (1,158) 11,563 (8,192) 1,746
Income (loss) from con-
tinuing operations per
share.................. $ 0.80 $ 0.17 $ 0.05 $ (0.13) $ 2.44 $ 0.17 $ 0.35
Net income (loss) per
share.................. $ 0.80 $ 0.17 $ (2.11) $ (0.27) $ 2.44 $ (1.77) $ 0.35
Weighted average shares
outstanding............ 4,077 4,610 4,441 4,262 4,736 4,620 5,057
SELECTED OPERATING DATA:
Catalog circulation (2). 32,400 40,300 41,600 22,100 18,400 19,500 21,500
Total active customers
(3).................... 473 579 638 611 657 638 724
</TABLE>

<TABLE>
<CAPTION>
JUNE 28, 1997
-----------------------
ACTUAL AS ADJUSTED (4)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................................ $42,995 $55,250
Working capital......................................... 13,804 26,059
Long-term debt, less current portion.................... 4,446 4,446
Stockholders' equity.................................... 23,417 35,672
</TABLE>
- --------
(1) Based on the number of shares outstanding as of September 1, 1997. Excludes
(i) 1,021,549 shares of Common Stock issuable upon exercise of stock
options outstanding as of September 1, 1997 at a weighted average exercise
price per share of $4.92 (ii) 303,800 shares of Common Stock reserved for
future option grants under the Company's 1993 Incentive and Nonqualified
Stock Option Plan and (iii) 37,302 shares of Common Stock reserved for
issuance under the Company's 1993 Stock Purchase Plan.
(2) In order to more closely match net sales to catalog circulation, the
Company calculates catalog circulation on a percentage of completion basis.
This calculation takes into account the total number of catalogs mailed
during all periods and the Company's estimate of the expected sales life of
each catalog edition. As used throughout this Prospectus, the term "catalog
circulation" refers to circulation of the Company's catalogs calculated in
such fashion.
(3) As used throughout this Prospectus, the term "active customers" means
customers who have made a purchase from the Company within the previous 24
months.
(4) Adjusted to give effect to the sale of the 1,000,000 shares of Common Stock
offered by the Company hereby at a public offering price of $13 1/2 per
share after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."

5
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.

RISKS ASSOCIATED WITH NEW FULFILLMENT CENTER. The Company's fulfillment
center in Meredith, New Hampshire is currently operating near capacity and, as
a result, the Company is experiencing inefficiencies and increased costs in
its fulfillment operations. The Company has recently purchased approximately
360 acres of land in Tilton, New Hampshire, which is intended to be the site
of a new fulfillment center. This new fulfillment center is not expected to be
operational until early 1999. Until the completion of the new fulfillment
center, the Company plans to operate two temporary facilities in Laconia, New
Hampshire in addition to its facility in Meredith and, as a result, expects
that the inefficiencies and increased costs it is currently experiencing in
its fulfillment operations will continue and may increase. The Company has no
experience in operating multiple fulfillment centers, and there can be no
assurance that such operations will not disrupt its order processing or result
in costs in excess of management's expectations. In addition, there can be no
assurance that construction of the new fulfillment center will be completed on
a timely basis. Any delay in completing the new fulfillment center or
difficulties in managing the transition of operations to the new fulfillment
center could result in delivery delays, customer service problems, continued
operating inefficiencies and increased costs, and could have a material
adverse effect on the Company's financial condition and results of operations.

The total cost of the Company's new fulfillment center, including land,
construction and equipment, is expected to be between $33.0 and $37.0 million,
but the actual costs of the facility may exceed the Company's estimates. In
addition, upon completion of the new fulfillment center the Company expects to
incur costs relating to the commencement of operations at that facility, the
termination of operations at the temporary Laconia sites and the continued
operation of the Company's facility in Meredith. If the Company is unable to
generate increased sales and gross profit sufficient to absorb increased
overhead and other costs associated with its new fulfillment center, the
Company's financial condition and results of operations would be materially
and adversely affected. See "Business--Fulfillment."

DEPENDENCE ON INFORMATION SYSTEMS. The Company depends on its information
systems to process orders, respond to customer inquiries, manage inventory,
purchase, sell and ship goods on a timely basis and maintain cost-efficient
operations. The Company is in the process of upgrading certain of these
systems to provide additional capabilities and anticipates that the project
will be complete in the second half of 1998. There can be no assurance that
the Company will not experience operational problems as a result of delays or
difficulties in the transition to its new information systems, or that such
new systems will be adequate to support its future growth. Any interruption in
the availability or use of the Company's information systems as a result of
system failure or otherwise could have a material adverse effect on its
financial condition and results of operations. See "Business--Information
Systems and Technology."

RISKS ASSOCIATED WITH GROWTH STRATEGY. The Company's growth strategy is
based on the following components: expanding its customer base through
targeted marketing programs; introducing new merchandise categories; acquiring
or internally developing complementary catalog concepts; and expanding into
other distribution channels where appropriate. There can be no assurance that
the Company will be successful in implementing these measures. The Company's
marketing programs, particularly for J. Jill, rely on a high level of prospect
mailings and consequently involve additional risks, including potentially
lower and less predictable response rates and the possibility that third
parties who provide customer lists may cease to make them available to the
Company. The failure of the Company to successfully implement any or all of
these measures could have a material adverse effect on its financial condition
and results of operations. In addition, continued growth could result in a
strain on the Company's management, financial, merchandising, marketing,
distribution and other resources. There can be no assurance that the Company
will be able to manage growth effectively, and any failure to do so could have
a material adverse effect on the Company's financial condition and results of
operations. See "Business--Growth Strategy."

6
<PAGE>

The Company may need to raise additional funds in order to support its
planned expansion. There can be no assurance that funds will be available to
the Company on terms satisfactory to the Company when needed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

FINANCIAL RISKS INHERENT IN CATALOG BUSINESS. The Company's catalog
operations involve a number of inherent financial risks. Each edition of a
catalog requires substantial investments in layout and design, paper,
printing, postage and inventory prior to mailing. As a result, the Company is
not able to adjust these costs in connection with a particular mailing to
reflect the actual performance of the catalog. If for any reason the Company
were to experience a significant shortfall in anticipated revenue from a
particular mailing, its financial condition and results of operations would be
materially and adversely affected. In addition, customer response to the
Company's mailings and, as a result, revenues generated by such mailings can
be affected by factors which are outside the Company's control, such as
consumer preferences, economic conditions and vendor work stoppages. Further,
the Company has historically experienced fluctuations in customer response to
its mailings. Any inability of the Company to achieve anticipated customer
response could result in lower sales, which would have a material adverse
effect on the Company's financial condition and results of operations. See
"Business."

RISKS OF CATALOG OPERATIONS. The operation of the Company's direct marketing
business is dependent on its ability to prepare catalogs in a timely manner
and to maintain the efficient and uninterrupted operation of its order
processing and fulfillment systems. Preparation of the Company's catalogs
requires the involvement of many different groups within the Company as well
as certain outside vendors, and a delay in the completion of any catalog could
cause its customers to forego or defer purchases from the Company. Any
material disruption or slowdown in the Company's order processing or
fulfillment systems, including any resulting from strikes or labor disputes,
disruptions in telephone service, electrical outages, mechanical problems,
human error or accidents, fire, natural disasters, adverse weather conditions
or inadequate order taking or order fulfillment capacity could cause delays in
the Company's ability to receive and fulfill orders, could cause orders to be
lost or to be shipped or delivered late and could cause customers to cancel
orders or refuse to receive goods on account of late shipments. Such problems
could result in a reduction in net sales, as well as increased administrative
and shipping costs. Any failure by the Company to manage its catalog
operations effectively could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Creative
Presentation and Catalog Production," "--Inventory Management and Purchasing"
and "--Fulfillment."

POSSIBLE QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. The following factors,
among others, could cause the Company's future operating results to fluctuate
from quarter to quarter: the timing and size of catalog mailings, the costs of
producing and mailing catalogs, customer response to such mailings, the timing
of merchandise receipts, merchandise returns, changes in merchandise mix and
presentation, the incurrence of other operating costs and factors beyond the
Company's control, such as general economic conditions and actions of
competitors. The Company's current expense levels are based in part on its
expectations of future net sales and, as a result, net income for a given
period could be disproportionately affected by any reduction in net sales for
that period. There can be no assurance that the Company's net sales in the
future will not decrease from past levels or that in some future quarter the
Company's net sales or operating results will not be below the expectations of
securities analysts and investors. In such event, the Company's financial
condition and results of operations and the market price of its Common Stock
would likely be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

COMPETITION. The market for the Company's merchandise is highly competitive.
The Company competes with other direct marketers, specialty apparel and
accessory retailers and traditional department store retailers. There are few
barriers to entry in the women's specialty apparel and accessory market.
Moreover, the Company believes that its recent success, as well as the sales
growth in the direct marketing industry, has encouraged or will encourage many
new competitors. In particular, the Company believes that its J. Jill catalog
concept serves an emerging market niche in which competition is limited
currently but is likely to increase in the future. Many

7
<PAGE>

of the Company's competitors are larger and have substantially greater
financial, marketing and other resources than the Company. Due to the
Company's participation in a highly competitive business and its relatively
short history of profitable operations, there can be no assurance that its
sales growth and profitability can or will be sustained in the future. The
failure of the Company to compete successfully would materially and adversely
affect its financial condition and results of operations. See "Business--
Competition."

CHANGING CONSUMER PREFERENCES AND FASHION TRENDS. The Company's future
success depends in part on its ability to anticipate and respond to changes in
consumer preferences and fashion trends in its target customer market. Failure
to anticipate and respond to changing consumer preferences and fashion trends
would have a material adverse effect on the Company's financial condition and
results of operations. The Company begins to make merchandise commitments as
early as nine months before the merchandise is available to customers through
the Company's catalogs and any changes in consumer preferences or fashion
trends after merchandise commitments are made could materially and adversely
affect the performance of the catalogs. There can be no assurance that the
Company will be able to continue to identify and offer merchandise that
appeals to its customer base or that any introduction of new merchandise
categories will be successful or profitable. See "Business--Merchandising."

RISKS ASSOCIATED WITH PRIVATE LABEL MERCHANDISE STRATEGY. In the spring 1997
season, private label merchandise represented approximately three-quarters and
one-third of the apparel styles offered in the Company's J. Jill and Nicole
Summers catalogs, respectively. The percentage of private label merchandise in
J. Jill is expected to increase. The Company's use of private label
merchandise requires it to incur costs and risks relating to the design and
purchase of its products, including longer lead times for orders and higher
initial purchase commitments, and limits its ability to offer other brands
that its customers may seek. The Company's failure to successfully execute its
private label merchandise strategy could have a material adverse effect on its
financial condition and results of operations. See "Business--Business
Strategy" and "--The Company's Catalogs."

RISKS ARISING FROM USE OF FOREIGN SUPPLIERS. During recent years, the
Company has purchased approximately 5% to 15% of its merchandise directly from
foreign suppliers, and the Company expects that it will continue to purchase
merchandise from foreign suppliers in the future. In recent periods, these
foreign suppliers have been primarily located in Hong Kong, Singapore and
Israel. In addition, the Company believes that its domestic suppliers may
purchase a portion of the goods they sell to the Company from foreign
suppliers. Accordingly, the Company's operations are subject to the customary
risks of purchasing merchandise abroad, including fluctuations in the value of
the currencies, export duties, quotas, work stoppages and, in certain parts of
the world, political instability. In particular, suppliers located in Hong
Kong, China and the Middle East may be affected by political conditions in
these regions, including the recent transition of Hong Kong to the People's
Republic of China and political instability in the Middle East. The Company
does not currently engage in hedging transactions to reduce its exposure to
foreign currency fluctuations. See "Business--Inventory Management and
Purchasing."

DEPENDENCE ON THIRD PARTIES. The Company's ability to distribute catalogs
and fulfill orders depends on the performance of third parties such as
manufacturers, printers, shipping companies, the United States Postal Service,
mailing list vendors and list processing and credit card processing companies.
Any interruptions or delays in these services, such as those arising from the
recent United Parcel Service strike, could result in delays in catalog or
order shipments or an inability to process orders which could materially and
adversely affect the Company's financial condition and results of operations.
In addition, any perceived inability of the Company to fulfill orders based on
conditions affecting the shipping industry generally could reduce demand for
the Company's products and result in a reduction in net sales. Although the
Company believes that, in general, the goods and services it obtains from
third parties could be purchased from other sources, identifying and obtaining
substitute goods and services could result in delays in shipments and
increased costs to the Company. The Company does not maintain supply contracts
with any of its private label or other merchandise vendors. Rather, the
Company acquires merchandise via purchase orders that terminate upon
completion of the order. During the

8
<PAGE>

six months ended June 28, 1997, the Company made approximately 4% of its
inventory purchases from one foreign private label vendor. If any significant
vendor were to suddenly discontinue its relationship with the Company, the
Company could experience temporary delivery delays until such time as a
substitute supplier could be found. See "Business."

DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon Gordon R. Cooke, its President and Chief Executive Officer and the
Chairman of its Board of Directors, and certain other current members of
senior management. The loss of the services of one or more of these key
employees could have a material adverse effect on the Company's financial
condition and results of operations. The Company does not have employment
contracts with any members of its senior management that would prohibit such
persons from competing with the Company following the termination of their
employment and does not maintain "key man" life insurance on the lives of any
members of its senior management. See "Management."

POTENTIAL INCREASES IN EXTERNAL COSTS. The Company's business is subject to
a number of costs that it cannot control, including paper and postage expenses
associated with mailing catalogs, shipping charges associated with
distributing merchandise to customers and labor costs. The Company's paper
costs have historically been volatile and, in particular, increased
substantially in 1995. Postage is an expense of the Company which also has
experienced significant increases and which can be expected to increase in the
future. Although the Company ships the majority of its merchandise through the
United States Postal Service, it also ships products through a commercial
shipping company. The prices charged by commercial shipping companies can be
expected to change from time to time. In addition, the Company's order
processing and fulfillment centers are labor intensive operations, and the
Company's labor costs could increase as a result of changes in prevailing
wages or other factors. Any increase in paper, postage, shipping, labor or
other external costs could have a material adverse effect on the Company's
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

ECONOMIC CONDITIONS. The success of the Company is influenced by a number of
economic conditions affecting disposable consumer income, such as employment
levels, business conditions, interest rates and taxation rates. Adverse
changes in these economic conditions may restrict consumer spending, thereby
negatively affecting the Company's growth and profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. An element of the Company's
growth strategy is to pursue strategic acquisitions that either expand or
complement the Company's business. Future acquisitions may result in dilutive
issuances of equity securities, the incurrence of additional debt and the
amortization of expenses related to goodwill and other intangible assets.
Future acquisitions would involve numerous additional risks, including
difficulties in the assimilation of the operations, products and personnel of
the acquired company, the diversion of management's attention from other
business concerns, entering markets in which the Company has little or no
direct prior experience and the potential loss of key employees of the
acquired company. The Company currently has no commitments or agreements with
regard to any acquisition. See "Business--Growth Strategy."

POSSIBLE VOLATILITY OF STOCK PRICE. The Company's stock price has fluctuated
substantially since its initial public offering in 1993. There can be no
assurance the market price of the Common Stock will not decline below the
public offering price set forth on the cover page of this Prospectus. The
Company believes factors such as quarterly operating results, changes in
market conditions, securities analysts' estimates of future operating results,
and the overall performance of the stock market may cause the market price of
the Common Stock to fluctuate significantly. The Nasdaq National Market has
experienced a high level of price and volume volatility and market prices for
the stock of many companies have experienced wide price fluctuations not
necessarily related to the operating performance of such companies. See "Price
Range of Common Stock."

STATE TAXES ON SALES. The Company currently collects sales taxes only on
sales to its Massachusetts customers. Many states have attempted to require
that out-of-state direct marketers collect use taxes on sales of

9
<PAGE>

products shipped to their residents. In 1992, the United States Supreme Court
held unconstitutional a state's imposition of use tax collection obligations
on an out-of-state mail order company whose only significant contacts with the
state were the distribution of catalogs and other advertising materials
through the mail and subsequent delivery of purchased goods by mail or common
carriers, but stated that Congress could enact legislation authorizing the
states to impose such obligations. In 1995, however, the United States Supreme
Court let stand a decision of New York's highest state court requiring an out-
of-state catalog company to collect use tax (including a retroactive
assessment and penalties) on its mail order sales in the state, where the
catalog company's reported contact with New York included a limited number of
visits by sales force employees. If Congress enacts legislation permitting
states to impose use tax collection obligations on out-of-state mail order
businesses, or if the Company otherwise is required to collect additional
sales or use taxes, such tax collection obligations would make it more
expensive to purchase the Company's products and increase the Company's
administrative costs, and could therefore have a material adverse effect on
the Company's financial condition and results of operations. See "Business--
Government Regulation."

ANTITAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS. The Company's
Certificate of Incorporation and By-Laws contain provisions that may
discourage acquisition bids for the Company or make unsolicited acquisition
attempts more difficult. These provisions could prevent an acquisition of the
Company at a price that many stockholders find attractive and limit the price
that certain investors might be willing to pay in the future for shares of the
Common Stock. See "Description of Capital Stock--Antitakeover Effects of
Provisions of the Certificate of Incorporation and By-Laws and of Delaware
Law."

10
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company hereby are expected to be $12.3 million
($17.5 million if the Underwriters' over-allotment option is exercised in
full), based on a public offering price of $13 1/2 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. The Company will not receive any proceeds
from the sale of the shares of Common Stock offered by the Selling
Stockholders. See "Principal and Selling Stockholders."

The Company intends to use a portion of the net proceeds from this offering
to fund certain of the costs associated with its recent purchase of a 360-acre
parcel of land in Tilton, New Hampshire and the construction of a new
fulfillment center at the site. The Company currently estimates that the cost
of its new fulfillment center, including land, construction and equipment,
will be between $33.0 and $37.0 million. The Company intends to finance the
balance of the cost of the fulfillment center by other financing arrangements,
which may include, without limitation, one or more of the following: bank
financing, a sale-leaseback transaction or government sponsored financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Facilities." The
Company intends to use the remainder of the net proceeds, if any, for working
capital and other general corporate purposes.

The Company may also use a portion of the net proceeds of this offering to
acquire businesses complementary to that of the Company, although the Company
does not currently have any plans, commitments or agreements for any such
acquisitions and there can be no assurance that any such acquisitions will be
made.

Pending application of the proceeds as described above, the Company intends
to invest the net proceeds of this offering in investment-grade, interest-
bearing securities.

11
<PAGE>

PRICE RANGE OF COMMON STOCK

The Company's Common Stock began trading on the Nasdaq National Market on
November 2, 1993. Prior to November 2, 1993, there was no public market for
the Common Stock or any other securities of the Company. The Company's Common
Stock trades on the Nasdaq National Market under the symbol "DMMC." As of
September 1, 1997, the approximate number of holders of record of Common Stock
of the Company was 285.

The following table sets forth, for the periods indicated, the high and low
sales prices for the Company's Common Stock as reported on the Nasdaq National
Market.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CALENDAR YEAR 1994
Quarter ended September 24, 1994............................. $10 $8 1/4
Quarter ended December 24, 1994.............................. 9 4 1/8
CALENDAR YEAR 1995
Quarter ended March 25, 1995................................. 5 1/4 2 1/2
Quarter ended June 24, 1995.................................. 3 3/4 2 1/4
Quarter ended September 30, 1995............................. 4 1/8 1 7/8
Quarter ended December 30, 1995.............................. 2 5/8 1 7/8
CALENDAR YEAR 1996
Quarter ended March 30, 1996................................. 2 7/8 2
Quarter ended June 29, 1996.................................. 5 3/8 2 5/8
Quarter ended September 28, 1996............................. 4 7/8 2 7/8
Quarter ended December 28, 1996.............................. 4 1/4 3
CALENDAR YEAR 1997
Quarter ended March 29, 1997................................. 8 1/8 3 5/8
Quarter ended June 28, 1997.................................. 11 1/4 6 3/4
Quarter ended September 27, 1997............................. 14 1/4 9 3/4
Quarter ending December 27, 1997 (through October 29, 1997).. 17 1/8 11 1/2
</TABLE>

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain any earnings for use in the
operation and expansion of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.

12
<PAGE>

CAPITALIZATION

The following table sets forth the current portion of long-term debt and the
capitalization of the Company at June 28, 1997 on an actual basis and as
adjusted to give effect to the sale of the 1,000,000 shares of Common Stock
offered by the Company hereby at a public offering price of $13 1/2 per share
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. See "Use of Proceeds." This information is
qualified by the more detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus, and should be read in
conjunction therewith.

<TABLE>
<CAPTION>
JUNE 28, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................ $ 836 $ 836
======== =======
Long-term debt, less current portion..................... $ 4,446 $ 4,446
Stockholders' equity:
Special preferred stock (par value $0.01) 1,000,000
shares authorized...................................... -- --
Common stock (par value $0.01) 15,000,000 shares
authorized, 4,661,254 shares
issued and outstanding; 5,661,254 shares issued and
outstanding as adjusted (1)............................ 46 56
Additional paid-in capital.............................. 40,501 52,746
Unrealized loss on marketable securities................ (122) (122)
Accumulated deficit..................................... (17,008) (17,008)
-------- -------
Total stockholders' equity............................. 23,417 35,672
-------- -------
Total capitalization.................................. $ 27,863 $40,118
======== =======
</TABLE>
- --------
(1) Excludes (i) 1,013,381 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 28, 1997 at a weighted average
exercise price per share of $4.70, (ii) 323,500 shares of Common Stock
reserved for future option grants under the Company's 1993 Incentive and
Nonqualified Stock Option Plan and (iii) 37,302 shares of Common Stock
reserved for issuance under the Company's 1993 Stock Purchase Plan.

13
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated balance sheet data as of June 24, 1995, June 29,
1996, and December 28, 1996 and the selected consolidated statement of
operations data for each of fiscal 1994, 1995 and 1996 and for the six months
ended December 28, 1996 have been derived from the Company's consolidated
financial statements, which have been audited by Coopers & Lybrand L.L.P.,
independent public accountants, included elsewhere in this Prospectus. The
selected consolidated balance sheet data as of June 27, 1992, June 26, 1993
and June 25, 1994 and the selected consolidated statement of operations data
for the years ended June 27, 1992 and June 26, 1993 have been derived from the
Company's consolidated financial statements, which have also been audited by
Coopers & Lybrand L.L.P., not included in this Prospectus. The selected
consolidated balance sheet data as of December 30, 1995 and June 28, 1997 and
the selected consolidated statement of operations data for the six months
ended December 30, 1995, June 29, 1996 and June 28, 1997 have been derived
from the Company's unaudited consolidated financial statements, which have
been prepared on a basis substantially consistent with the audited
consolidated financial statements and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operation for
these periods. The results of operations for the six months ended June 28,
1997 are not necessarily indicative of the results to be expected for the full
fiscal year. The following selected consolidated financial data are qualified
by the more detailed consolidated financial statements and notes thereto
included elsewhere in this Prospectus, and should be read in conjunction
therewith and with the discussion under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
TRANSITION PERIOD
FISCAL YEAR ENDED ENDED SIX MONTHS ENDED
--------------------------------------------- ------------------ ------------------
JUNE 27, JUNE 26, JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 (1) 1996 (1) 1995 1996 (2) 1996 (1) 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $41,532 $47,510 $63,337 $72,691 $80,585 $39,267 $43,324 $41,318 $57,428
Income (loss) from
continuing operations
before income taxes.... (2,411) 1,608 3,604 851 261 (623) 1,072 884 2,862
Income (loss) from
continuing operations.. (2,411) 1,547 3,269 765 235 (560) 11,563 795 1,746
Net income (loss)....... (2,411) 1,547 3,269 773 (9,350) (1,158) 11,563 (8,192) 1,746
Income (loss) from
continuing operations
per share.............. $ (2.07) $ 0.60 $ 0.80 $ 0.17 $ 0.05 $ (0.13) $ 2.44 $ 0.17 $ 0.35
Net income (loss) per
share.................. $ (2.07) $ 0.60 $ 0.80 $ 0.17 $ (2.11) $ (0.27) $ 2.44 $ (1.77) $ 0.35
Weighted average shares
outstanding............ 1,167 2,586 4,077 4,610 4,441 4,262 4,736 4,620 5,057
CONSOLIDATED BALANCE
SHEET DATA:
Total assets............ $ 6,935 $ 8,849 $26,923 $31,612 $27,069 $34,694 $38,109 $27,069 $42,995
Working capital......... 737 1,075 9,305 6,315 6,988 11,019 10,662 6,988 13,804
Long-term debt, less
current portion........ 7,219 417 248 3,634 4,380 5,522 4,540 4,380 4,446
Stockholders' equity
(deficit).............. (5,962) 1,645 17,861 18,851 9,480 17,729 21,223 9,480 23,417
SELECTED OPERATING DATA:
Catalog circulation..... 24,100 24,000 32,400 40,300 41,600 22,100 18,400 19,500 21,500
Total active customers.. N/A 448 473 579 638 611 657 638 724
</TABLE>
- --------
(1) In December 1994, the Company purchased certain assets and assumed certain
liabilities of Carroll Reed, Inc. and Carroll Reed International Limited.
In connection with the purchase, the Company paid $5,031,000 and
established accruals totaling $1,180,000. On May 20, 1996, the Company
announced its plan to divest its Carroll Reed segment and recorded a
charge of $8,511,000 for the loss on disposal of discontinued operations.
The results of the Carroll Reed operations through May 20, 1996 have been
classified as income (loss) from discontinued operations. See Note B to
the accompanying consolidated financial statements.
(2) During the six-month period ended December 28, 1996, the Company
recognized a deferred tax benefit of $10,598,000. See Note H to the
accompanying consolidated financial statements.

14
<PAGE>

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

The following discussion contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors
set forth below and elsewhere in this Prospectus, particularly under the
caption "Risk Factors."

OVERVIEW

The Company was incorporated in Delaware in 1987 with funding from venture
capital investors to make acquisitions of undervalued and underperforming
catalogs. In 1987 and 1988, in a series of unrelated transactions, the Company
acquired the assets of various catalogs and related operations. The acquired
catalog assets included assets related to the Company's J. Jill, Nicole
Summers and The Very Thing! concepts, in addition to other non-apparel catalog
concepts. In 1989, the Company decided to focus exclusively on women's
apparel, a market in which the Company's management team had extensive
experience and which management believed provided substantial growth
opportunities. At this time, the Company discontinued the operations of its
non-apparel catalog concepts.

In fiscal 1994, the Company completed its initial public offering and
achieved income from continuing operations before income taxes of $3.6
million, or 5.7% of net sales. In fiscal 1995, the Company acquired certain
assets and assumed certain liabilities related to the Carroll Reed concept. A
combination of significant increases in postage and paper prices, a weak
women's apparel market and an overly aggressive circulation strategy led to
disappointing earnings for fiscal 1995. Subsequently, the Company's Board of
Directors concluded that a new strategic direction was needed and recruited
Gordon R. Cooke as President and Chief Executive Officer.

Since December 1995, under Mr. Cooke's leadership, the Company has
repositioned itself as a leading specialty direct marketer of high quality
women's apparel, accessories, shoes and gifts by implementing the following
strategic initiatives:

. Introducing a new merchandising approach to position the Company as a
fashion authority for its target market;

. Emphasizing creative presentation and differentiation in merchandise
execution as well as circulation management as primary drivers of growth
and profitability;

. Assembling a management team to support the Company's future growth;

. Curtailing unproductive cross-mailings to existing customers and
reinvesting the resulting circulation cost savings in increased
prospecting;

. Merging the Company's The Very Thing! concept into its Nicole Summers
concept in order to increase the operating efficiencies of what had
become two very similar catalog concepts with significant overlap in
their customer bases and product offerings;

. Phasing out the operations of the Carroll Reed segment, which was
incompatible with the Company's new strategic emphasis;

. Increasing merchandise offerings to include a greater assortment of
accessories, shoes and gifts; and

. Undertaking marketing and merchandising initiatives to increase sales
during traditionally slow periods.

The Company believes that its recent financial results have begun to
demonstrate the successful implementation of these strategic initiatives.
During the first six months of 1997, net sales increased 39.0% to $57.4
million from $41.3 million during the corresponding period in 1996 and income
from continuing operations rose 119.6% to $1.7 million from $0.8 million
during the corresponding period in 1996. During the

15
<PAGE>

quarter ended June 28, 1997, net sales increased 52.4% to $32.9 million from
$21.6 million during the corresponding quarter in 1996 and income from
continuing operations rose 121.1% to $1.2 million from $0.5 million during the
corresponding quarter of the prior year. The Company believes that these
recently implemented strategic initiatives have positioned it well for future
growth.

RECENT OPERATING RESULTS

The Company had net sales of $31.6 million for the three months ended
September 27, 1997, compared to $20.5 million for the three months ended
September 28, 1996, representing an increase of 54.1%. During the three months
ended September 27, 1997, net income increased to $0.7 million from $0.3
million in the prior year period, an increase of 176.4%, and earnings per
share increased to $0.13 from $0.05, an increase of 160.0%. This quarter
marked the fifth consecutive quarter of profit improvement as compared to the
comparable quarter of the prior year.

RESULTS OF OPERATIONS

The following table sets forth, for the fiscal periods indicated, certain
items from the Company's consolidated statements of operations expressed as a
percentage of net sales:

<TABLE>
<CAPTION>
TRANSITION PERIOD
FISCAL YEAR ENDED ENDED SIX MONTHS ENDED
-------------------------- ------------------ ------------------
JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1994 1995 1996 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Product................ 42.7 42.9 43.5 44.0 44.9 43.0 44.3
Operations............. 16.5 16.9 17.3 17.5 15.9 17.2 17.8
Selling................ 27.4 30.7 30.3 31.6 27.1 29.1 24.6
General and
administrative........ 7.9 8.3 8.2 8.2 9.3 8.2 8.2
Interest, net.......... (0.2) -- 0.4 0.3 0.3 0.4 0.1
----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations
before income taxes... 5.7 1.2 0.3 (1.6) 2.5 2.1 5.0
Provision (benefit) for
income taxes.......... 0.5 0.1 -- (0.2) (24.2) 0.2 2.0
----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations.. 5.2 1.1 0.3 (1.4) 26.7 1.9 3.0
Income (loss) from
discontinued
operations............. -- -- (11.9) (1.5) -- (21.7) --
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 5.2% 1.1% (11.6)% (2.9)% 26.7% (19.8)% 3.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>

Net Sales

In fiscal 1995 net sales increased by $9.4 million, or 14.8%, to $72.7
million from $63.3 million in fiscal 1994. Catalog circulation increased by
24.4% to 40.3 million in fiscal 1995 from 32.4 million in fiscal 1994. A soft
women's apparel market combined with an industry-wide surge in circulation
resulted in net sales growth that fell short of the increase in circulation.
The number of active customers grew to 579,000 at the end of fiscal 1995 from
473,000 at the end of fiscal 1994, an increase of 22.4%.

In fiscal 1996 net sales increased by $7.9 million, or 10.9%, to $80.6
million from $72.7 million in fiscal 1995. Catalog circulation increased by
3.2% to 41.6 million in fiscal 1996 from 40.3 million in fiscal 1995. Fiscal
1996 was a year of transition for the Company. Although the most significant
changes to the Company's business strategy were not then in place, the Company
had adopted a more selective approach to mailing which enabled it to achieve
an increase in net sales that was significant in comparison to the increase in
circulation. The number of active customers grew to 638,000 at the end of
fiscal 1996 from 579,000 at the end of fiscal 1995, an increase of 10.2%.

16
<PAGE>

During the six months ended December 28, 1996 net sales increased by $4.0
million, or 10.3%, to $43.3 million from $39.3 million during the six months
ended December 30, 1995. Catalog circulation declined by 16.7% to 18.4 million
during the six months ended December 28, 1996 from 22.1 million during the six
months ended December 30, 1995. The Company advanced the implementation of its
new business strategies during the six months ended December 28, 1996. During
this period, the first edition of the Nicole Summers catalog after the
combination of the Nicole Summers and The Very Thing! concepts was mailed, and
third mailings of catalog editions were eliminated. The impact of the new
business strategies was dramatic, as net sales increased despite a significant
reduction in circulation. The number of active customers grew to 657,000 at
December 28, 1996 from 611,000 at December 30, 1995, an increase of 7.5%.

During the six months ended June 28, 1997 net sales increased by $16.1
million, or 39.0%, to $57.4 million from $41.3 million during the six months
ended June 29, 1996. Catalog circulation increased by 10.3% to 21.5 million
during the six months ended June 28, 1997 from 19.5 million during the six
months ended June 29, 1996. By January 1997 all of the strategic initiatives
described above were in place, making the six months ended June 28, 1997 the
first period to fully benefit from these initiatives. The number of active
customers grew to 724,000 at June 28, 1997 from 638,000 at June 29, 1996, an
increase of 13.5%.

Product

Product costs consist primarily of merchandise acquisition costs (net of
term discounts and advertising allowances), including freight costs, and
provisions for markdowns. In fiscal 1995 product costs increased by $4.2
million, or 15.4%, to $31.2 million from $27.0 million in fiscal 1994. As a
percentage of net sales, product costs increased to 42.9% in fiscal 1995 from
42.7% in fiscal 1994. This slight increase in product costs as a percentage of
net sales was primarily due to an increase in the Company's overstock
liquidation activity, offset to some extent by improved margins from the
Company's growing private label business.

In fiscal 1996 product costs increased by $3.8 million, or 12.3%, to $35.0
million from $31.2 million in fiscal 1995. As a percentage of net sales,
product costs increased to 43.5% in fiscal 1996 from 42.9% in fiscal 1995.
This increase in product costs as a percentage of net sales was primarily
attributable to a more competitive pricing environment in the women's apparel
market.

During the six months ended December 28, 1996 product costs increased $2.1
million, or 12.5%, to $19.4 million from $17.3 million during the six months
ended December 30, 1995. As a percentage of net sales, product costs increased
to 44.9% during the six months ended December 28, 1996 from 44.0% during the
six months ended December 30, 1995. A continuation of the pricing pressures
experienced in fiscal 1996 was responsible for this increase in product costs
as a percentage of net sales.

During the six months ended June 28, 1997 product costs increased $7.6
million, or 43.0%, to $25.4 million from $17.8 million during the six months
ended June 29, 1996. As a percentage of net sales, product costs increased to
44.3% during the six months ended June 28, 1997 from 43.0% during the six
months ended June 29, 1996. This increase in product costs as a percentage of
net sales was primarily attributable to increased promotional activity, as the
Company introduced a new edition of the Nicole Summers catalog designed to
compete directly with late-in-the-season retail store offerings. This new
catalog edition has provided the Company with an opportunity to increase sales
during a traditionally slow period by offering new merchandise at value prices
while at the same time serving as an additional vehicle for liquidating
overstocked in-season merchandise.

Operations

Operating expenses consist primarily of order processing costs, such as
telemarketing, customer service, fulfillment, shipping, warehousing and credit
card processing costs. In fiscal 1995 operating expenses increased by $1.9
million, or 17.6%, to $12.3 million from $10.4 million in fiscal 1994. As a
percentage of net sales, operating expenses increased to 16.9% in fiscal 1995
from 16.5% in fiscal 1994. This increase in operating expenses as a percentage
of net sales was primarily attributable to higher occupancy costs associated
with the Company's then recently expanded fulfillment center in Meredith, New
Hampshire.

17
<PAGE>

In fiscal 1996 operating expenses increased by $1.7 million, or 13.6%, to
$14.0 million from $12.3 million in fiscal 1995. As a percentage of net sales,
operating expenses increased to 17.3% in fiscal 1996 from 16.9% in fiscal
1995. This increase in operating expenses as a percentage of net sales was
primarily attributable to operational inefficiencies at the Company's
fulfillment center.

During the six months ended December 28, 1996 operating expenses increased
by 0.8% to $6.9 million as compared to the six months ended December 30, 1995.
As a percentage of net sales, operating expenses declined to 15.9% during the
six months ended December 28, 1996 from 17.5% during the six months ended
December 30, 1995. When the operational inefficiencies at the Company's
fulfillment center became apparent in fiscal 1996, the Company embarked upon a
detailed review and reengineering of its order processes and delivery
mechanisms. This reengineering effort resulted in the decrease in operating
expenses as a percentage of net sales during the six months ended December 28,
1996 compared to the same period of the prior year.

During the six months ended June 28, 1997 operating expenses increased
$3.1 million, or 44.0%, to $10.2 million from $7.1 million during the six
months ended June 29, 1996. As a percentage of net sales, operating expenses
increased to 17.8% during the six months ended June 28, 1997 from 17.2% during
the six months ended June 29, 1996. This increase in operating expenses as a
percentage of net sales was caused in part by higher than anticipated demand
levels for the Company's products, which resulted in order processing
inefficiencies and increased back order processing costs, including higher
postage and handling charges from increased packages per order, and by changes
in the mix of products sold. The Company anticipates that these trends will
continue at least until the Company's planned new fulfillment center in
Tilton, New Hampshire becomes fully operational. The Company also anticipates
that operating expenses will increase as a percentage of net sales as a result
of the operation of its Meredith fulfillment center at or near capacity and
the operation of multiple fulfillment centers.

Selling

Selling expenses consist primarily of the cost to produce, print and
distribute catalogs. In fiscal 1995 selling expenses increased by
$4.9 million, or 28.3% to $22.3 million from $17.4 million in fiscal 1994. As
a percentage of net sales, selling expenses increased to 30.7% in fiscal 1995
from 27.4% in fiscal 1994. During the latter half of fiscal 1995 the Company
experienced higher costs, as U.S. Postal Service rates and paper prices
increased. The impact of these increases on selling expenses as a percentage
of net sales was exacerbated by net sales growth that fell short of catalog
circulation growth.

In fiscal 1996 selling expenses increased by $2.1 million, or 9.4%, to $24.4
million from $22.3 million in fiscal 1995. As a percentage of net sales,
selling expenses declined to 30.3% in fiscal 1996 from 30.7% in fiscal 1995.
As a result of the Company's more selective circulation strategy during fiscal
1996, this decline on a percentage basis was accomplished even though postage
and paper cost increases were in effect for all of fiscal 1996 versus only the
latter half of fiscal 1995.

During the six months ended December 28, 1996 selling expenses decreased by
$0.7 million, or 5.5%, to $11.7 million from $12.4 million during the six
months ended December 30, 1995. As a percentage of net sales, selling expenses
decreased to 27.1% during the six months ended December 28, 1996 from 31.6%
during the six months ended December 30, 1995. This decrease in selling
expenses as a percentage of net sales reflects the impact of the new business
strategies which the Company was implementing during this period.

During the six months ended June 28, 1997 selling expenses increased by $2.1
million, or 17.8%, to $14.1 million from $12.0 million during the six months
ended June 29, 1996. As a percentage of net sales, selling expenses decreased
to 24.6% during the six months ended June 28, 1997 from 29.1% during the six
months ended June 29, 1996. The impact of the full implementation of the
Company's new business strategies as well as lower paper prices resulted in
this decline in selling expenses as a percentage of net sales. The Company
does not expect further decreases in selling expenses as a percentage of net
sales.

18
<PAGE>

General and Administrative

General and administrative expenses consist primarily of executive,
marketing, information systems and finance expenses. In fiscal 1995 general
and administrative expenses increased by $1.0 million, or 20.6%, to
$6.0 million from $5.0 million in fiscal 1994, primarily as a result of the
expansion of the Company's marketing and information systems departments. As a
percentage of net sales, general and administrative expenses increased to 8.3%
in fiscal 1995 from 7.9% in fiscal 1994.

In fiscal 1996 general and administrative expenses increased by $0.6
million, or 9.9%, to $6.6 million from $6.0 million in fiscal 1995, primarily
due to the Company's decision to broaden and strengthen its management team.
As a percentage of net sales, general and administrative expenses declined
slightly to 8.2% in fiscal 1996 from 8.3% in fiscal 1995.

During the six months ended December 28, 1996 general and administrative
expenses increased by $0.8 million, or 26.2%, to $4.0 million from $3.2
million during the six months ended December 30, 1995, primarily as a result
of performance bonuses and additions to the management team. As a percentage
of net sales, general and administrative expenses increased to 9.3% during the
six months ended December 28, 1996 from 8.2% during the six months ended
December 30, 1995.

During the six months ended June 28, 1997 general and administrative
expenses increased by $1.3 million, or 39.4%, to $4.7 million from $3.4
million during the six months ended June 29, 1996. This increase is primarily
attributable to performance bonuses, increased management infrastructure,
increased outside consulting fees related to various systems and facilities
projects and increased depreciation and occupancy costs. As a percentage of
net sales, general and administrative expenses remained unchanged at 8.2%
during the six months ended June 28, 1997 and the six months ended June 29,
1996.

Income Taxes

The Company provides for income taxes at an effective tax rate that includes
the full federal and state statutory tax rates. Prior to December 1996, the
Company reduced the income tax provision recorded in its financial statements
by recording a tax benefit associated with its net deferred tax assets,
primarily net operating loss carryforwards ("NOLs"). Because of the
uncertainty surrounding the realizability of these assets, the Company placed
a valuation allowance against the entire balance of its net deferred tax
assets. As a result, the associated tax benefit was recognized as income was
earned, resulting in a significantly lower effective tax rate for all periods
reported prior to December 1996.

In December 1996, the Company performed a detailed analysis of the future
taxable income levels required for the Company to fully realize the benefit of
its net deferred tax assets. This analysis considered several factors,
including the historical taxable income trends since fiscal 1993, exclusive of
a taxable loss generated in fiscal 1996 by the Company's discontinued Carroll
Reed segment, management's demonstrated ability to increase the Company's
active customer database and the implementation of the Company's new strategic
business initiatives. Based on this analysis, the Company determined that it
was more likely than not that the Company would earn sufficient book and
taxable income to fully realize the benefit of its deferred tax assets. This
determination required the Company to remove the valuation allowance and
recognize the deferred tax benefit of $10.6 million at December 28, 1996 in
its entirety. No assurance can be given, however, that the Company will
achieve taxable income sufficient to realize the full benefit of its deferred
tax assets.

Because, for financial statement purposes, the benefit associated with the
Company's deferred tax assets has been fully realized, the Company's effective
tax rate can no longer be reduced by the recognition of this tax benefit over
future periods of income generation. As a result, the Company's tax provision
is substantially larger in fiscal 1997 than in the prior year. Cash payments
for income taxes continue to be reduced by available NOLs, which results in
cash payments which are significantly less than the income tax provision
recorded for financial statement purposes during fiscal 1997. See Note H to
the accompanying consolidated financial statements.

19
<PAGE>

Discontinued Operations

On May 20, 1996, the Company announced its plan to divest its Carroll Reed
segment due to the incompatibility of the customer base and product line of
this segment with those of its other segment. Accordingly, the Carroll Reed
segment has been accounted for as a discontinued operation, and all assets,
liabilities, results of operations and cash flows associated with the Carroll
Reed segment have been segregated from those associated with continuing
operations. In connection with this divestiture, the Company recorded a charge
of $8.5 million in fiscal 1996 for the loss on disposal of discontinued
operations, consisting of $5.3 million related to the write-off of the
remaining unamortized intangible assets and $3.2 million for expected losses
during the phase-out period. The results of the Carroll Reed operations
through May 20, 1996 have been classified as income (loss) from discontinued
operations. Since May 20, 1996, the results of this discontinued operation
have been charged to the liability for expected losses established in
connection with the divestiture and have had no impact on the Company's
operating results. As of June 28, 1997, the Company had completed the phase-
out of its Carroll Reed segment and had utilized its reserve for expected
losses.

QUARTERLY RESULTS

The following table presents unaudited quarterly financial information for
calendar 1995, calendar 1996 and the first six months of calendar 1997. This
information has been prepared by the Company on a basis consistent with the
Company's audited financial statements and includes all adjustments
(consisting only of normal recurring adjustments) which management considers
necessary for a fair presentation of the results for such periods.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
MARCH 25, JUNE 24, SEPT. 30, DEC. 30,
1995 1995 1995 1995
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $19,704 $19,561 $22,312 $16,955
Income (loss) from continuing operations. 180 89 (274) (286)
Net income (loss)........................ 120 157 (667) (491)
Income (loss) from continuing operations
per share............................... $ 0.04 $ 0.02 $ (0.06) $ (0.07)
Net income (loss) per share.............. $ 0.03 $ 0.03 $ (0.15) $ (0.12)
<CAPTION>
QUARTER ENDED
--------------------------------------
MARCH 30, JUNE 29, SEPT. 28, DEC. 28,
1996 1996 1996 1996
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $19,736 $21,582 $20,541 $22,783
Income from continuing operations........ 250 545 250 11,313
Net income (loss)........................ 264 (8,456) 250 11,313
Income from continuing operations per
share................................... $ 0.06 $ 0.11 $ 0.05 $ 2.38
Net income (loss) per share.............. $ 0.06 $ (1.79) $ 0.05 $ 2.38
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------
JUNE
MARCH 29, 28,
1997 1997
--------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net sales.................................................... $24,543 $32,885
Income from continuing operations ........................... 541 1,205
Net income................................................... 541 1,205
Income from continuing operations per share.................. $ 0.11 $ 0.23
Net income per share......................................... $ 0.11 $ 0.23
</TABLE>

20
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 28, 1997, the Company funded its working
capital needs through cash generated from operations and through use of its
credit facilities. The Company used working capital to support costs incurred
in advance of revenue generation, primarily inventory acquisition and catalog
development, production and mailing costs incurred prior to the beginning of
each selling season. The Company has two selling seasons which correspond to
the fashion seasons. The Fall season begins in July and ends in December, and
the Spring season begins in January and ends in early July.

During the second quarter of fiscal 1997, the Company refinanced its
existing debt by entering into a loan agreement with a new bank. The aggregate
principal availability under the new loan agreement totals $13.8 million. At
June 28, 1997, the credit facilities provided for in the new loan agreement
consisted of (i) a $1.7 million interim loan (the "Interim Loan"); (ii) a $3.6
million term loan (the "Term Loan"); (iii) a $6.0 million revolving line of
credit (the "Revolver"); and (iv) a $2.5 million line for the issuance of
commercial letters of credit (the "Letter of Credit Line"). All of the credit
facilities under the new loan agreement are collateralized by a first lien
mortgage on the Company's operations and fulfillment center in Meredith, New
Hampshire and a security interest in substantially all assets of the Company
other than its marketable securities. The Term Loan is also collateralized by
the Company's marketable securities. The terms of the new loan agreement
contain various lending conditions and covenants, including restrictions on
permitted liens and required compliance with certain financial coverage
ratios.

The Interim Loan was replaced by a $1.7 million real estate loan (the "Real
Estate Loan") on July 30, 1997. The Real Estate Loan is collateralized by a
first lien mortgage on the Company's operations and fulfillment center in
Meredith, New Hampshire and a security interest in substantially all assets of
the Company other than its marketable securities. Payments on the Real Estate
Loan are due monthly, based on a 15-year amortization, with the remaining
balance payable on July 30, 2002. Interest on the Real Estate Loan is fixed at
6.81% per annum until August 31, 1999, at which time the Company may select
from several interest rate options. Payments on the Term Loan are due
quarterly commencing on September 2, 1997 through its maturity on June 1,
2002. The Term Loan provides for several interest rate options. At June 28,
1997 the Term Loan bore interest at 7.28% per annum. Both the Revolver and the
Letter of Credit Line expire on June 1, 1999. The Revolver also provides for
several interest rate options. There were no outstanding Revolver borrowings
at June 28, 1997. Outstanding letters of credit at June 28, 1997 totaled
approximately $1.7 million. For additional information regarding the Company's
credit facilities and the amounts outstanding thereunder, see Note D to the
accompanying consolidated financial statements.

The Company is currently negotiating an amendment to its credit facilities
that would, among other things, increase the aggregate principal availability
thereunder from $13.8 million to $18.1 million, include the Company's recently
purchased land in Tilton, New Hampshire as additional collateral for all
borrowings thereunder and combine the Revolver and Letter of Credit Line into
a single $8.5 million facility.

The Company had considerably more liquidity at June 28, 1997 than at June
29, 1996, as cash and cash equivalents totaled $6.4 million versus $0.2
million at these respective dates. Cash used in investing activities was $0.6
million for the six months ended June 28, 1997 and $1.6 million for the six
months ended June 29, 1996. Capital investments for both periods included
additions to property and equipment. In fiscal 1996, investing activities
included a final payment for the Carroll Reed purchase. Net cash used in
investing activities in fiscal 1995 consisted of cash outlays for property and
equipment in connection with the completion of the Company's office and
distribution facility expansion and the initial Carroll Reed payment, reduced
by cash proceeds from the sale of marketable securities.

Inventory levels at June 28, 1997 were only 3.8% higher than at June 29,
1996, primarily due to the timing of receipts of fall season merchandise.
Prepaid catalog expenses at June 28, 1997 were 6.8% lower than at June 29,
1996. This decline is primarily attributable to lower paper inventory balances
on hand at June 28, 1997 than at June 29, 1996.

21
<PAGE>

Subsequent to June 28, 1997, the Company purchased approximately 360 acres
of land in Tilton, New Hampshire for approximately $4.2 million. The site is
intended to house a new fulfillment center expected to be operational by early
1999. The estimated cost of this new facility, including land, construction
and equipment, ranges from $33.0 to $37.0 million. The Company intends to
finance the cost of the fulfillment center with a portion of the net proceeds
of this offering and by other financing arrangements, which may include,
without limitation, bank financing, a sale-leaseback transaction or government
sponsored financing. The Company is also in the process of upgrading its
information systems, including implementing new order management and warehouse
management systems. Total expenditures for this purpose are estimated at
approximately $3.0 million, of which approximately $0.4 million had been spent
as of June 28, 1997.

The net proceeds of this offering, the Company's existing credit facilities
and cash flows from operations are expected to be sufficient to provide the
capital resources necessary to support the Company's capital and operating
needs (not including the new fulfillment center) for at least the next twelve
months.

RECENT ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share" which modifies the way in which
earnings per share ("EPS") is calculated and disclosed. Currently, the Company
discloses primary and fully diluted EPS. SFAS 128 requires the disclosure of
basic and diluted EPS for financial statements issued for periods ending after
December 15, 1997. The restatement of all prior period EPS data presented is
also required upon adoption. Basic EPS excludes potentially dilutive
securities and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS, similar to fully diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted to common stock that then shared in the
earnings of the entity. Early application of SFAS 128 is not permitted. See
Note A to the accompanying consolidated financial statements.

22
<PAGE>

BUSINESS

DM Management is a leading specialty direct marketer of high quality women's
apparel, accessories, shoes and gifts. The Company currently markets its
products through two discrete catalog concepts, J. Jill and Nicole Summers.
These concepts are designed to appeal to active, affluent women age 35 and
older, with each concept aimed at a distinct lifestyle segment within this
demographic group. DM Management's objective is to be a fashion authority for
its target market. The Company seeks to distinguish its catalogs and reinforce
the brand identity of the J. Jill and Nicole Summers names through exclusive
private label merchandise offerings, a broad assortment of extended sizes,
"total look" wardrobing and editorial lifestyle photography.

Since December 1995, the Company has assembled a new management team with
significant experience in the catalog industry and has made important changes
to its creative, merchandising and marketing strategies. In addition to the
recruitment of Gordon R. Cooke to be its new President and Chief Executive
Officer, the broadening and strengthening of the Company's management team has
included the addition of an Executive Vice President of Marketing and a Vice
President--Creative Director and the appointment of a Senior Vice President
for the Nicole Summers concept and a Vice President for the J. Jill concept.
The new management team has implemented a business strategy in which creative
presentation and differentiation in merchandise execution, in addition to
circulation management, are primary elements of growth and profitability.
Distinctive creative elements have been introduced for both the Nicole Summers
and J. Jill catalog concepts, including the use of artwork for covers and
editorial lifestyle photography throughout the catalogs. In addition, the
Company has continued to focus on certain core competencies that it has
developed over the past ten years, including the ongoing expansion of its
private label and extended size merchandise offerings. The Company has
combined these creative and merchandising strategic initiatives with a shift
in circulation strategy designed to curtail unproductive cross-catalog
mailings to existing customers and has reinvested the resulting circulation
cost savings in increased prospect mailings. The Company believes that these
changes in management and strategy have strengthened the competitive position
of its two catalog concepts and positioned the Company for continued growth.

INDUSTRY BACKGROUND

The direct marketing industry in general has experienced significant growth
during the past five years. The Company estimates, based on industry data,
that consumer catalog sales reached approximately $46 billion in 1996, up from
approximately $32 billion in 1991, and could reach approximately $63 billion
by 2001. The Company believes that growth in catalog sales is being driven
primarily by continued consumer response to the ease and convenience of
shopping at home. It is estimated that approximately 59% of adults in the
United States made a purchase from a catalog in 1995. Based on industry data,
the Company estimates that catalog sales of women's apparel totaled over $7.9
billion in 1996, and that total sales of women's apparel in 1996 were
approximately $84 billion.

The Company's target market is one of the largest and fastest growing
population segments in the United States. U.S. Census bureau estimates
indicate that the number of women age 35 and older will increase by
approximately 11% by the year 2005 as compared to an increase of approximately
7% for the general population. This age group currently accounts for
approximately 26% of the total United States population. The Company believes
that the large proportion of working women in its target customer group, and
their generally active lifestyles, make the group particularly responsive to
the convenience of catalog shopping.

23
<PAGE>

BUSINESS STRATEGY

DM Management's objective is to be a fashion authority for its target
market. The Company seeks to combine the personal experience of shopping at an
upscale specialty retailer with the ease and convenience of shopping at home
by offering an edited assortment of high quality products in vibrant, easy-to-
read catalogs. The key elements of the Company's business strategy are set
forth below:

Brand building. The Company believes that it has a significant opportunity
to build the brand identity of each of its catalog concepts within its target
market. The Company seeks to enhance brand identity by developing strong
relationships with its customers that foster loyalty and increase repeat
purchases. The consistent application of unique creative and merchandising
techniques tailored to create a signature style for each catalog concept is a
central element of this effort, as is an emphasis on superior customer
service.

Large target market. The Company focuses on a target market of active,
affluent women age 35 and older. The median household income of repeat
customers participating in a recent Company survey was in excess of $70,000.
Each of the Company's catalog concepts is designed to appeal to the lifestyle
needs of a distinct demographic group within the Company's larger target
market. The Company believes that the active lifestyles of its target
customers make the convenience of catalog shopping particularly appealing to
them.

Well differentiated merchandise offerings. The Company believes that its
distinctive approach to merchandising enhances its position as a fashion
authority to its target customers. Key components of the Company's
merchandising strategy include:

. Private label program. The Company offers private label merchandise,
principally apparel, through each of its catalog concepts. In the spring
1997 season, private label merchandise represented approximately three-
quarters and one-third of the apparel styles offered in the J. Jill and
Nicole Summers catalogs, respectively. Most private label merchandise is
exclusive to DM Management, which the Company believes reinforces each
catalog concept's role as a fashion authority to its target customers
and enhances the brand identity of the J. Jill and Nicole Summers names.

. Extended sizes. In addition to offering regular sizes from 4 to 20, the
Company offers a broad assortment of apparel in petite and large sizes
in the same styles as its regular size offerings. Management believes
that the Company has particular expertise in scaling fashionable regular
size merchandise to be attractively worn by extended size customers, and
that these hard to fit customers currently have few attractive catalog
or retail shopping alternatives. In the spring 1997 season, extended
size apparel offerings accounted for 37% of total merchandise offerings.

. "Total look" wardrobing. The Company's "total look" wardrobing approach
seeks to satisfy the lifestyle needs of its target customers by offering
a coordinated selection of apparel, accessories and shoes to outfit them
from head to toe. Management believes that this approach builds brand
identity while increasing the Company's potential share of household
spending dollars.

Distinctive creative presentation. The Company's catalogs are its primary
vehicles for communicating with its customers. The creative presentation of
each catalog is a crucial factor in attracting customer attention, stimulating
purchases, projecting differentiation in the marketplace and building brand
identity. The signature style of each catalog is enhanced by the use of
editorial lifestyle photography that presents merchandise in settings in which
the Company's target customers might find or imagine themselves and by other
distinctive catalog design elements such as thematic merchandise spreads
highlighting particular colors or fabrics.

Investment in management and infrastructure. The Company is committed to
investments in management and in physical and systems infrastructure in order
to support its anticipated future growth, serve its customers, improve
operating efficiencies and respond to strategic opportunities. Since December
1995, the Company has made significant investments in management, and it
intends to make additional significant investments in systems and facilities.
The Company has recently purchased approximately 360 acres of land in Tilton,
New Hampshire, which is intended to house a new fulfillment center. This
facility is expected to be operational by

24
<PAGE>

early 1999. The Company is also currently in the process of upgrading its
information systems. See "--Fulfillment," "--Information Systems and
Technology," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

GROWTH STRATEGY

The Company's growth strategy is focused on building productive long-term
relationships with its current and prospective customers. DM Management
believes that it has significant opportunities to increase sales and
profitability by offering a portfolio of brands catering to the upscale
lifestyle needs of the Company's target customers. The key elements of the
Company's growth strategy are set forth below:

Continue to expand customer base at profitable levels. The Company seeks to
strike a balance between prospecting for new customers and efficiently
generating revenue from existing customers. In planning its circulation
strategy for each season, the Company uses sophisticated statistical modeling
techniques to analyze existing and prospective customer databases and develop
targeted marketing programs designed to optimize response rates while
increasing the active customer list. The Company plans to significantly
increase prospecting for its J. Jill catalog concept over the near term.

Introduce new merchandise categories. The Company believes that it can
further develop the lifestyle themes and maintain "freshness" within the J.
Jill and Nicole Summers concepts by expanding offerings in existing
merchandise categories or by adding new merchandise categories. For example,
in the 1996 Nicole Summers Holiday catalog, the Company introduced gift items,
including products from such high end brands as Baccarat and Waterford. The
Company believes that the addition of new merchandise categories has enhanced
the lifestyle messages of its catalogs and thereby contributed to recent
improvements in sales and profitability.

Develop or acquire complementary catalog concepts. The Company believes that
it has the potential to capitalize on its expertise in serving active,
affluent women by acquiring or internally developing new catalog concepts that
cater to its target customers. The Company currently has no commitments or
agreements with regard to any acquisition.

Expand into other distribution channels. While the Company currently has no
plans to expand beyond its current distribution channels, management
recognizes that it may be appropriate to do so in the future. For example, the
Company might selectively open retail stores to support its brand building
efforts. In addition, the Company tests national advertising from time to time
and monitors developments in electronic shopping. The Company believes its
operational infrastructure will position it to take advantage of on-line
ordering of merchandise, if and when it becomes commercially viable to do so.

THE COMPANY'S CATALOGS

The Company currently markets its products through two discrete catalog
concepts, J. Jill and Nicole Summers.

J. Jill. The J. Jill concept is characterized by the simple, comfortable
style of its apparel offerings, which range from relaxed career wear to
weekend wear. These apparel offerings are predominantly private label, with
emphasis on natural fibers and creative details. The J. Jill concept's target
customers are active, affluent women age 35 to 55. The median household income
of repeat J. Jill customers who participated in a recent Company survey was
approximately $78,000. Results of the survey also suggest that the J. Jill
concept appeals in particular to working women with families at home, who have
hectic lifestyles involving many and varied daily activities. In the spring
1997 season, approximately three-quarters of the apparel styles offered
through J. Jill catalogs were private label. Most private label merchandise is
designed specifically for sale under the J. Jill label. The use of editorial
lifestyle photography that presents merchandise in settings in which the
Company's target customers might find or imagine themselves is an important
element of the creative and merchandising strategy for the J. Jill concept.

25
<PAGE>

The Company acquired the J. Jill concept in 1987. Since January 1996 J. Jill
has undergone a repositioning of its merchandising, marketing and creative
strategies which has resulted in substantial sales and profit growth. During
the six months ended June 28, 1997, J. Jill net sales accounted for
approximately 42% of the Company's total net sales, up from approximately 24%
for the comparable period of the prior year. The Company believes that this
growth is being driven by the emerging market for more casual apparel,
particularly for the workplace, and the need active, working women have for
comfortable, versatile clothing. The Company also believes that this market
has not been well served by other direct marketers or retailers.

Nicole Summers. The Nicole Summers concept is characterized by its edited
assortment of updated classic apparel. Its target customers are affluent women
age 45 and older who have an active but formal lifestyle and, most
importantly, are younger in their outlook than their peers in previous
generations. The median household income of repeat Nicole Summers customers
who participated in a recent Company survey was approximately $70,000. Nicole
Summers catalogs feature an assortment of suits and sportswear from well
respected resources such as Ruth Norman, Castleberry Knits, Adrianna Papell,
Adrienne Vittadini, Bleyle and Leo Narducci, complemented by private label
merchandise designed expressly for more mature women. The creative approach
for the Nicole Summers concept includes the use of editorial lifestyle
photography and cover pages with distinctive artwork.

The Company acquired the Nicole Summers concept in 1988. In March 1996 the
Company began the process of merging its The Very Thing! concept, also
acquired in 1988, into the Nicole Summers concept as part of a strategic
repositioning of its catalogs. Since January 1996, the merchandise assortment
and creative presentation in the Nicole Summers catalogs have been updated in
a continuing effort to align the concept with the changing tastes and evolving
lifestyle needs of its target customer group. The Company believes that the
"modern 50 year old" customer is not well served by the direct marketers and
department stores that have traditionally served older women and that the
design and creative presentation of the Nicole Summers catalogs differentiate
the concept in its target market. Management believes that the updating of the
Nicole Summers catalogs since the beginning of 1996 has contributed
significantly to the concept's improved growth and profitability.

CREATIVE PRESENTATION AND CATALOG PRODUCTION

The Company's catalogs are its primary vehicles for communicating with its
customers. The creative presentation of each catalog is a crucial factor in
attracting customer attention, stimulating purchases, projecting
differentiation in the marketplace and building brand identity.

The objective of the Company's creative approach for each of its catalogs is
to present merchandise in a vibrant, easy-to-read format with a visual style
appropriate for the sophistication of the merchandise and the expectations of
the target customers. Management believes that the use of distinctive catalog
design techniques such as editorial lifestyle photography and thematic
merchandise spreads highlighting particular colors or fabrics helps to create
the signature style of its catalog concepts and establish their position as
fashion authorities for their target customers. The Company's catalogs
showcase merchandise in settings in which their customers might find or
imagine themselves, in order to heighten the customers' identification with
the concept and affinity for its merchandise offerings. The Company's catalogs
are also designed to enhance customer convenience through easy-to-read
layouts, coordinated merchandise placement and the Company's "total look"
wardrobing approach. Management believes that the Company's strategy of
presenting merchandise in real life settings also helps to differentiate it
from store-front retailers.

The Company devotes substantial resources to the design and production of
each edition of its catalogs. After an initial conceptualization meeting, the
creative and merchandising teams work closely together on catalog design,
merchandise selection and presentation and catalog print production. The
materials and direction necessary to produce each catalog are then delivered
to the Company's production team approximately eight weeks before the initial
mailing date of the catalog. The production team creates the electronic files
used to print the catalog and plans and manages the printing and catalog
distribution processes. The production team ensures

26
<PAGE>

that photographs appearing in the Company's catalogs accurately depict
merchandise characteristics such as color and texture. Catalog production
takes place in-house using desktop publishing systems. As a result, the
Company can adjust catalog layout until approximately two weeks before the
planned initial mailing date, allowing the Company to react to current market
and sales trends by adjusting content and presentation of catalogs while they
are in production. All of the Company's catalogs are printed commercially
under the Company's supervision.

MARKETING AND CUSTOMER DATABASE MANAGEMENT

The Company's marketing and customer database management strategy is
designed to attract new customers and generate additional sales from existing
customers. In the Company's experience, concentrating mailings on existing
customers generally results in higher response rates and more profitable
operations than mailings to prospective customers. However, prospecting for
new customers is necessary to support future growth. In developing a
circulation strategy for each catalog, the Company seeks to strike a balance
between these two objectives.

At June 28, 1997, the Company's customer database contained approximately
2.2 million individual customer names, including approximately 724,000
individuals who had made a purchase within the previous 24 months. The Company
estimates that approximately two-thirds of these active customers have made
multiple purchases from the Company. DM Management stores detailed information
on each of its customers, including demographic data and purchase history. The
database is updated on a weekly basis. To determine which of its customers
will receive a particular catalog mailing, the Company analyzes this
information using sophisticated statistical modeling techniques. The Company's
customer database is maintained off-site by a service bureau which sorts and
processes the information in accordance with instructions from the Company.
The Company's agreement with the service bureau requires the service bureau to
safeguard the confidentiality of the Company's database. Additionally, the
Company uses customer research techniques such as focus groups and
quantitative surveys to assess customer perceptions of its catalog concepts
and their competitors, in order to help set distinctive marketing,
merchandising and creative strategies appropriate for each catalog concept.

The Company acquires lists of prospective customers by rental or exchange
and from a database cooperative and other sources. The Company also
occasionally purchases lists of prospective customers. The most productive
prospects tend to come from the customer lists of other women's apparel
catalogs, including direct competitors. The Company rents its list of
customers to and exchanges it with others, including direct competitors. To
determine which prospective customers will receive a particular catalog
mailing, the Company analyzes available information concerning such prospects
using the same types of sophisticated statistical modeling techniques used to
target mailings to the Company's own customers.

As part of its customer retention program and brand building strategy, DM
Management introduced its own private label credit card in September 1995. The
Company believes that this credit card reinforces the Company's relationship
with existing customers and promotes additional purchases by these customers.
During the first half of 1997, approximately 9% of net sales were attributable
to purchases made using the Company's private label credit card. At June 28,
1997 there were approximately 54,000 holders of the Company's private label
credit card. The credit card program is currently administered by SPS Payment
Systems, Inc., a fee-based outside vendor who bears the credit risk associated
with the credit card without recourse to the Company.

MERCHANDISING

The Company provides an edited assortment of high quality merchandise
designed to meet the tastes and serve the lifestyle needs of its target
customers. Each of the Company's catalog concepts has its own merchandise
selection staff. In addition to apparel, which accounted for approximately 90%
of gross sales in the spring 1997 season, the Company's catalogs also offer a
selection of seasonal items, gifts and other products selected with the
specific lifestyle profiles of J. Jill and Nicole Summers target customers in
mind.

27
<PAGE>

The Company's catalogs offer both brand name and private label merchandise.
In the spring 1997 season, approximately three-quarters of the apparel styles
offered through J. Jill catalogs were private label, and this percentage is
expected to increase. During the same period, approximately one-third of the
apparel styles offered through Nicole Summers catalogs were private label. No
significant change is expected in the percentage of private label apparel
included in the Nicole Summers catalog concept. Private label merchandise is
manufactured to the Company's detailed specifications by foreign vendors,
primarily located in Hong Kong, Singapore and Israel, in addition to domestic
vendors. Brand name products are selected from the regular offerings of the
Company's vendors. See "Risk Factors--Risks Associated with Private Label
Merchandise Strategy," "--Risks Arising from Use of Foreign Suppliers" and "--
Dependence on Third Parties."

Both the J. Jill and Nicole Summers catalogs offer a wide assortment of
merchandise in petite and large sizes, in the same styles as their regular
sized offerings. In the spring 1997 season, extended size apparel offerings
accounted for 37% of total merchandise offerings.

DM Management's catalogs feature a "total look" wardrobing approach which
presents a coordinated selection of apparel and related items including
sportswear, dresses, suits, coats, swimwear, shoes and accessories intended to
outfit the customer from head to toe. Management believes that this approach
builds brand identity while increasing the Company's potential share of
household spending dollars.

INVENTORY MANAGEMENT AND PURCHASING

The Company's inventory management systems are designed to maintain
inventory levels that provide optimum in-stock positions and maximum inventory
turnover rates while minimizing the amount of unsold merchandise at the end of
each selling season. To achieve this goal, the Company seeks to schedule
merchandise deliveries and inventory amounts to conform to expected sales
levels.

The Company follows an interdepartmental approach to the inventory planning
process. Conceptual planning for each principal catalog edition begins
approximately nine months in advance of its initial mailing. Early in the
process the Company's inventory control, marketing, creative and merchandising
teams meet to present key strategies and opportunities for specific catalog
editions and merchandise items. The inventory control group then applies
inventory coverage models to plan opening inventory levels for each stock
keeping unit ("sku"), taking into account projected sales, the cost of being
out of stock and ease of reordering. Preliminary commitments with the
Company's private label merchandise vendors typically are made five to seven
months in advance of each principal catalog edition's initial mailing date. To
the extent feasible, the Company seeks to retain flexibility in these
commitments in order to be able to react to market and sales trends. Initial
merchandise commitments for branded merchandise typically are made three to
five months before the edition's initial mailing date. Initial deliveries
generally are scheduled to be received one to three weeks before the edition's
initial mailing date.

The inventory control group utilizes a forecasting system which analyzes
sales and returns by sku throughout the selling season to permit purchasing
adjustments based on forecasted sales and returns. The Company attempts to
minimize overstocks through a variety of promotional efforts, including
telemarketing to customers at the time they place orders for other merchandise
and circulation of seasonal clearance catalogs. The Company also sells excess
inventory through its three outlet stores and to "jobbers." The Company's
outlet stores are run solely for the purpose of liquidating overstocks.

The Company sells both domestically produced and imported merchandise, which
it purchases in the open market. During the six months ended June 28, 1997,
the Company purchased merchandise from approximately 400 vendors, no one of
which supplied goods which represented more than 10% of the Company's
inventory purchases during that period. During the six months ended June 28,
1997, the Company purchased approximately 8% of its merchandise directly from
foreign vendors, and the Company expects that it will continue to purchase
merchandise from foreign suppliers in the future. In addition, goods purchased
by the Company from domestic vendors may be sourced abroad by such vendors.
The Company seeks to establish long-term relationships with its merchandise
vendors and works closely with them to ensure high standards of merchandise
quality. The Company does not have any long-term contracts with any of its
vendors.

28
<PAGE>

CUSTOMER SERVICE AND OPERATIONS

DM Management believes that an emphasis on superior customer service is
important to its ability to expand its customer base and build customer
loyalty. At June 28, 1997, the Company employed approximately 120
telemarketing representatives. Customer orders are taken 24 hours a day, 365
days a year, primarily by the Company's telemarketing representatives at its
operations center in Meredith, New Hampshire. The Company also accepts orders
by mail or facsimile. All orders are input directly into the Company's on-line
data processing system, which provides, among other things, customer
historical information, merchandise availability, product specifications,
available substitutes and accessories and expected shipment date. The Company
trains its telemarketing representatives to be knowledgeable in merchandise
specifications and features. These representatives have ready access to
samples of the current season's merchandise assortment, which enables them to
answer detailed merchandise inquiries from customers on-line.

DM Management offers an unconditional merchandise guarantee. If a customer
is not completely satisfied with any item for any reason, the customer may
return it for an exchange or a full refund. To simplify the return process,
the Company includes a self-addressed return label with every shipment, which
customers can use to return any item to the Company through the United States
Postal Service without paying postage fees in advance. Management believes
that the Company's return rates are consistent with industry standards for
comparable merchandise. Returns experience is closely monitored to identify
any product quality or fit issues. Returned merchandise is inspected carefully
and, unless damaged, is cleaned, pressed and returned to inventory.
Approximately 95% of returned merchandise is recycled into inventory.

FULFILLMENT

DM Management believes that the prompt delivery of merchandise promotes
customer loyalty and repeat buying. To achieve this goal, the Company uses an
integrated 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 fulfillment center. Currently all merchandise is shipped from
the Company's facilities in New Hampshire. The Company's customers normally
receive their orders within three to five business days after shipping,
although customers may request overnight delivery for an extra charge.

The Company's approximately 93,000 square foot facility in Meredith, New
Hampshire houses its primary fulfillment operation. The Company is approaching
this facility's fulfillment capacity. The Company's recent rapid growth has
accelerated the need to increase its fulfillment capacity. In September 1997
the Company purchased approximately 360 acres of land in Tilton, New
Hampshire. The site is intended to house an approximately 400,000 square foot
state-of-the-art facility, of which approximately 370,000 square feet will be
devoted to fulfillment operations. The facility is expected to be operational
by early 1999.

The Company has developed and begun to implement a plan to increase its
fulfillment capacity while it is awaiting the completion of its planned new
fulfillment center in Tilton. The Company has moved return processing,
disbursement to outlet stores and storage of less active merchandise to
approximately 38,000 square feet of leased space in Laconia, New Hampshire.
The Company has also leased an additional approximately 113,000 square feet of
space in Laconia and plans to begin operating an interim fulfillment center in
this space starting in December 1997. Nicole Summers orders will be picked and
processed in the interim fulfillment center in Laconia and J. Jill orders will
continue to be picked and processed in the Meredith facility. The Company
plans to cease using the interim facilities in Laconia after the new
fulfillment center in Tilton is operational.

The Company has been working with outside consultants to develop plans for
the Tilton fulfillment center and to manage the process of setting up and
moving to the interim fulfillment center in Laconia and then the new Tilton
facility while maintaining high levels of customer service. The Company
anticipates that the fees for these consulting and related services will total
approximately $1.7 million. This amount is included in the total estimated
cost of the Tilton fulfillment center. The Company anticipates that it will
experience some operating

29
<PAGE>

inefficiencies and incur additional expenses as a result of commencing
operations at the interim fulfillment center in Laconia and concurrently
operating multiple fulfillment centers. In addition, upon completion of the
new Tilton fulfillment center, the Company expects to incur additional costs
relating to the commencement of operations at the Tilton facility, the
termination of operations at the temporary Laconia sites and the continued
operation of the Company's facility in Meredith.

INFORMATION SYSTEMS AND TECHNOLOGY

The Company is committed to making ongoing investments in its information
systems to increase operating efficiency, provide superior customer service
and support its anticipated growth. The Company believes that the ability to
capture and analyze operational and financial data and relevant information
about its customers and their purchasing history is critical to its success.

The Company has made, and continues to make, significant investments in
systems to support order taking and customer service, fulfillment, marketing,
merchandising, inventory control, financial control and reporting and
forecasting. DM Management plans to implement a new automated warehouse
management system which will more efficiently support current warehouse
processes and provide additional flexibility to support the Company's growth
plans. The Company has also recently acquired a new order management system
which will provide significant processing enhancements to the Company's
current system. The Company expects to be utilizing these new systems by the
second half of 1998.

In addition to its in-house data processing and information systems
resources, the Company also uses several outside vendors for key services such
as list processing and credit card administration and approval.

COMPETITION

The market for the Company's merchandise is highly competitive. The Company
competes with other direct marketers, specialty apparel and accessory
retailers and traditional department store retailers. There are few barriers
to entry in the women's specialty apparel and accessory market. Moreover, the
Company believes that its recent success, as well as the sales growth in the
direct marketing industry, has or will encourage many new competitors. In
particular, the Company believes that its J. Jill catalog concept serves an
emerging market niche in which competition is limited currently but is likely
to increase in the future. Many of the Company's competitors are larger and
have substantially greater financial, marketing and other resources than the
Company. DM Management believes that it competes principally on the basis of
its "total look" wardrobing approach, extended size offerings, creatively
distinctive catalogs and superior customer service.

EMPLOYEES

As of September 1, 1997, the Company employed 484 individuals, of whom 407
were full-time (those employees scheduled to work 30 hours or more per week).
None of the Company's employees is represented by a union. The Company
considers its employee relations to be good.

TRADEMARKS AND SERVICE MARKS

The Company has registered the names of its principal catalogs, J. Jill Ltd.
and Nicole Summers, as trademarks and service marks with the United States
Patent and Trademark Office.

GOVERNMENT REGULATION

The catalog sales business conducted by the Company is subject to the Mail
or Telephone Order Merchandise Rule and related regulations promulgated by the
Federal Trade Commission, which prohibit unfair methods of competition and
unfair or deceptive acts or practices in connection with mail and telephone
order sales and require sellers of mail and telephone order merchandise to
conform to certain rules of conduct with respect to shipping dates and
shipping delays. The Company believes it is in compliance with the Rule and
such regulations.

30
<PAGE>

The Company currently collects sales taxes only on sales to its
Massachusetts customers. Many states have attempted to require that out-of-
state direct marketers collect use taxes on sales of products shipped to their
residents. In 1992, the United States Supreme Court held unconstitutional a
state's imposition of use tax collection obligations on an out-of-state mail
order company whose only significant contacts with the state were the
distribution of catalogs and other advertising materials through the mail and
subsequent delivery of purchased goods by mail or common carriers, but stated
that Congress could enact legislation authorizing the states to impose such
obligations. In 1995, however, the United States Supreme Court let stand a
decision of New York's highest state court requiring an out-of-state catalog
company to collect use tax (including a retroactive assessment and penalties)
on its mail order sales in the state, where the catalog company's reported
contact with New York included a limited number of visits by sales force
employees. If Congress enacts legislation permitting states to impose use tax
collection obligations on out-of-state mail order businesses, or if the
Company otherwise is required to collect additional sales or use taxes, such
tax collection obligations would make it more expensive to purchase the
Company's products and increase the Company's administrative costs, and
therefore could have a material adverse effect on the Company's financial
condition and results of operations.

FACILITIES

The following table sets forth certain information relating to the Company's
facilities:

<TABLE>
<CAPTION>
SQUARE TYPE OF LEASE
LOCATION FOOTAGE FUNCTION INTEREST TERMINATION
- ------------------------ ------- --------------------------------- -------- -----------
<S> <C> <C> <C> <C>
Meredith, NH (approx. 25
acres)................. 93,120 Operations and Fulfillment Center Owned --
Laconia, NH............. 112,900 Interim Fulfillment Center Leased 09/14/99
Laconia, NH............. 37,800 Interim Returns Processing and Leased 04/01/99
Storage Facility
Hingham, MA............. 19,642 Corporate Offices Leased 03/31/00
Bedford, MA............. 5,255 Outlet Store Leased 04/30/00
Meredith, NH............ 3,600 Outlet Store Leased 07/01/99
North Conway, NH........ 2,567 Outlet Store Leased 02/28/02
</TABLE>

In September 1997 the Company purchased approximately 360 acres of land in
Tilton, New Hampshire. The site is intended to house a new fulfillment center
expected to be operational by early 1999. The estimated cost of this new
facility, including land, construction and equipment, ranges from $33.0 to
$37.0 million. See "--Fulfillment."

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings of a material nature.

31
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning each director
and executive officer of the Company as of September 1, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gordon R. Cooke......... 52 President and Chief Executive Officer; Chairman of
the Board of Directors
Samuel L. Shanaman...... 56 Executive Vice President and Chief Operating
Officer; Director
David E. Brown.......... 48 Vice President--Creative Director
Olga L. Conley.......... 39 Vice President--Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
John J. Hayes........... 42 Executive Vice President of Marketing
Patricia C. Lee......... 33 Vice President--J. Jill
Carol A. Maher.......... 56 Vice President of Human Resources
Stephanie B. Noble...... 42 Senior Vice President--Nicole Summers
Patricia C. Selander.... 40 Vice President of Inventory Management
William E. Engbers (1)
(2).................... 54 Director
Walter J. Levison (1)
(2).................... 79 Director
Thomas J. Litle (2)..... 57 Director
Ruth M. Owades (1)...... 48 Director
</TABLE>
- --------
(1)Member of Compensation Committee.
(2) Member of Audit Committee.

Mr. Cooke has been President and Chief Executive Officer of the Company and
a director since joining the Company in December 1995 and Chairman of the
Board of Directors since August 1997. Mr. Cooke served as President of Time-
Warner Interactive Merchandising, an interactive marketing division of Time
Warner Inc., from November 1993 until December 1995, and as President of
Bloomingdale's By Mail, a division of Federated Department Stores, Inc., from
April 1991 until October 1993. Mr. Cooke is also a director of Geerlings &
Wade, Inc.

Mr. Shanaman has been Executive Vice President and Chief Operating Officer
of the Company since December 1995 and a director since July 1990. He served
as Chief Financial Officer of the Company from June 1990 until August 1997.
Mr. Shanaman also served as President and Chief Executive Officer of the
Company from June 1994 until December 1995 and as Vice President--Finance of
the Company from June 1990 until June 1994.

Mr. Brown joined the Company in March 1997 as Vice President--Creative
Director. From April 1996 to March 1997, Mr. Brown was a freelance art
director for Farrar & Farrar, a retail advertising agency. From September 1992
until April 1996 he was employed by Structure, a men's apparel division of The
Limited, Inc., first as Art Director and later as Creative Director. From
September 1990 until September 1992 he was employed by Hanover Direct, Inc., a
direct marketing company, first as Vice President, Advertising and later as
Vice President, Creative Director, Home Group.

Ms. Conley has been Chief Financial Officer since August 1997, Vice
President--Finance since June 1996 and Treasurer since August 1993. She joined
the Company in October 1991 as Director of Financial Services, a position she
held until August 1993.

Mr. Hayes has served as Executive Vice President of Marketing since joining
the Company in May 1996. From September 1990 until May 1996, Mr. Hayes served
as Vice President, Marketing and Catalog Production, of Bloomingdale's By
Mail, a division of Federated Department Stores, Inc.

32
<PAGE>

Ms. Lee has been Vice President--J. Jill since December 1996. She joined the
Company in December 1991 as a buyer, and served as Director of Merchandising
from November 1994 until December 1996.

Ms. Maher has been Vice President of Human Resources since June 1996. She
joined the Company in December 1992 and served as Director of Human Resources
until June 1996. From January 1987 until December 1992 she was Director of
Human Resources for Child World, Inc., a subsidiary of Cole National
Corporation.

Ms. Noble has been Senior Vice President--Nicole Summers since December
1996. She joined the Company in April 1988 as Director of Merchandising and
served as Vice President of Merchandising from April 1989 until December 1996.

Ms. Selander joined the Company in January 1993 as Director of Inventory
Control and became Vice President of Inventory Management in October 1995.
From September 1977 to January 1993, Ms. Selander was employed by The Talbots,
Inc., an apparel retailer, where she held several positions, including Retail
Planner, Sportswear Division and Manager of Catalog Merchandise Systems.

Mr. Engbers has been a director of the Company since July 1990. Mr. Engbers
currently serves as Director, Venture Capital of Allstate Insurance Company,
which he joined in June 1989. He is also a director of Applied Biometrics,
Inc. and La Jolla Pharmaceutical Company.

Mr. Levison has been a director of the Company since March 1992. Since
October 1982, Mr. Levison has been a general partner of the Aegis Venture
Funds, a group of venture capital funds based in the Boston, Massachusetts
area. He is also a director of Davox Corporation.

Mr. Litle has been a director of the Company since May 1997. Since 1995, Mr.
Litle has been the Chairman of LitleNet LLC, a company which he founded and
which provides direct commerce connection and information sharing services to
the direct marketing industry. From 1985 to 1995, he was Chairman and Chief
Executive Officer of Litle & Company, which provided information sharing,
payment processing and electronic network services for the direct marketing
industry. Mr. Litle is also a director of SkyMall, Inc. and the Direct
Marketing Association.

Ms. Owades has been a director of the Company since May 1997. Since 1988,
Ms. Owades has been President and Chief Executive Officer of Calyx & Corolla,
Inc., a catalog business which she founded and which offers consumers fresh-
cut flowers and plants.

The Company's Certificate of Incorporation provides for the division of the
Company's Board of Directors into three classes, with members of each class
serving for staggered three-year terms. The terms of Mr. Levison and Ms.
Owades expire at the 1998 annual meeting of stockholders; the terms of Mr.
Cooke and Mr. Litle expire at the 1999 annual meeting; and the terms of Mr.
Engbers and Mr. Shanaman expire at the 2000 annual meeting.

The Company's executive officers are elected by the Board of Directors and
hold office until the first directors' meeting after the next annual meeting
of stockholders or special meeting in lieu thereof, and thereafter until their
successors are chosen and qualified, unless a shorter term is specified in the
vote electing them.

33
<PAGE>

EXECUTIVE STOCK OPTIONS

The following table sets forth certain information as of September 1, 1997
concerning all stock options held by the Company's Chief Executive Officer and
other five most highly compensated executive officers.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS
-------------------------
EXERCISE
DATE OF PRICE PER
NAME AND PRINCIPAL POSITION GRANT SHARE EXERCISABLE UNEXERCISABLE
- --------------------------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Gordon R. Cooke.................. 12/26/95 $ 2.25 41,666 58,334
President and Chief Executive Of-
ficer 01/02/96 $ 2.06 31,250 43,750
01/02/97 $ 3.63 -- 100,000
John J. Hayes.................... 05/16/96 $ 4.25 17,500 52,500
Executive Vice President of Mar-
keting 06/25/97 $10.50 -- 35,000
Samuel L. Shanaman............... 03/12/93 $ 1.67 61,356 --
Executive Vice President and 08/16/94 $15.00 15,000 10,000
Chief Operating Officer
02/15/96 $ 2.25 9,000 21,000
Stephanie B. Noble............... 03/12/93 $ 1.67 24,543 --
Senior Vice President--Nicole
Summers 02/15/96 $ 2.25 9,000 21,000
Olga L. Conley................... 03/12/93 $ 1.67 12,000 --
Vice President--Finance, Chief 06/06/96 $ 5.00 4,200 13,800
Financial Officer
and Treasurer 11/29/96 $ 3.25 -- 20,000
06/25/97 $10.50 -- 25,000
Patricia C. Lee.................. 03/29/95 $ 2.75 -- 4,050
Vice President--J. Jill 09/27/96 $ 3.13 -- 11,000
11/29/96 $ 3.25 -- 15,000
06/25/97 $10.50 -- 40,000
</TABLE>

34
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 1, 1997 by
(i) each person known by the Company to own beneficially more than five
percent of the Common Stock as of such date, (ii) the Selling Stockholders,
(iii) each director of the Company, (iv) each executive officer of the Company
and (v) all executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED SHARES TO BE
PRIOR TO OFFERING BENEFICIALLY OWNED
(1) NUMBER OF AFTER OFFERING (1)
--------------------- SHARES BEING ---------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Allstate Insurance Com-
pany and affiliates
(2)................... 1,752,404 37.5% 1,752,404 -- *
3075 Sanders Road,
Suite G5D
Northbrook, IL 60062
Westcliff Capital Man-
agement, LLC and af-
filiates (3).......... 250,200 5.4% -- 250,200 4.4%
200 Seventh Avenue,
Suite 105
Santa Cruz, CA 95062
Samuel L. Shanaman (4). 185,501 3.9% -- 185,501 3.2%
Gordon R. Cooke (5).... 80,608 1.7% -- 80,608 1.4%
Walter J. Levison (6).. 63,204 1.3% -- 63,204 1.1%
Stephanie B. Noble (7). 44,459 * -- 44,459 *
William E. Engbers (8). 41,100 * -- 41,100 *
John J. Hayes (9)...... 28,533 * -- 28,533 *
Patricia Selander (10). 19,000 * -- 19,000 *
Olga L. Conley (11).... 17,968 * -- 17,968 *
Carol A. Maher (12).... 10,933 * -- 10,933 *
Patricia C. Lee (13)... 9,585 * -- 9,585 *
Thomas J. Litle (14)... 8,000 * -- 8,000 *
Ruth M. Owades (15).... 8,000 * -- 8,000 *
David E. Brown......... -- * -- -- *
All directors and exec-
utive officers as
group
(13 persons) (16)..... 516,891 10.3% -- 516,891 8.6%
</TABLE>
- --------
* Percentage of shares beneficially owned is less than 1.0%.
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an aggregate of 412,861 shares of Common Stock from the Company. The
number of shares of Common Stock deemed outstanding prior to this offering
consists of 4,672,786 shares outstanding as of September 1, 1997 . The
number of shares of Common Stock deemed outstanding after this offering
includes an additional 1,000,000 shares of Common Stock being offered for
sale by the Company in this offering. Unless otherwise noted, each person
or group identified possesses sole voting and investment power with
respect to the shares listed, subject to community property laws where
applicable. Shares not outstanding but deemed beneficially owned by virtue
of the right of a person or group to acquire them within 60 days after
September 1, 1997 are treated as outstanding only for purposes of
determining the number and percentage of shares owned by such person or
group.
(2) Represents 1,744,920 shares held by Allstate Insurance Company
("Allstate"), 3,742 shares held by CTC Illinois Trust Company ("CTC") as
trustee for Allstate Retirement Plan and 3,742 shares held by CTC as
trustee for Agents Pension Plan. Allstate has sole voting and investment
power with respect to the shares held by CTC.
(3) The Company has received a copy of a report on Schedule 13D, with a
signature dated June 3, 1997, filed by Westcliff Capital Management, LLC
("WCM"), Westcliff, LLC ("WL"), Westcliff Partners, L.P. ("WP"), Westcliff
Long/Short, L.P. ("WLS"), Richard S. Spencer III ("Spencer") and David R.
Korus ("Korus"). The report stated that WCM is the investment advisor to
and a general partner of WP and WLS,

35
<PAGE>

which are investment limited partnerships, that WL is a general partner of
WP and WLS and that Spencer and Korus are the sole managers of WCM and WL.
The report also stated that on June 3, 1997, WCM, Spencer and Korus each
held shared voting and dispositive power with respect to the shares listed
in this table, and that WP, WLS and WL held shared voting and dispositive
power with respect to 54,300, 52,500 and 106,800 of the shares listed in
this table, respectively.
(4) Includes 87,189 shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997. Also includes 2,000
shares held in trust for Mr. Shanaman's wife. Mr. Shanaman disclaims
beneficial ownership of the shares held in trust for his wife.
(5) Represents 80,208 shares issuable upon exercise of outstanding stock
options exercisable within 60 days after September 1, 1997 and 400 shares
held by Mr. Cooke's daughters.
(6) Includes 41,000 shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(7) Includes 34,543 shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(8) Represents 41,000 shares issuable upon exercise of outstanding stock
options held by Mr. Engbers exercisable within 60 days after September 1,
1997 and 100 shares held by Mr. Engbers' wife. Mr. Engbers disclaims
beneficial ownership of the shares held by his wife. Does not include
1,752,404 shares held by Allstate and CTC prior to this offering. Mr.
Engbers, a director of the Company, is Director, Venture Capital of
Allstate. Mr. Engbers disclaims beneficial ownership of the shares held by
Allstate and CTC.
(9) Includes 19,833 shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(10) Represents shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(11) Includes 16,800 shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(12) Represents shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(13) Includes 2,683 shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(14) Represents shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(15) Represents shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 1, 1997.
(16) Includes the shares described in notes 4 through 15.

36
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, $0.01 par value per share, and 1,000,000 shares of undesignated
Special Preferred Stock, $0.01 par value per share ("Special Preferred
Stock"). As of September 1, 1997, 4,672,786 shares of Common Stock were issued
and outstanding and no shares of Special Preferred Stock were issued or
outstanding.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to the holders of outstanding shares of
Special Preferred Stock, if any, the holders of Common Stock are entitled to
receive such lawful dividends as may be declared by the Board of Directors. In
the event of a liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, and subject to the rights of the
holders of outstanding shares of Special Preferred Stock, if any, the holders
of shares of Common Stock shall be entitled to receive pro rata all of the
remaining assets of the Company available for distribution to its
stockholders. The Common Stock has no preemptive, redemption, conversion or
subscription rights. All outstanding shares of Common Stock are fully paid and
non-assessable, and the shares of Common Stock to be issued pursuant to this
offering will be fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors is authorized, subject to any limitations prescribed
by Delaware law, to provide for the issuance of Special Preferred Stock in one
or more series, to establish from time to time the number of shares to be
included in each such series, to fix the voting powers, designations,
preferences and relative, participating, optional or other rights, or the
qualifications, limitations or restrictions thereof, and to increase (but not
above the total number of authorized shares of the class) or decrease the
number of shares of any such series (but not below the number of shares of
such series then outstanding) without further vote or action by the
stockholders. The Board of Directors is authorized to issue Special Preferred
Stock with voting, conversion and other rights and preferences that could
adversely affect the voting power or other rights of the holders of Common
Stock. Although the Company has no current plans to issue such shares, the
issuance of Special Preferred Stock or of rights to purchase Special Preferred
Stock could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, a
majority of the outstanding voting stock of the Company.

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-
LAWS AND OF DELAWARE LAW

Certificate of Incorporation and By-Laws

The Company's Certificate of Incorporation and By-Laws contain certain
provisions that could discourage potential takeover attempts and make more
difficult attempts by stockholders to change the Company's management. The
Certificate of Incorporation divides the Board of Directors of the Company
into three classes, with the directors in each class serving for staggered
three-year terms. The Company's Certificate of Incorporation and By-Laws
provide that stockholders may act only at meetings of stockholders and not by
written consent in lieu of a stockholders' meeting. The Company's By-Laws
provide that nominations for directors may not be made by stockholders at any
annual or special meeting thereof unless the stockholder intending to make a
nomination notifies the Company of its intentions a specified number of days
in advance of the meeting and furnishes to the Company certain information
regarding itself and the intended nominee. The Company's Certificate of
Incorporation and By-Laws also provide that special meetings of the Company's
stockholders may be called only by the Chairman of the Board of Directors, the
President or the Chief Operating Officer and shall be called by the President
or Secretary at the request in writing of a majority of the Board of
Directors. The Company's By-Laws also require advance notice of business to be
brought by a stockholder before any annual or special meeting of stockholders
and the provision of certain information to the Company regarding such
stockholder and others known to be supporting such proposal and any material
interest they may have in the proposed business.

37
<PAGE>

Delaware Anti-Takeover Statute

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the time that such
stockholder became an interested stockholder, unless: (i) prior to such time,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers of the corporation and (y) by employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least two-thirds of the outstanding voting stock which
is not owned by the interested stockholder.

Section 203 defines "business combination" to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition to or with the interested
stockholder of 10% or more of the assets of the corporation; (iii) subject to
certain exceptions, any transaction which results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) any receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an "interested
stockholder" as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
associated with, affiliated with or controlling or controlled by such entity
or person. For such purpose, a person or entity is not deemed to beneficially
own stock merely because such person or entity has a right to vote such stock
which arises solely from a revocable proxy or consent given in response to a
proxy or consent solicitation made to ten or more persons or entities.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation provides that to the maximum
extent permitted by the Delaware General Corporation Law, no director of the
Company shall be personally liable to the Company or to any of its
stockholders for monetary damages arising out of such director's breach of
fiduciary duty as a director of the Company. The Delaware General Corporation
Law, as currently in effect, permits charter provisions eliminating the
liability of directors of a corporation to the corporation or its stockholders
for monetary damages for breach of fiduciary duty, except that directors
remain liable for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
payment of a dividend or approval of a stock purchase or redemption that is
unlawful under Section 174 of the Delaware General Corporation Law or (iv) any
transaction from which the director derived an improper personal benefit. A
principal effect of this provision of the Company's Certificate of
Incorporation is to limit or eliminate the potential liability of the
Company's directors for monetary damages arising from breaches of their duty
of care, unless the breach involves one of the four exceptions described in
(i) through (iv) above. The provision does not prevent stockholders from
obtaining injunctive or other equitable relief against directors, nor does it
shield directors from liability under federal or state securities laws.

The Company's Certificate of Incorporation and By-Laws further provide for
the indemnification of the Company's directors and officers to the full extent
permitted by the Delaware General Corporation Law.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is State
Street Bank and Trust Company, Boston, Massachusetts.

38
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions of the Underwriting Agreement
(a copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part), the Underwriters named below (the "Underwriters"),
through their Representatives, Wessels, Arnold & Henderson, L.L.C. and
NationsBanc Montgomery Securities, Inc. (the "Representatives"), have
severally agreed to purchase 2,752,404 shares of Common Stock from the Company
and the Selling Stockholders in the amounts set forth opposite their
respective names below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Wessels, Arnold & Henderson, L.L.C................................... 1,083,702
NationsBanc Montgomery Securities, Inc. ............................. 1,083,702
BancAmerica Robertson Stephens....................................... 165,000
Gerard Klauer Mattison & Co., Inc.................................... 105,000
McDonald & Company Securities, Inc................................... 105,000
Needham & Company, Inc............................................... 105,000
Tucker Anthony Incorporated.......................................... 105,000
---------
Total.............................................................. 2,752,404
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock being offered hereby
if any of such shares are purchased.

The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the shares of Common Stock to
the public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to related dealers a concession of not more than $0.445
per share, and the Underwriters may allow, and such dealers may re-allow, a
concession of not more than $0.10 per share to certain other dealers. After
the public offering, the offering price and other selling terms may be changed
by the Representatives. The Common Stock offered hereby is subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 412,861 additional shares of Common Stock to cover over-
allotments, if any, at the public offering price, less the underwriting
discounts and commissions as set forth on the cover page of this Prospectus.
To the extent that the Underwriters exercise this option, the Underwriters
will be committed, subject to certain conditions, to purchase such additional
shares in approximately the same proportions as set forth in the above table.
The Underwriters may purchase such shares only to cover over-allotments made
in connection with this offering. If purchased, the Underwriters will offer
such additional shares on the same terms as those on which the 2,752,404
shares are being offered.

The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and the Underwriters will
indemnify the Company and the Selling Stockholders against certain
liabilities, including civil liabilities under the Securities Act, or the
Company and the Selling Stockholders or the Underwriters, as the case may be,
will contribute to payments the indemnified party may be required to make in
respect thereof.

The executive officers and directors of the Company and the Selling
Stockholders have agreed not to offer, sell or otherwise dispose of any of
their shares of Common Stock, or any other securities convertible into or
exchangeable for any shares of Common Stock, for a period of 90 days from the
date of this Prospectus without the prior written consent of the
Representatives. The Company has agreed not to issue, sell, offer to sell,
contract to sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities, or any other securities convertible into or
exchangeable for any shares of Common Stock, for a period of 90 days from the

39
<PAGE>

date of this Prospectus without the prior written consent of the
Representatives, except that the Company may, without such consent, grant
options under its stock option plans and stock purchase plan and issue Common
Stock under its stock purchase plan or upon the exercise of outstanding
options granted under its stock option plans.

In connection with this offering, the Underwriters and selling group members
(if any) or their respective affiliates may engage in passive market-making
transactions in the Common Stock on the Nasdaq National Market. Passive market
making consists of displaying bids on the Nasdaq National Market limited by
the highest independent bid for the security and effecting purchases limited
by such prices and in response to order flow. Net purchases by a passive
market maker on each day are generally limited in amount to 30% of the passive
market maker's average daily trading volume in Common Stock during a specified
prior period and passive market-making activities for such day must be
discontinued when such limit is reached. Passive market making may stabilize
the market price of Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.

In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilization, syndicate covering
transactions and imposition of penalty bids. In an over-allotment, the
Underwriters would allot more shares of Common Stock to their customers in the
aggregate than are available for purchase by the Underwriters under
the Underwriting Agreement. Stabilizing means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of a security. In a syndicate covering transaction, the Underwriters
would place a bid or effect a purchase to reduce a short position created in
connection with this offering. Pursuant to a penalty bid, Wessels, Arnold &
Henderson, L.L.C. on behalf of the Underwriters, would be able to reclaim a
selling concession from an Underwriter if shares of Common Stock originally
sold by such Underwriter are purchased in syndicate covering transactions.
These transactions may result in the price of the Common Stock being higher
than the price that might otherwise prevail in the open market. These
transactions may be effected on the Nasdaq National Market, in the over-the-
counter market or otherwise, and, if commenced, may be discontinued at any
time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Foley, Hoag & Eliot LLP,
Boston, Massachusetts. David R. Pierson, a partner of Foley, Hoag & Eliot LLP,
is Secretary of the Company. Certain legal matters will be passed upon for the
Underwriters by Hale and Dorr LLP, Boston, Massachusetts.

EXPERTS

The consolidated balance sheets of the Company as of June 24, 1995, June 29,
1996 and December 28, 1996 and the consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years ended June 25, 1994,
June 24, 1995 and June 29, 1996 and for the six months ended December 28, 1996
and the related financial statement schedules included or incorporated by
reference in this Prospectus and Registration Statement have been included or
incorporated by reference herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.

40
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company may
be inspected and copies may be obtained (at prescribed rates) at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Room 1024,
Washington D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, such
material may be inspected at the offices of the Nasdaq Operations, 1735 K
Street, N.W., Washington D.C. 20006. The Commission also maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, proxy
statements and other information filed by the Company and other registrants
that file electronically with the Commission.

Additional information regarding the Company and the shares offered hereby
is contained in the Registration Statement on Form S-2 and the exhibits
thereto (the "Registration Statement") filed with the Commission under the
Securities Act. This Prospectus, which constitutes a part of the Registration
Statement, omits certain of the information contained in the Registration
Statement and the exhibits thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. For
further information pertaining to the Company and the shares, reference is
made to the Registration Statement and the exhibits thereto, which may be
inspected and copies of which may be obtained as described in the preceding
paragraph. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference to the exhibit for a more complete
description of the matter involved.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference: (1) the
Company's Annual Report on Form 10-K for the fiscal year ended June 29, 1996;
(2) the Company's Quarterly Report on Form 10-Q for the quarter ended
September 28, 1996; (3) the Company's Transition Report on Form 10-K for the
transition period from June 30, 1996 to December 28, 1996; (4) the Company's
Current Report on Form 8-K dated January 14, 1997; (5) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 29, 1997; and (6) the
Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997.

The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request of
such person, a copy of any or all of the foregoing documents incorporated
herein by reference (exclusive of exhibits, unless such exhibits are
specifically incorporated by reference into such documents). Requests for such
documents should be submitted in writing to the Chief Financial Officer of the
Company, at the corporate headquarters of the Company at 25 Recreation Park
Drive, Hingham, Massachusetts 02043 or by telephone at (781) 740-2718.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Prospectus to the extent
that a statement contained herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Registration Statement or this
Prospectus.

41
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets at June 24, 1995, June 29, 1996, December 28,
1996 and June 28, 1997 (unaudited)....................................... F-3
Consolidated Statements of Operations for the three fiscal years ended
June 25, 1994, June 24, 1995 and June 29, 1996 and the six months ended
December 30, 1995 (unaudited), December 28, 1996, June 29, 1996
(unaudited) and June 28, 1997 (unaudited)................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the three
fiscal years ended June 25, 1994, June 24, 1995 and June 29, 1996 and
the six months ended December 28, 1996 and June 28, 1997 (unaudited)..... F-5
Consolidated Statements of Cash Flows for the three fiscal years ended
June 25, 1994, June 24, 1995 and June 29, 1996 and the six months ended
December 30, 1995 (unaudited), December 28, 1996, June 29, 1996
(unaudited) and June 28, 1997 (unaudited)................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
DM Management Company:

We have audited the accompanying consolidated balance sheets of DM
Management Company and subsidiary as of December 28, 1996, June 29, 1996 and
June 24, 1995, and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the six months ended December 28,
1996 and each of the three fiscal years in the period ended June 29, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DM
Management Company and subsidiary as of December 28, 1996, June 29, 1996 and
June 24, 1995 and the consolidated results of its operations and its cash
flows for the six months ended December 28, 1996 and each of the three fiscal
years in the period ended June 29, 1996, in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 4, 1997

F-2
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 24, 1995 JUNE 29, 1996 DEC. 28, 1996 JUNE 28, 1997
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents................. $ 231 $ 221 $ 384 $ 6,388
Marketable securities,
net of unrealized
loss.................. -- 3,858 3,879 3,872
Inventory.............. 10,244 10,866 12,637 11,279
Prepaid catalog ex-
penses................ 4,424 4,154 2,714 3,870
Deferred income taxes.. -- -- 2,670 2,748
Other current assets... 543 1,098 724 779
-------- -------- -------- --------
Total current assets.. 15,442 20,197 23,008 28,936
Marketable securities,
net of unrealized loss. 3,949 -- -- --
Property and equipment,
net.................... 6,986 6,872 7,173 7,033
Non-current assets of
discontinued opera-
tions.................. 5,235 -- -- --
Deferred income taxes... -- -- 7,928 7,026
-------- -------- -------- --------
Total assets.......... $ 31,612 $ 27,069 $ 38,109 $ 42,995
======== ======== ======== ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 5,927 $ 9,651 $ 8,143 $ 8,164
Accrued expenses....... 1,730 1,438 1,877 2,709
Accrued customer re-
turns................. 1,191 1,231 1,309 3,423
Current portion of
long-term debt........ 279 889 1,017 836
-------- -------- -------- --------
Total current liabili-
ties................. 9,127 13,209 12,346 15,132
Long-term debt, less
current portion........ 3,634 4,380 4,540 4,446
Commitments
Stockholders' equity:
Special preferred stock
(par value $0.01)
1,000,000 shares au-
thorized.............. -- -- -- --
Common stock (par value
$0.01) 15,000,000
shares
authorized, 4,261,058,
4,305,293, 4,456,908
and
4,661,254 shares is-
sued and outstanding
as of
June, 24, 1995, June
29, 1996, December 28,
1996
and June 28, 1997, re-
spectively............ 42 43 44 46
Additional paid-in cap-
ital.................. 39,827 39,890 40,048 40,501
Unrealized loss on mar-
ketable securities.... (51) (136) (115) (122)
Accumulated deficit.... (20,967) (30,317) (18,754) (17,008)
-------- -------- -------- --------
Total stockholders'
equity............... 18,851 9,480 21,223 23,417
-------- -------- -------- --------
Total liabilities and
stockholders' equity. $ 31,612 $ 27,069 $ 38,109 $ 42,995
======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3

<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of the consolidated financial
statements.

F-4

<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL LOSS ON TOTAL
PREFERRED COMMON PAID-IN MARKETABLE ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL SECURITIES DEFICIT EQUITY
--------- ------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 26,
1993................... $791 $ 1 $25,862 $ -- $(25,009) $ 1,645
Issuance of 1,470,000
shares of common stock. -- 15 11,239 -- -- 11,254
Preferred stock conver-
sion................... (791) 24 767 -- -- --
Exercise of warrants.... -- 2 1,748 -- -- 1,750
Exercise of stock op-
tions.................. -- -- 11 -- -- 11
Tax benefit from exer-
cise of stock options.. -- -- 23 -- -- 23
Stock granted under the
1993 Employee Stock
Bonus Plan............. -- -- 24 -- -- 24
Change in unrealized
losses, net of tax..... -- -- -- (115) -- (115)
Net income.............. -- -- -- -- 3,269 3,269
---- --- ------- ----- -------- -------
Balance at June 25,
1994................... -- 42 39,674 (115) (21,740) 17,861
Exercise of stock op-
tions.................. -- -- 55 -- -- 55
Tax benefit from exer-
cise of stock options.. -- -- 61 -- -- 61
Stock granted under the
Employee Stock Purchase
Plan................... -- -- 37 -- -- 37
Change in unrealized
losses, net of tax..... -- -- -- 64 -- 64
Net income.............. -- -- -- -- 773 773
---- --- ------- ----- -------- -------
Balance at June 24,
1995................... -- 42 39,827 (51) (20,967) 18,851
Exercise of stock op-
tions.................. -- -- 3 -- -- 3
Stock granted under the
Employee Stock Purchase
Plan................... -- -- 34 -- -- 34
Change in unrealized
losses, net of tax..... -- -- -- (1) -- (1)
Net loss................ -- -- -- -- (1,158) (1,158)
---- --- ------- ----- -------- -------
Balance at December 30,
1995 (unaudited)....... -- 42 39,864 (52) (22,125) 17,729
Exercise of stock op-
tions.................. -- 1 26 -- -- 27
Change in unrealized
losses, net of tax..... -- -- -- (84) -- (84)
Net loss................ -- -- -- -- (8,192) (8,192)
---- --- ------- ----- -------- -------
Balance at June 29,
1996................... -- 43 39,890 (136) (30,317) 9,480
Exercise of stock op-
tions.................. -- 1 145 -- -- 146
Tax benefit from exer-
cise of stock options.. -- -- 13 -- -- 13
Change in unrealized
losses, net of tax..... -- -- -- 21 -- 21
Net income.............. -- -- -- -- 11,563 11,563
---- --- ------- ----- -------- -------
Balance at December 28,
1996................... -- 44 40,048 (115) (18,754) 21,223
Exercise of stock op-
tions.................. -- 2 349 -- -- 351
Tax benefit from exer-
cise of stock options.. -- -- 46 -- -- 46
Stock granted under the
Employee Stock Purchase
Plan................... -- -- 58 -- -- 58
Change in unrealized
losses, net of tax..... -- -- -- (7) -- (7)
Net income.............. -- -- -- -- 1,746 1,746
---- --- ------- ----- -------- -------
Balance at June 28, 1997
(unaudited)............ $ -- $46 $40,501 $(122) $(17,008) $23,417
==== === ======= ===== ======== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
TRANSITION PERIOD
FISCAL YEAR ENDED ENDED SIX MONTHS ENDED
-------------------------------- ---------------------- -----------------------
JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1994 1995 1996 1995 1996 1996 1997
(52 WEEKS) (52 WEEKS) (53 WEEKS) (27 WEEKS) (26 WEEKS) (26 WEEKS) (26 WEEKS)
---------- ---------- ---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ 3,269 $ 773 $ (9,350) $ (1,158) $ 11,563 $ (8,192) $ 1,746
Adjustments to reconcile
net income (loss) to
net
cash provided by (used
in) operating
activities:
Depreciation and
amortization.......... 406 704 910 432 571 478 754
Deferred income taxes.. -- -- -- -- (10,598) -- 824
Liability for expected
losses................ -- -- 2,658 -- (2,427) 2,658 (152)
Write-off of intangible
assets................ -- -- 5,336 -- -- 5,336 --
Amortization related to
discontinued
operation............. -- 203 415 226 -- 189 --
Changes in assets and
liabilities:
(Increase) decrease in
inventory............. (4,072) (739) (622) 390 (1,771) (1,012) 1,358
(Increase) decrease in
prepaid catalog
expenses.............. (992) (1,436) 270 (1,242) 1,440 1,512 (1,156)
(Increase) decrease in
other current assets.. (233) 118 (557) (1,170) 182 612 70
Increase (decrease) in
accounts payable and
accrued expenses...... 1,979 (292) 3,432 279 (1,069) 3,153 853
Increase (decrease) in
accrued customer
returns............... 105 163 40 (326) 78 366 2,114
(Increase) decrease in
net current assets
(liabilities) of
discontinued
operations............ -- (926) (2,265) (1,491) 2,619 (773) 27
-------- -------- -------- -------- -------- -------- -------
Net cash provided by
(used in) operating
activities............. 462 (1,432) 267 (4,060) 588 4,327 6,438
Cash flows used in
investing activities:
Additions to property
and equipment......... (4,304) (2,656) (796) (118) (834) (678) (614)
Proceeds from sale of
marketable securities. -- 4,130 6 -- -- 6 --
Payments for purchase
of Carroll Reed....... -- (4,124) (907) -- -- (907) --
Investments in
marketable securities. (8,130) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Net cash used in
investing activities... (12,434) (2,650) (1,697) (118) (834) (1,579) (614)
Cash flows provided by
(used in) financing
activities:
Borrowings under debt
agreements............ 7,774 14,805 30,103 16,994 8,863 13,109 5,764
Payments of debt
borrowings............ (7,774) (11,244) (28,586) (12,668) (8,520) (15,918) (5,935)
Principal payments on
capital lease
obligations........... (213) (178) (161) (75) (93) (86) (104)
Proceeds from stock
transactions.......... 11 92 64 37 159 27 455
Issuance of common
stock and warrant
exercise.............. 13,004 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Net cash provided by
(used in) financing
activities............. 12,802 3,475 1,420 4,288 409 (2,868) 180
-------- -------- -------- -------- -------- -------- -------
Net increase (decrease)
in cash and cash
equivalents............ 830 (607) (10) 110 163 (120) 6,004
Cash and cash
equivalents at:
Beginning of period.... 8 838 231 231 221 341 384
-------- -------- -------- -------- -------- -------- -------
End of period.......... $ 838 $ 231 $ 221 $ 341 $ 384 $ 221 $ 6,388
======== ======== ======== ======== ======== ======== =======
SUPPLEMENTAL
INFORMATION:
Purchase of Carroll Reed
(Note B):
Purchase price......... $ -- $ 5,304 $ 907 $ -- $ -- $ 907 $ --
Accruals recorded,
including liabilities
assumed............... -- (1,180) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Cash paid for assets
and ancillary costs... $ -- $ 4,124 $ 907 $ -- $ -- $ 907 $ --
======== ======== ======== ======== ======== ======== =======
Non-cash financing
activities:
Increase in capital
lease obligations..... $ 34 $ 115 -- -- $ 38 -- --
Stock grant, net of
tax................... $ 24 -- -- -- -- -- --
Cash paid for interest.. $ 116 $ 298 $ 506 $ 214 $ 252 $ 292 $ 231
Cash paid for income
taxes, including
discontinued
operations............. $ 127 $ 175 $ 2 $ 2 -- -- $ 131
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS

DM Management Company and subsidiary (the "Company") is a specialty direct
marketer of high quality women's apparel, accessories, shoes and gifts. The
Company currently markets its products through two discrete catalog concepts,
J. Jill and Nicole Summers. During the six months ended December 28, 1996, the
Company combined its The Very Thing! concept into its Nicole Summers concept.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. Intercompany balances and transactions have
been eliminated.

FISCAL YEAR

The Company has changed its fiscal year end from the last Saturday in June
to the last Saturday in December. This resulted in a six-month reporting
period ended December 28, 1996 (a 26-week period). Financial information for
the six months ended December 30, 1995 (a 27-week period) has been presented
for comparative purposes and is unaudited. References to the transition
periods mean the six-month reporting period ended December 28, 1996 and the
comparable six-month period ended December 30, 1995. The twelve months ended
June 29, 1996 ("fiscal 1996") was a 53-week period. The twelve months ended
June 24, 1995 ("fiscal 1995") and June 25, 1994 ("fiscal 1994") were 52-week
periods.

INTERIM FINANCIAL INFORMATION

The accompanying consolidated financial statements as of and for the six
months ended June 28, 1997 (a 26-week period) and for the six months ended
June 29, 1996 (a 26-week period) are unaudited and, in the opinion of
management, reflect all adjustments that are necessary for a fair presentation
of the Company's financial position, results of operations and cash flows as
of such dates and for the periods then ended. All such adjustments are of a
normal and recurring nature. The results of operations for these interim
periods are not necessarily indicative of the results to be expected for the
full year.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
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.

REVENUE RECOGNITION

The Company recognizes sales and the related cost of sales at the time the
products are shipped to customers. The Company provides an allowance based on
projected merchandise returns.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist primarily of cash on deposit in banks and
may also include cash invested in money market mutual funds and overnight
repurchase agreements. The Company considers all highly liquid instruments
with maturity at time of purchase of three months or less to be cash
equivalents.

F-7

<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

MARKETABLE SECURITIES

The Company's marketable securities consist of investments in mutual funds
which are primarily invested in U.S. Treasury, U.S. government and corporate
bonds. The marketable securities are classified as available-for-sale and are
carried at fair market value in the accompanying consolidated balance sheets,
based on quoted market prices at each balance sheet date presented. Unrealized
holding losses, net of deferred tax benefits, are included as a separate
component of stockholders' equity and are as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 24, 1995 JUNE 29, 1996 DEC. 28, 1996 JUNE 28, 1997
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Unrealized loss......... $ 83 $221 $187 $198
Deferred tax benefit.... (32) (85) (72) (76)
---- ---- ---- ----
Net unrealized loss on
marketable securities.. $ 51 $136 $115 $122
==== ==== ==== ====
</TABLE>

There were no realized gains or losses recorded in any of the reported
periods. After June 24, 1995, the Company determined that it may choose to
hold its marketable securities for a period of less than one year and,
accordingly, marketable securities for all subsequent periods have been
classified as current. These marketable securities are exposed to
concentrations of credit risk and are managed by a nationally recognized
financial institution.

INVENTORY

Inventory, consisting of merchandise for sale, is stated at the lower of
cost or market, with cost determined using the first-in, first-out method.

SELLING EXPENSES

Selling expenses consist primarily of the cost to produce, print and
distribute catalogs. These costs are considered direct-response advertising
and as such are capitalized as incurred and amortized over the expected sales
life of each catalog, which is generally a period not exceeding four months.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation expense is computed
using the straight-line method over the estimated useful lives of the assets,
which are 30 years for buildings and 1-7 years for equipment, furniture and
fixtures. Improvements to leased premises are amortized on a straight-line
basis over the shorter of the estimated useful life or the lease term.
Maintenance and repairs are charged to expense as incurred. Upon retirement or
sale, the cost of the assets disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
credited or charged to income. Assets under capital leases are recorded at the
present value of future lease payments and are depreciated over the term of
the lease.

LONG-LIVED ASSETS

Management periodically considers whether there has been a permanent
impairment in the value of its long-lived assets, primarily property and
equipment and intangible assets, by evaluating various factors, including
current and projected future operating results and undiscounted cash flows.
Based on this assessment,

F-8
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

management concluded that as of all balance sheet dates reported, the
Company's long-lived assets were fully realizable except as discussed in Note
B.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share ("EPS") is computed by dividing net income
(loss) by the weighted average number of shares of Common Stock and common
stock equivalents outstanding during the period. Common stock equivalents
("CSEs") consist of Common Stock issuable on the exercise of outstanding stock
options and are calculated using the treasury method. For purposes of
computing EPS for fiscal 1994, CSEs also include the effect of outstanding
warrants and outstanding preferred stock convertible into Common Stock prior
to the actual conversion of the preferred stock and the exercise of the
warrants in connection with the Company's initial public offering in the
second quarter of fiscal 1994.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Company's long-term debt, including current
maturities, approximates fair value because the interest rates on these
instruments change with market interest rates. The carrying amounts for
accounts receivable and accounts payable approximate their fair values due to
the short maturity of these instruments. The Company's marketable securities
are stated at fair value based on quoted market prices.

RECLASSIFICATIONS

Certain financial statement amounts have been reclassified to be consistent
with the presentation for the six months ended June 28, 1997.

RECENT ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share," which modifies the way in which
EPS is calculated and disclosed. Currently, the Company discloses primary and
fully diluted EPS. SFAS 128 requires the disclosure of basic and diluted EPS
for financial statements issued for periods ending after December 15, 1997.
The restatement of all prior period EPS data presented is also required upon
adoption. Basic EPS excludes potentially dilutive securities and is computed
by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS,
similar to fully diluted EPS, reflects the potential dilution that could occur
if securities or other contracts to issue common shares were exercised or
converted into common shares that then shared in the earnings of the entity.
Early application of SFAS 128 is not permitted.

F-9
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

The following table summarizes the Company's EPS and weighted average common
and common equivalent shares outstanding on a pro forma basis as calculated
under SFAS 128 and is unaudited.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED TRANSITION PERIOD ENDED SIX MONTHS ENDED
-------------------------------- --------------------------- ---------------------
JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1994 1995 1996 1995 1996 1996 1997
(52 WEEKS) (52 WEEKS) (53 WEEKS) (27 WEEKS) (26 WEEKS) (26 WEEKS) (26 WEEKS)
---------- ---------- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Pro forma basic EPS:
Continuing operations.. $1.21 $0.18 $ 0.05 $ (0.13) $ 2.65 $ 0.19 $0.39
Discontinued opera-
tions................. -- -- (2.24) (0.14) -- (2.10) --
----- ----- ------ ------------ ----------- ------ -----
Net income (loss) per
share................. $1.21 $0.18 $(2.19) $ (0.27) $ 2.65 $(1.91) $0.39
===== ===== ====== ============ =========== ====== =====
Weighted average common
and common equivalent
shares outstanding (in
thousands)............. 2,712 4,229 4,277 4,262 4,365 4,292 4,529
Pro forma diluted EPS:
Continuing operations.. $0.80 $0.17 $ 0.05 $ (0.13) $ 2.44 $ 0.17 $0.35
Discontinued opera-
tions................. -- -- (2.16) (0.14) -- (1.94) --
----- ----- ------ ------------ ----------- ------ -----
Net income (loss) per
share................. $0.80 $0.17 $(2.11) $ (0.27) $ 2.44 $(1.77) $0.35
===== ===== ====== ============ =========== ====== =====
Weighted average common
and common equivalent
shares outstanding (in
thousands)............. 4,077 4,610 4,441 4,262 4,736 4,620 5,057
</TABLE>

B.DISCONTINUED OPERATIONS:

During fiscal 1995, the Company purchased certain assets and assumed certain
liabilities of Carroll Reed, Inc. and Carroll Reed International Limited. In
connection with the purchase, the Company paid $5,031,000 and established
accruals totaling $1,180,000. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the cost of the acquisition was
allocated to net tangible assets acquired based on their estimated fair market
value of approximately $257,000. The excess of such costs over the fair value
of those assets of approximately $5,954,000 was allocated to the Carroll Reed
trademark, service mark and customer list.

On May 20, 1996, the Company announced its plan to divest its Carroll Reed
segment due to the incompatibility of the customer base and product line of
this segment with those of its other segment. Accordingly, the Carroll Reed
segment has been accounted for as a discontinued operation, and all assets,
liabilities, results of operations and cash flows associated with the Carroll
Reed segment have been segregated from those associated with continuing
operations. In connection with this divestiture, the Company recorded a charge
of $8,511,000 for the loss on disposal of discontinued operations, consisting
of $5,336,000 related to the write-off of the remaining unamortized intangible
assets and $3,175,000 for expected losses during the phase-out period. The
results of the Carroll Reed operations through May 20, 1996, including fiscal
1996 net sales through May 20, 1996 of $12,415,000, have been classified as
income (loss) from discontinued operations in the accompanying consolidated
statements of operations. Since May 20, 1996, the results of this discontinued
operation have been charged to the liability for expected losses established
in connection with the divestiture and have had no impact on the Company's
operating results. As of June 28, 1997, the Company had completed the phase-
out of its Carroll Reed segment and had utilized its reserve for expected
losses.

F-10
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

The net current assets and liabilities of the Carroll Reed segment, which
have been included in other current assets in the accompanying consolidated
balance sheets, are summarized below (in thousands):

<TABLE>
<CAPTION>
JUNE 24, 1995 JUNE 29, 1996 DEC. 28, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current assets:
Inventory............................ $360 $2,477 $ --
Prepaid catalog expenses............. 408 492 --
Other current assets................. 40 149 49
---- ------ -----
Total current assets................ 808 3,118 49
---- ------ -----
Current liabilities:
Accounts payable..................... 715 286 --
Accrued expenses..................... 6 -- --
Accrued customer returns............. 84 173 9
Liability for expected losses........ -- 2,658 231
---- ------ -----
Total current liabilities........... 805 3,117 240
---- ------ -----
Net current assets (liabilities) of
discontinued operations........... $ 3 $ 1 $(191)
==== ====== =====
</TABLE>

Non-current assets of discontinued operations in the accompanying
consolidated balance sheet at June 24, 1995 are comprised solely of the net
intangible assets related to the Carroll Reed segment.

C.PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 24, 1995 JUNE 29, 1996 DEC. 28, 1996 JUNE 28, 1997
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and building....... $ 5,163 $ 5,163 $ 5,163 $ 5,163
Equipment............... 2,741 3,195 3,718 4,211
Furniture, fixtures and
leasehold improvements. 677 467 816 817
------- ------- ------- -------
Total.................. 8,581 8,825 9,697 10,191
Less accumulated
depreciation and
amortization........... (1,595) (1,953) (2,524) (3,158)
------- ------- ------- -------
Property and equipment,
net.................... $ 6,986 $ 6,872 $ 7,173 $ 7,033
======= ======= ======= =======
</TABLE>

D.DEBT:

The Interim Loan was replaced by a $1,650,000 real estate loan (the "Real
Estate Loan") on July 30, 1997. Payments on the Real Estate Loan are due
monthly, based on a 15-year amortization, with the remaining balance payable
on July 30, 2002. Interest on the Real Estate Loan is fixed at 6.81% per annum
until August 31, 1999, at which time the Company may select from several
interest rate options. Payments on the Term Loan are due

F-11
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

quarterly commencing on September 2, 1997 through its maturity on June 1,
2002. The Term Loan provides for several interest rate options. At June 28,
1997, the Term Loan bore interest at 7.28% per annum. Both the Revolver and
the Letter of Credit Line expire on June 1, 1999. The Revolver also provides
for several interest rate options. There were no outstanding Revolver
borrowings at June 28, 1997.

The Company is required to pay a commitment fee of 1/8th of 1% per annum on
the unused portion of the Revolver commitment. All of the credit facilities
under the new loan agreement are collateralized by a first lien mortgage on
the Company's operations and fulfillment center in Meredith, New Hampshire and
a security interest in substantially all assets of the Company other than its
marketable securities. The Term Loan is also collateralized by the Company's
marketable securities. The terms of the new loan agreement contain various
lending conditions and covenants, including restrictions on permitted liens
and required compliance with certain financial coverage ratios.

A summary of the Company's outstanding credit facilities follows (in
thousands):

<TABLE>
<CAPTION>
JUNE 24, 1995 JUNE 29, 1996 DEC. 28, 1996 JUNE 28, 1997
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Real estate loans....... $1,586 $1,476 $1,421 $1,650
Term loans.............. -- -- 4,000 3,600
Revolver borrowings..... 1,975 3,602 -- --
Capitalized lease obli-
gations................ 352 191 136 32
------ ------ ------ ------
Total long-term debt... 3,913 5,269 5,557 5,282
Less current maturi-
ties.................. 279 889 1,017 836
------ ------ ------ ------
Long-term debt, less
current portion....... $3,634 $4,380 $4,540 $4,446
====== ====== ====== ======
</TABLE>

The Company's credit facilities at December 28, 1996 (the "Old Credit
Facilities") consisted of (i) a $1,650,000 mortgage note (the "Old Mortgage
Note"), payments on which were due monthly based on a 15-year amortization,
with the remaining balance payable in full on August 31, 1999; (ii) a
$4,000,000 secured term loan (the "Old Term Loan") with payments of $200,000
due quarterly through December 31, 2001; and (iii) an $8,000,000 secured
revolving line of credit (the "Old Revolver") which reduced to $5,000,000
during the months of May through November and was scheduled to expire on June
1, 1997.

The Old Credit Facilities provided several interest rate options that the
Company might select from in determining the rate on which its borrowings were
based. During the six months ended December 28, 1996, interest on the Old
Mortgage Note averaged 6.81% per annum, the weighted average interest rate on
the Old Term Loan was 7.72% per annum and the weighted average interest rate
on all Old Revolver borrowings was 8.25% per annum. The Company was required
to pay a commitment fee on the Old Revolver of approximately $5,000 per annum.
The Old Credit Facilities were collateralized by substantially all corporate
assets. The Old Mortgage Note was also collateralized by a first mortgage on
the Company's operations and fulfillment center in Meredith, New Hampshire.
The terms of the Old Credit Facilities contained various lending conditions
and covenants, including restrictions on permitted liens, limitations on
capital expenditures and dividends, and compliance with certain financial
ratios.

At December 28, 1996, aggregate maturities of long-term debt for the next
five fiscal years were as follows: fiscal 1997--$1,017,000; fiscal 1998--
$917,000; fiscal 1999--$2,008,000; fiscal 2000--$808,000; and fiscal 2001--
$807,000.

F-12
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

Import letters of credit are for commitments issued through the Company's
bank to guarantee payment of foreign-sourced merchandise within agreed upon
time periods according to the terms of the agreements. Outstanding import
letters of credit totaled approximately $1,198,000, $424,000, $407,000 and
$1,669,000 at June 24, 1995, June 29, 1996, December 28, 1996 and June 28,
1997, respectively.

E.STOCKHOLDERS' EQUITY:

COMMON STOCK

During fiscal 1994, the Company completed its initial public offering
("IPO") of 2,070,000 shares of Common Stock. In conjunction with the Company's
IPO, all shares of the Company's preferred stock were converted into 2,372,895
shares of Common Stock. In addition, all outstanding Common Stock warrants
were exercised for 286,881 shares of Common Stock.

SPECIAL PREFERRED STOCK

The Company has 1,000,000 shares of special preferred stock, $0.01 par value
per share, authorized. No special preferred stock was outstanding at any of
the reported balance sheet dates.

TREASURY STOCK

During fiscal 1995, the Company's Board of Directors voted to retire the
then outstanding 6,666 shares of the Company's Common Stock held in treasury.
These shares were authorized and unissued at each of the reported balance
sheet dates.

STOCK BONUS PLAN

During fiscal 1994, the Board of Directors adopted the Company's 1993
Employee Stock Bonus Plan (the "Stock Bonus Plan"), which authorized the
Company to make a one-time grant of 10 shares of Common Stock to every
eligible employee. During fiscal 1994, the Company issued 2,190 shares and
recorded compensation expense of approximately $21,000 related to the Stock
Bonus Plan.

STOCK WARRANTS

In connection with a loan and security agreement between the Company and one
of its stockholders, the Company issued such stockholder warrants to purchase
286,881 shares of Common Stock at an exercise price of $6.10 per share. These
warrants were exercised in conjunction with the Company's IPO in fiscal 1994.

F.STOCK-BASED PLANS:

At December 28, 1996 and June 28, 1997, the Company had three stock-based
plans--the 1988 Incentive Stock Option Plan (the "1988 Stock Option Plan"),
the 1993 Incentive and Nonqualified Stock Option Plan (the "1993 Stock Option
Plan") and an employee stock purchase plan. The Company applies Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plans and its employee stock purchase plan. No compensation cost has been
recognized for these plans.

F-13
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

STOCK OPTION PLANS

The 1988 Stock Option Plan provides for the grant of options to purchase
Common Stock intended to qualify as incentive stock options as defined in
Section 422 of the Internal Revenue Code of 1986, as amended. During fiscal
1994, the Board of Directors voted not to issue any additional options under
the 1988 Stock Option Plan. The maximum term of options granted under the 1988
Stock Option Plan is 10 years.

The 1993 Stock Option Plan authorizes (i) the grant of options to purchase
Common Stock intended to qualify as incentive stock options as defined in
Section 422 of the Internal Revenue Code of 1986, as amended, and (ii) the
grant of options that do not so qualify. At December 28, 1996 and June 28,
1997, the 1993 Stock Option Plan authorized the issuance of options to
purchase up to 700,000 and 1,200,000 shares of Common Stock, respectively. The
Compensation Committee of the Board of Directors administers the 1993 Stock
Option Plan and within certain limits has discretion to determine the terms
and conditions of options granted under the plan. The 1993 Stock Option Plan
also provides for the automatic grant of options to purchase a specified
number of shares to non-employee directors. The maximum term of options
granted under the 1993 Stock Option Plan is 10 years.

STOCK PURCHASE PLAN

The Company has an employee stock purchase plan which authorizes the
issuance of up to 100,000 shares of the Company's Common Stock to eligible
employees. Pursuant to the plan, eligible employees may be granted the
opportunity to purchase Common Stock of the Company at 85% of market value on
the first or last day of the calendar year, whichever is lower. A total of
71,480 and 37,302 shares of Common Stock remained available for issuance under
the plan at December 28, 1996 and June 28, 1997, respectively. Purchases of
Common Stock under the plan have been made as follows: on December 31, 1996,
34,178 shares at an aggregate purchase price of approximately $58,000, on
December 30, 1995, 19,385 shares at an aggregate purchase price of
approximately $34,000, and on December 29, 1994, 9,135 shares at an aggregate
purchase price of approximately $37,000.

F-14
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

The following table reflects the activity under the 1988 Stock Option Plan
and the 1993 Stock Option Plan:

<TABLE>
<CAPTION>
1988 STOCK OPTION PLAN 1993 STOCK OPTION PLAN
-------------------------------- --------------------------------
EXERCISE WTD. AVG. EXERCISE WTD. AVG.
NUMBER PRICE EXERCISE NUMBER PRICE EXERCISE
OF SHARES PER SHARE PRICE OF SHARES PER SHARE PRICE
--------- ----------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 25,
1994................... 567,327 $0.17--6.10 $1.49 45,000 $9.00--10.88 $ 9.50
Granted................ -- -- -- 77,000 2.75--15.00 10.70
Exercised.............. (55,673) 0.17--1.67 0.97 -- -- --
Canceled............... (22,310) 0.17--1.67 1.67 -- -- --
-------- ----------- ----- ------- ------------ ------
Balance at June 24,
1995................... 489,344 0.17--6.10 1.54 122,000 2.75--15.00 10.26
Granted................ -- -- -- 106,000 2.25-- 4.00 2.35
Exercised.............. (2,500) 0.17--1.67 1.37 -- -- --
Canceled............... -- -- -- (8,000) 10.88 10.88
-------- ----------- ----- ------- ------------ ------
Balance at December 30,
1995................... 486,844 0.17--6.10 1.54 220,000 2.25--10.88 6.43
Granted................ -- -- -- 315,000 2.06-- 5.00 3.08
Exercised.............. (22,350) 0.17--1.67 1.14 -- -- --
Canceled............... (1,500) 1.67 1.67 (15,000) 4.00-- 9.00 7.00
-------- ----------- ----- ------- ------------ ------
Balance at June 29,
1996................... 462,994 0.17--6.10 1.56 520,000 2.06--15.00 4.38
Granted................ -- -- -- 62,500 3.13-- 3.25 3.20
Exercised.............. (149,797) 0.17--1.67 0.94 (1,818) 2.75 2.75
Canceled............... (2,830) 1.67 1.67 (25,000) 15.00 15.00
-------- ----------- ----- ------- ------------ ------
Balance at December 28,
1996................... 310,367 0.17--6.10 1.86 555,682 2.06--15.00 3.76
Granted................ -- -- -- 319,000 3.63--10.50 7.50
Exercised.............. (162,968) 0.17--6.10 2.04 (7,200) 2.75 2.75
Canceled............... (1,500) 1.67 1.67 -- -- --
-------- ----------- ----- ------- ------------ ------
Balance at June 28,
1997................... 145,899 $ 1.67 $1.67 867,482 $2.06--15.00 $ 5.21
======== =========== ===== ======= ============ ======
</TABLE>

Options exercisable under the 1988 Stock Option Plan and the 1993 Stock
Option Plan were as follows:

<TABLE>
<CAPTION>
JUNE 25, 1994 JUNE 24, 1995 JUNE 29, 1996 DEC. 28, 1996 JUNE 28, 1997
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
1988 Stock Option Plan.. 411,417 447,684 442,914 293,117 145,899
1993 Stock Option Plan.. -- 14,250 68,750 138,282 230,189
------- ------- ------- ------- -------
Total.................. 411,417 461,934 511,664 431,399 376,088
======= ======= ======= ======= =======
</TABLE>

F-15
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

The following table summarizes information about options outstanding under
the 1988 Stock Option Plan and the 1993 Stock Option Plan at December 28,
1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ---------------------------
NUMBER WTD. AVG. WTD. AVG. NUMBER WTD. AVG.
RANGE OF OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES DECEMBER 28, 1996 CONTRACTUAL LIFE PRICE DECEMBER 28, 1996 PRICE
- --------------- ----------------- ---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.17-- 1.67........... 285,827 1 year $ 1.50 268,577 $ 1.49
2.06-- 5.00........... 502,682 6 years 2.91 100,282 2.74
6.10-- 9.00........... 48,540 1 year 7.53 48,540 7.53
10.88--15.00........... 29,000 7 years 14.43 14,000 13.82
------- -------
Total.................. 866,049 431,399
======= =======
</TABLE>

The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which requires disclosure of pro forma net income, EPS and
other information as if the fair value method of accounting for stock options
and other equity instruments described in SFAS 123 had been adopted. Pro forma
disclosures include the effects of all options granted after December 25,
1994. The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards made prior to
December 25, 1994 and additional awards in future years are anticipated.

Had compensation cost for the Company's stock-based plans been based on the
fair value at the grant dates for awards made under these plans consistent
with SFAS 123, the Company's compensation cost, net of income tax benefit, net
income (loss) and EPS pro forma amounts would have been as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED TRANSITION PERIOD ENDED SIX MONTHS ENDED
----------- -------------------------- -----------------------
JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1996 1995 1996 1996 1997
(53 WEEKS) (27 WEEKS) (26 WEEKS) (26 WEEKS) (26 WEEKS)
----------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Compensation cost:
1993 Stock Option Plan. $ 63 $ 6 $ 58 $ 66 $ 124
Employee Stock Purchase
Plan.................. 7 4 7 7 14
Net income (loss):
As reported............ (9,350) (1,158) 11,563 (8,192) 1,746
Pro forma.............. (9,420) (1,168) 11,498 (8,265) 1,608
Primary EPS:
As reported............ (2.11) (0.27) 2.44 (1.77) 0.35
Pro forma.............. (2.12) (0.27) 2.43 (1.79) 0.32
Fully diluted EPS:
As reported............ (2.07) (0.27) 2.44 (1.75) 0.34
Pro forma.............. (2.08) (0.27) 2.43 (1.77) 0.31
</TABLE>

The Black-Scholes option-pricing model is used to estimate the fair value on
the date of grant of each option granted after December 25, 1994. The Black-
Scholes model is also used to estimate the fair value of the

F-16
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

employees' purchase rights. In each case, the following assumptions were used
for stock option and employee purchase right grants:

<TABLE>
<CAPTION>
1993 STOCK EMPLOYEE STOCK
OPTION PLAN PURCHASE PLAN
----------- --------------
<S> <C> <C>
Dividend yield.................................... 0% 0%
Expected volatility............................... 60.0% 50.0%
Risk free interest rate........................... 6.1% 5.6%
Expected lives.................................... 4-5 years 1 year
</TABLE>

The weighted average fair value of options granted and the average fair
value of the employee purchase rights granted were as follows:

G.BENEFIT PLANS:

The Company implemented a savings plan (the "Plan") during fiscal 1994,
which permits participants to make contributions by salary reduction pursuant
to Section 401(k) of the Internal Revenue Code. At the discretion of the Board
of Directors, the Company may also make contributions dependent on profits
each year for the benefit of all eligible employees under the Plan. Employee
eligibility is based on minimum age and employment requirements. The Company
contributed $10,000, $0, $12,000 and $65,000 to the Plan for the six months
ended December 28, 1996, fiscal 1996, fiscal 1995 and fiscal 1994,
respectively.

H.INCOME TAXES:

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under SFAS 109, deferred tax assets and liabilities are recognized
based on temporary differences between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. SFAS 109 requires current
recognition of net deferred tax assets to the extent that it is more likely
than not that such net assets will be realized. To the extent that the Company
believes that its net deferred tax assets will not be realized, a valuation
allowance must be placed against those assets.

F-17
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 24, 1995 JUNE 29, 1996 DEC. 28, 1996 JUNE 28, 1997
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating losses... $7,094 $ 6,951 $ 6,771 $ 5,344
Inventory.............. 1,462 1,381 1,847 1,640
Reserve for customer
returns............... 501 552 513 1,287
Discontinued segment... -- 3,343 2,166 2,035
Other.................. 320 304 417 732
------ ------- ------- -------
Total deferred tax as-
sets................. 9,377 12,531 11,714 11,038
------ ------- ------- -------
Deferred tax liabili-
ties:
Prepaid catalogs....... 1,898 1,343 1,007 1,134
Other.................. 79 54 109 130
------ ------- ------- -------
Total deferred tax li-
abilities............ 1,977 1,397 1,116 1,264
------ ------- ------- -------
Net deferred tax as-
sets................ 7,400 11,134 10,598 9,774
Less valuation allow-
ance................ 7,400 11,134 -- --
------ ------- ------- -------
Net deferred tax
assets per
consolidated balance
sheets.............. $ -- $ -- $10,598 $ 9,774
====== ======= ======= =======
</TABLE>

As of each of the reported balance sheet dates prior to December 28, 1996,
management believed that the uncertainty surrounding the realizability of its
net deferred tax assets was sufficient to require a valuation allowance to be
placed against the entire balance of those assets. However, as of December 28,
1996, management determined, based on the Company's recent profitability
trends and anticipated future profitability, that it was more likely than not
that sufficient book and taxable income would be generated to fully realize
the benefit of its net deferred tax assets. This determination required the
Company to remove the valuation allowance and recognize the deferred tax
benefit of $10,598,000 at December 28, 1996 in its entirety.

At December 28, 1996, the Company had available net operating loss ("NOL")
carryforwards of approximately $18,357,000, of which $4,783,000 expires in
fiscal 2003, $7,912,000 expires in fiscal 2004, $2,530,000 expires in fiscal
2005, $2,383,000 expires in fiscal 2006 and $749,000 expires in fiscal 2010.

Section 382 of the Internal Revenue Code of 1986, as amended, restricts a
corporation's ability to use its NOL carryforwards following certain"ownership
changes." The Company determined that such an ownership change occurred as a
result of its initial public offering and accordingly the amount of the
Company's NOL carryforwards available for use in any particular taxable year
is limited to approximately $1.5 million annually. To the extent that the
Company does not utilize the full amount of the annual NOL limit, the unused
amount may be used to offset taxable income in future years. NOL carryforwards
expire 15 years after the tax year in which they arise, and the last of the
Company's current NOL carryforwards will expire in its fiscal 2010 tax year.

F-18
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

The components of the Company's provision (benefit) for income taxes for
continuing operations are as follows (in thousands):

The difference in income taxes at the U. S. federal statutory rate and the
income tax provision (benefit) reported in the accompanying consolidated
statements of operations is as follows (in thousands):

F-19
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

I.COMMITMENTS:

The Company leases certain of its facilities under noncancellable operating
leases having initial or remaining terms of more than one year. The majority
of these real estate leases require the Company to pay maintenance, insurance
and real estate taxes. Total rent expense, including these costs, is as
follows (in thousands):

<TABLE>
<CAPTION>
TRANSITION PERIOD
FISCAL YEAR ENDED ENDED SIX MONTHS ENDED
--------------------------------------------------------- -----------------------
JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1994 1995 1996 1995 1996 1996 1997
(52 WEEKS) (52 WEEKS) (53 WEEKS) (27 WEEKS) (26 WEEKS) (26 WEEKS) (26 WEEKS)
---------- ---------- ---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
$914 $581 $666 $321 $362 $345 $399
</TABLE>

At December 28, 1996, future minimum lease payments for operating leases
having a remaining term in excess of one year at such date totaled $2,187,000
and were as follows: fiscal 1997--$649,000; fiscal 1998-- $649,000; fiscal
1999--$615,000; fiscal 2000--$203,000; and fiscal 2001--$71,000.

Subsequent to June 28, 1997 the Company purchased approximately 360 acres of
land in Tilton, New Hampshire for $4,152,000. The site is intended to house a
new fulfillment center expected to be operational by early 1999. The estimated
cost of this new facility, including land, construction and equipment, ranges
from $33.0 to $37.0 million.

J.RELATED PARTY:

During fiscal 1996, the Company terminated its relationship with Shannon
North America, Limited ("Shannon"), a joint venture between the Company and
Aer Rianta cpt. The Company's investment in Shannon was immaterial. During the
six months ended December 28, 1996 and June 28, 1997, the Company continued to
provide various operational services to Shannon. Amounts charged to Shannon
are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED TRANSITION PERIOD ENDED SIX MONTHS ENDED
---------------------------------- ------------------------ -----------------------
JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1994 1995 1996 1995 1996 1996 1997
(52 WEEKS) (52 WEEKS) (53 WEEKS) (27 WEEKS) (26 WEEKS) (26 WEEKS) (26 WEEKS)
---------- --------- --------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
$487 $555 $690 $406 $180 $328 $92
</TABLE>

F-20
<PAGE>

DM MANAGEMENT COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)

K.QUARTERLY FINANCIAL DATA (UNAUDITED):

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
SEPT. 24, DEC. 24, MARCH 25, JUNE 24,
1994 1994 1995 1995
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $18,536 $14,890 $19,704 $19,561
Income (loss) from continuing operations. 1,078 (582) 180 89
Net income (loss)........................ 1,078 (582) 120 157
Income (loss) from continuing operations
per share............................... 0.23 (0.13) 0.04 0.02
Net income (loss) per share.............. $ 0.23 $ (0.13) $ 0.03 $ 0.03
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
SEPT. 30, DEC. 30, MARCH 30, JUNE 29,
1995 1995 1996 1996
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $22,312 $16,955 $19,736 $21,582
Income (loss) from continuing operations. (274) (286) 250 545
Net income (loss)........................ (667) (491) 264 (8,456)
Income (loss) from continuing operations
per share............................... (0.06) (0.07) 0.06 0.11
Net income (loss) per share.............. $ (0.15) $ (0.12) $ 0.06 $ (1.79)
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------
SEPT. 28, DEC. 28, MARCH 29, JUNE 28,
1996 1996 1997 1997
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $20,541 $22,783 $24,543 $32,885
Income from continuing operations........ 250 11,313 541 1,205
Net income............................... 250 11,313 541 1,205
Income from continuing operations per
share................................... 0.05 2.38 0.11 0.23
Net income per share..................... $ 0.05 $ 2.38 $ 0.11 $ 0.23
</TABLE>

During the six months ending December 28, 1996, the Company recorded a
deferred tax benefit of $10,598,000 (see Note H).

On May 20, 1996, the Company announced its plan to discontinue the operations
of its Carroll Reed segment and recorded a charge of $8,511,000 for the loss on
disposal of discontinued operations (see Note B).

The sum of the quarterly EPS amounts may not equal the full year amount since
the computations of the weighted average number of common and common equivalent
shares outstanding for each quarter and the full year are made independently.

F-21
<PAGE>

[IMAGE OF WOMAN]
<PAGE>

[Image of woman appears behind text on this page]

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NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Price Range of Common Stock............................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Selected Consolidated Financial Data...................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
Business.................................................................. 23
Management................................................................ 32
Principal and Selling Stockholders........................................ 35
Description of Capital Stock.............................................. 37
Underwriting.............................................................. 39
Legal Matters............................................................. 40
Experts................................................................... 40
Available Information..................................................... 41
Incorporation of Certain Documents by Reference........................... 41
Index to Consolidated Financial Statements................................ F-1
</TABLE>

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2,752,404 Shares

LOGO

Common Stock

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

PROSPECTUS

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

Wessels, Arnold & Henderson

NationsBanc Montgomery Securities, Inc.

October 30, 1997

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