<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
DM MANAGEMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 04-2973769
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
25 RECREATION PARK DRIVE
HINGHAM, MASSACHUSETTS 02043
(781) 740-2718
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
GORDON R. COOKE
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
DM Management Company
25 Recreation Park Drive
Hingham, Massachusetts 02043
(781) 740-2718
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
PETER M. ROSENBLUM, ESQ. PATRICK J. RONDEAU, ESQ.
DAVID R. PIERSON, ESQ. HALE AND DORR LLP
FOLEY, HOAG & ELIOT LLP 60 State Street
One Post Office Square Boston, Massachusetts 02109
Boston, Massachusetts 02109
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If the registrant elects to deliver its latest annual report to
securityholders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value.................. 3,165,265 $13.0625 $41,346,274 $12,530
</TABLE>
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(1) Includes 412,861 shares which the Underwriters have the option to purchase
from the Registrant to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of determining the registration fee. In
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
the above calculation is based on the average of the high and low sale
prices per share of the Common Stock reported on the Nasdaq National
Market on September 5, 1997.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Image of woman appears behind text on this page]
SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 1997
2,752,404 Shares
LOGO
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. 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 September 9, 1997, the last reported sale price for the Common Stock
on the Nasdaq National Market was $13 1/4. 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.
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<TABLE>
<S> <C> <C> <C> <C>
PRICE UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
TO PUBLIC AND COMMISSIONS (1) COMPANY (2) SELLING STOCKHOLDERS
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Per Share.... $ $ $ $
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Total (3).... $ $ $ $
</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 $ , $ , $ and $ , 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 ,
1997.
----------
Wessels, Arnold & Henderson Montgomery Securities
The date of this Prospectus is , 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 WOMAN] [IMAGE OF SHOES, PURSE AND OTHER
ACCESSORIES]
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.
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
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 four consecutive quarters of dramatic profit improvement as
compared to the comparable quarter of the prior year. Most recently, in the
quarter ended June 28, 1997 net sales increased 52.4% to $32.9 million from
$21.6 million during the corresponding quarter of the prior year and income
from continuing operations rose 121.1% to $1.2 million from $0.5 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
<PAGE>
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
PRO FORMA CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Income (loss) from con-
tinuing operations (2). $ 2,198 $ 519 $ 159 $ (380) $ 654 $ 539 $ 1,746
Income (loss) from con-
tinuing operations per
share (2).............. $ 0.54 $ 0.11 $ 0.04 $ (0.09) $ 0.14 $ 0.12 $ 0.35
SELECTED OPERATING DATA:
Catalog circulation (3). 32,400 40,300 41,600 22,100 18,400 19,500 21,500
Total active customers
(4).................... 473 579 638 611 657 638 724
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
-----------------------
ACTUAL AS ADJUSTED (5)
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<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................................ $42,995 $55,016
Working capital......................................... 13,804 25,825
Long-term debt, less current portion.................... 4,446 4,446
Stockholders' equity.................................... 23,417 35,438
</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) Pro forma income (loss) from continuing operations represents historical
income (loss) from continuing operations adjusted to eliminate the one-time
tax benefit recognized by the Company in December 1996 in connection with
its net deferred tax assets and to reflect an assumed effective income tax
rate of 39% for all periods presented. See Notes B and H to the
accompanying consolidated financial statements.
(3) 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.
(4) As used throughout this Prospectus, the term "active customers" means
customers who have made a purchase from the Company within the previous 24
months.
(5) Adjusted to give effect to the sale of the 1,000,000 shares of Common Stock
offered by the Company hereby at an estimated offering price of $13 1/4 per
share (the last reported sale price of the Common Stock on September 9,
1997) after deducting the estimated underwriting discounts and commissions
and offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
This Prospectus contains 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. 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.
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 agreed to purchase 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 $25.0 and $30.0 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."
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
6
<PAGE>
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."
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."
QUARTERLY FLUCTUATIONS. 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.
7
<PAGE>
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 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."
PRIVATE LABEL MERCHANDISE. 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."
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 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. 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. 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
8
<PAGE>
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."
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 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 contacts with the state were the
distribution of catalogs and other advertising materials through the mail and
subsequent delivery of purchased goods by parcel post and interstate 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, plus interest) 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
9
<PAGE>
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."
EFFECT 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 estimated to be $12.0 million
($17.2 million if the Underwriters' over-allotment option is exercised in
full), assuming a public offering price of $13 1/4 per share (the last
reported sale price of the Common Stock on September 9, 1997) and after
deducting the estimated underwriting discounts and commissions and 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 the 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 $25.0 and $30.0 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 ending September 27, 1997 (through September 9, 1997). 14 1/4 9 3/4
</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 an estimated offering price of $13 1/4 per
share (the last reported sale price of the Common Stock on September 9, 1997)
after deducting the estimated underwriting discounts and commissions and
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 52,512
Unrealized loss on marketable securities................ (122) (122)
Accumulated deficit..................................... (17,008) (17,008)
-------- -------
Total stockholders' equity............................. 23,417 35,438
-------- -------
Total capitalization.................................. $ 27,863 $39,884
======== =======
</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;
. 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. This quarter marked the fourth
consecutive quarter of profit improvement as compared to the comparable
quarter of the prior year. The Company believes that these recently
implemented strategic initiatives have positioned it well for future growth.
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%.
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%.
16
<PAGE>
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.
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
17
<PAGE>
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.
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.
18
<PAGE>
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, management 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. 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.
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.
19
<PAGE>
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)
Pro forma income (loss) from continuing
operations (1).......................... $ 122 $ 61 $ (186) $ (194)
Pro forma income (loss) from continuing
operations per share (1)................ $ 0.03 $ 0.01 $ (0.04) $ (0.05)
</TABLE>
<TABLE>
<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
Pro forma income from continuing opera-
tions (1)............................... $ 170 $ 370 $ 170 $ 484
Pro forma income from continuing opera-
tions per share (1)..................... $ 0.04 $ 0.08 $ 0.04 $ 0.10
</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
Pro forma income from continuing operations (1)............... $ 541 $ 1,205
Pro forma income from continuing operations per share (1)..... $ 0.11 $ 0.23
</TABLE>
- --------
(1) Pro forma income (loss) from continuing operations represents historical
income (loss) from continuing operations adjusted to eliminate the one-
time tax benefit recognized by the Company in December 1996 in connection
with its net deferred tax assets and to reflect an assumed effective
income tax rate of 39% for all periods presented. See Notes B and H to the
accompanying consolidated financial statements.
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. 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.
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.
Subsequent to June 28, 1997, the Company agreed to purchase 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 $25.0 to $30.0 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. Total expenditures for this purpose are
estimated at approximately $2.0 million, of which approximately $0.5 million
had been spent as of June 28, 1997.
21
<PAGE>
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.
Since beginning to implement these strategic initiatives, the Company has
experienced four consecutive quarters of dramatic profit improvement as
compared to the comparable quarter of the prior year. Most recently, in the
quarter ended June 28, 1997 net sales increased 52.4% to $32.9 million from
$21.6 million during the corresponding quarter of the prior year and income
from continuing operations rose 121.1% to $1.2 million from $0.5 million
during the corresponding quarter of the prior year.
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.
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
23
<PAGE>
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 agreed to purchase 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 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."
24
<PAGE>
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.
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
25
<PAGE>
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 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.
26
<PAGE>
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 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.
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 vendors 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.
27
<PAGE>
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.
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
28
<PAGE>
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 August 1997 the
Company agreed to purchase 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 it will experience some operating 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.
29
<PAGE>
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 contacts with the state were the distribution of
catalogs and other advertising materials through the mail and subsequent
delivery of purchased goods by parcel post and interstate 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, plus interest)
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............. 23,719 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 August 1997 the Company agreed to purchase 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 $25.0 to
$30.0 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- 01/02/96 $ 2.06 31,250 43,750
ficer 01/02/97 $ 3.63 -- 100,000
John J. Hayes.................... 05/16/96 $ 4.25 17,500 52,500
Executive Vice President of Mar- 06/25/97 $10.50 -- 35,000
keting
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 02/15/96 $ 2.25 9,000 21,000
Summers
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 11/29/96 $ 3.25 -- 20,000
and Treasurer 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
Montgomery Securities (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...................................
Montgomery Securities................................................
---------
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 $
per share, and the Underwriters may allow, and such dealers may re-allow, a
concession of not more than $ 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
issued and outstand-
ing 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)
<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>
Net sales............... $63,337 $72,691 $80,585 $39,267 $43,324 $41,318 $57,428
Costs and expenses:
Product................ 27,035 31,211 35,046 17,277 19,436 17,769 25,415
Operations............. 10,443 12,285 13,954 6,862 6,915 7,092 10,213
Selling................ 17,389 22,318 24,416 12,419 11,730 11,997 14,136
General and administra-
tive.................. 4,985 6,010 6,602 3,205 4,045 3,397 4,734
Interest, net.......... (119) 16 306 127 126 179 68
------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing
operations before
income taxes........... 3,604 851 261 (623) 1,072 884 2,862
Provision (benefit) for
income taxes........... 335 86 26 (63) (10,491) 89 1,116
------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing
operations............. 3,269 765 235 (560) 11,563 795 1,746
Discontinued operations:
Income (loss) from op-
erations.............. -- 8 (1,074) (598) -- (476) --
Loss on disposal....... -- -- (8,511) -- -- (8,511) --
------- ------- ------- ------- ------- ------- -------
Income (loss) from
discontinued
operations............. -- 8 (9,585) (598) -- (8,987) --
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 3,269 $ 773 $(9,350) $(1,158) $11,563 $(8,192) $ 1,746
======= ======= ======= ======= ======= ======= =======
NET INCOME (LOSS) PER
SHARE:
Primary:
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..... 4,077 4,610 4,441 4,262 4,736 4,620 5,057
Fully diluted:
Continuing operations.. $ 0.80 $ 0.17 $ 0.05 $ (0.13) $ 2.44 $ 0.17 $ 0.34
Discontinued opera-
tions................. -- -- (2.12) (0.14) -- (1.92) --
------- ------- ------- ------- ------- ------- -------
Net income (loss) per
share................. $ 0.80 $ 0.17 $ (2.07) $ (0.27) $ 2.44 $ (1.75) $ 0.34
======= ======= ======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding..... 4,081 4,619 4,518 4,262 4,736 4,674 5,210
</TABLE>
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:
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 $13,750,000.
At June 28, 1997, the credit facilities provided for in the new loan agreement
consisted of (i) a $1,650,000 interim loan (the "Interim Loan"); (ii) a
$3,600,000 term loan (the "Term Loan"); (iii) a $6,000,000 revolving line of
credit (the "Revolver"); and (iv) a $2,500,000 line for the issuance of
commercial letters of credit (the "Letter of Credit Line").
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:
<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>
Fair value of options
granted................ $1.61 $ 1.20 $ 1.83 $1.74 $4.15
Fair value of purchase
rights granted......... 0.67 -- -- 0.67 1.36
</TABLE>
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):
<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>
Current:
Federal................ $210 $40 $ 8 $(88) $ 53 $45 $ 86
State.................. 125 46 18 25 54 44 206
Deferred:
Federal................ -- -- -- -- (9,164) -- 737
State.................. -- -- -- -- (1,434) -- 87
---- --- --- ---- -------- --- ------
Provision (benefit) for
income taxes........... $335 $86 $26 $(63) $(10,491) $89 $1,116
==== === === ==== ======== === ======
</TABLE>
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):
<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>
Provision (benefit) for
income taxes at the
U.S. federal statutory
rate................... $ 1,225 $ 289 $ 89 $(212) $ 364 $ 301 $ 973
State taxes, net of fed-
eral tax benefit....... 126 47 12 17 35 53 139
Valuation allowance
change................. -- (250) -- 132 (10,598) -- --
Utilization of NOL
carryforwards.......... (1,016) -- (75) -- (275) (282) --
Other................... -- -- -- -- (17) 17 4
------- ----- ---- ----- -------- ----- ------
Provision (benefit) for
income taxes at effec-
tive rate.............. $ 335 $ 86 $ 26 $ (63) $(10,491) $ 89 $1,116
======= ===== ==== ===== ======== ===== ======
</TABLE>
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 agreed to purchase 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 $25.0 to $30.0 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]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
LOGO
Common Stock
---------------
PROSPECTUS
---------------
Wessels, Arnold & Henderson
Montgomery Securities
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be paid by the
Company in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions. All
amounts shown are estimates except for the registration fee of the Securities
and Exchange Commission, the filing fee of the National Association of
Securities Dealers, Inc. and the listing fee of the Nasdaq National Market.
The Company will pay all expenses in connection with the distribution of any
securities sold by the Selling Stockholders, except for underwriting discounts
and commissions.
<TABLE>
<S> <C>
Registration fee of Securities and Exchange Commission.............. $ 12,530
Filing fee of National Association of Securities Dealers, Inc....... 4,635
Listing fee of Nasdaq National Market............................... 17,500
Accounting fees and expenses........................................ 50,000
Blue sky fees and expenses (including related legal fees)........... 10,000
Legal fees and expenses............................................. 175,000
Printing expenses................................................... 150,000
Miscellaneous....................................................... 80,335
--------
Total............................................................. $500,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SIXTH of the Company's Certificate of Incorporation provides that
the Company shall indemnify each person who at any time is, or shall have
been, a director or officer of the Company, and is threatened to be or is made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he is, or was, a director or officer of the Company, or served at
the request of the Company as a director, officer, employee, trustee, or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement incurred in connection with any such action, suit or
proceeding to the maximum extent permitted by the Delaware General Corporation
Law. Article SIXTH further provides that the foregoing right of
indemnification is not exclusive of any other rights of indemnification.
Section 10 of the Company's By-Laws provides that the Company shall indemnify
its officers and directors to the full extent the Company is permitted to do
so by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware
corporation the power to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as directors, provided that such
provision may not eliminate or limit the liability of directors 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 Corporation Law or (iv) any transaction from which
the director derived an improper personal benefit. Article EIGHTH of 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. No amendment to or repeal of the provisions of
Article EIGHTH shall apply to or have any effect on the liability or the
alleged liability of any director of the Company with respect to any act or
failure to act of such director occurring prior to such amendment or repeal.
II-1
<PAGE>
A principal effect of such Article EIGHTH 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. Article EIGHTH 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.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if
such person had no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to any matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
Section 145 of the Delaware General Corporation Law also affords a Delaware
corporation the power to obtain insurance on behalf of its directors and
officers against liabilities incurred by them in such capacities. The Company
has procured a directors' and officers' liability and company reimbursement
liability insurance policy that (a) insures directors and officers of the
Company against losses (above a deductible amount) arising from certain claims
made against them by reason of certain acts done or attempted by such
directors or officers and (b) insures the Company against losses (above a
deductible amount) arising from any such claims, but only if the Company is
required or permitted to indemnify such directors or officers for such losses
under statutory or common law or under provisions of the Company's Certificate
of Incorporation or By-Laws.
Under the Underwriting Agreement, the Underwriters are obligated, under
certain circumstances, to indemnify the directors and certain officers of the
Company against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1.1 hereto. In addition, the Ninth Amended and Restated
Registration Rights Agreement among the Company and certain of its
stockholders, filed as Exhibit 10.1 hereto, requires such stockholders, under
certain circumstances, to indemnify the directors and certain officers of the
Company against certain liabilities, including liabilities under the
Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
UNDERWRITING
*1.1 Form of Underwriting Agreement
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 Restated Certificate of Incorporation of the Company (included as
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 25, 1993, File No. 0-22480, and incorporated
herein by reference)
4.2 By-Laws of the Company, as amended (included as Exhibit 3.2 to the
Company's Current Report on Form 8-K dated January 14, 1997, File No. 0-
22480, and incorporated herein by reference)
4.3 Specimen certificate for the Common Stock of the Company (included as
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-67512, and incorporated herein by reference)
LEGAL OPINION
5.1 Opinion of Foley, Hoag & Eliot LLP
MATERIAL CONTRACTS
10.1 Ninth Amended and Restated Registration Rights Agreement, dated as of
August 12, 1993, by and among the Company, Allstate Insurance Company,
Aegis II Limited Partnership and Aegis Select Limited Partnership
(included as Exhibit 10.4 to the Company's Registration Statement on
Form S-1, Registration No. 33-67512, and incorporated herein by
reference)
10.2 Lease Agreement dated September 14, 1989, between the Company and
Richard D. Matthews and Richard J. Valentine, Trustees of Bare Cove
Realty Trust established u/d/t dated January 10, 1984, as amended
(included as Exhibit 10.13 to the Company's Registration Statement on
Form S-1, Registration No. 33-67512, and incorporated herein by
reference)
10.3 Third Amendment to Lease Agreement dated September 14, 1989, between the
Company and Richard D. Matthews and Richard J. Valentine, Trustees of
Bare Cove Realty Trust established u/d/t dated January 10, 1984, as
previously amended (included as Exhibit 10.3 to the Company's Transition
Report on Form 10-K for the transition period from June 30, 1996 to
December 28, 1996, File No. 0-22480, and incorporated herein by
reference)
10.4 Fourth Amendment to Lease Agreement dated September 14, 1989, between
the Company and Richard D. Matthews and Richard J. Valentine, Trustees
of Bare Cove Realty Trust established u/d/t dated January 10, 1984, as
previously amended (included as Exhibit 10.4 to the Company's Transition
Report on Form 10-K for the transition period from June 30, 1996 to
December 28, 1996, File No. 0-22480, and incorporated herein by
reference)
10.5 Lease Agreement dated February 21, 1997, between the Company and
MacNeill Worldwide, Inc. (included as Exhibit 10.6 to the Company's
Transition Report on Form 10-K for the transition period from June 30,
1996 to December 28, 1996, File No. 0-22480, and incorporated herein by
reference)
10.6 1988 Incentive Stock Option Plan (included as Exhibit 10.17 to the
Company's Registration Statement on Form S-1, Registration No. 33-67512,
and incorporated herein by reference)
10.7 1993 Incentive and Nonqualified Stock Option Plan, as amended (included
as Appendix A to the Company's definitive Proxy Statement for its annual
meeting of shareholders held on May 8, 1997, File No. 0-22480, and
incorporated herein by reference)
10.8 1993 Employee Stock Purchase Plan (included as Exhibit 10.19 to the
Company's Registration Statement on Form S-1, Registration No. 33-67512,
and incorporated herein by reference)
10.9 Employment Letter Agreement dated December 21, 1995, between the Company
and Gordon R. Cooke (included as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 30, 1995, File No. 0-
22480, and incorporated herein by reference)
10.10 Employment Letter Agreement dated May 7, 1996, between the Company and
John J. Hayes (included as Exhibit 10.12 to the Company's Annual Report
on Form 10-K for the year ended June 29, 1996, File No. 0-22480, and
incorporated herein by reference)
10.11 1997 Incentive Compensation Plan (included as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 29,
1997, File No. 0-22480, and incorporated herein by reference)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.12 Employment Letter Agreement dated February 25, 1997, between the
Company and David Brown (included as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 29, 1997,
File No. 0-22480, and incorporated herein by reference)
10.13 Merchant Services Agreement between the Company and Hurley State Bank,
dated July 18, 1995 (included as Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 24, 1995, File No.
0-22840, and incorporated herein by reference)
10.14 Loan Agreement dated June 5, 1997 between the Company and Citizens Bank
of Massachusetts (included as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1997, File No. 0-
22480, and incorporated herein by reference)
10.15 Revolving Note dated June 5, 1997 between the Company and Citizens Bank
of Massachusetts (included as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1997, File No. 0-
22480, and incorporated herein by reference)
10.16 Term Note dated June 5, 1997 between the Company and Citizens Bank of
Massachusetts (included as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1997, File No. 0-
22480, and incorporated herein by reference)
10.17 Interim Note dated June 5, 1997 between the Company and Citizens Bank
of Massachusetts (included as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1997, File No. 0-
22480, and incorporated herein by reference)
10.18 Security Agreement dated June 5, 1997 between the Company and Citizens
Bank of Massachusetts (included as Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, File
No. 0-22480, and incorporated herein by reference)
10.19 Grant of Security Interest in Trademarks dated June 5, 1997 between the
Company and Citizens Bank of Massachusetts (included as Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
28, 1997, File No. 0-22480, and incorporated herein by reference)
10.20 Account Control Agreement dated June 5, 1997 between the Company,
Citizens Bank of Massachusetts and Fleet National Bank (included as
Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997, File No. 0-22480, and incorporated herein
by reference)
10.21 Real Estate Note dated July 30, 1997 between the Company and Citizens
Bank of Massachusetts (included as Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, File
No. 0-22480, and incorporated herein by reference)
10.22 Mortgage dated July 30, 1997 between the Company and Citizens Bank of
Massachusetts (included as Exhibit 10.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1997, File No. 0-
22480, and incorporated herein by reference)
10.23 Purchase and Sale Agreement dated August 12, 1997 between the Company
and Pike Industries, Inc.
*10.24 Sales Agreement and Deposit Receipt dated July 25, 1997 between the
Company and Kathryn M. DeLong
*10.25 Sales Agreement and Deposit Receipt dated July 25, 1997 between the
Company and Alice E. Fabian
*10.26 Sales Agreement and Deposit Receipt dated July 25, 1997 between the
Company and Ralph S. and Kelly F. Jesseman
10.27 Lease dated August 15, 1997 between the Company and Central NH Realty,
Inc.
PER SHARE EARNINGS
11.1 Statement re: computation of per share earnings
CONSENT OF EXPERTS AND COUNSEL
23.1 Consent of Coopers & Lybrand L.L.P. dated September 9, 1997
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
POWER OF ATTORNEY
24.1 Power of Attorney (included on page II-6)
FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions contained in the Restated Certificate of
Incorporation and By-laws, as amended, of the Registrant and the laws of the
State of Delaware, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Hingham, The Commonwealth of Massachusetts, on
September 10, 1997.
DM Management Company
/s/ Gordon R. Cooke
By: ________________________________
Gordon R. Cooke
President, Chief Executive
Officer and
Chairman of the Board of
Directors
POWER OF ATTORNEY
We, the undersigned officers and directors of DM Management Company, hereby
severally constitute and appoint Gordon R. Cooke, Samuel L. Shanaman and Olga
L. Conley, and each of them singly, our true and lawful attorneys with full
power to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-2 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) under the Securities Act of 1933
and generally to do all such things in our names and on our behalf in our
capacities as officers and directors to enable the Registrant to comply with
the provisions of the Securities Act of 1933 and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto or to any subsequent
Registration Statement for the same offering which may be filed under said Rule
462(b).
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
/s/ Gordon R. Cooke
__________________________________ President, Chief September 10,
GORDON R. COOKE Executive Officer and 1997
Chairman of the Board
of Directors
(Principal Executive
Officer)
/s/ Samuel L. Shanaman
__________________________________ Executive Vice September 10,
SAMUEL L. SHANAMAN President, Chief 1997
Operating Officer and
Director
/s/ Olga L. Conley
__________________________________ Vice President -- September 10,
OLGA L. CONLEY Finance, Chief 1997
Financial Officer and
Treasuer (Principal
Financial and
Accounting Officer)
/s/ William E. Engbers
__________________________________ Director September 10,
WILLIAM E. ENGBERS 1997
/s/ Walter J. Levison
__________________________________ Director September 10,
WALTER J. LEVISON 1997
/s/ Thomas J. Litle
__________________________________ Director September 10,
THOMAS J. LITLE 1997
/s/ Ruth M. Owades
__________________________________ Director September 10,
RUTH M. OWADES 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
UNDERWRITING
*1.1 Form of Underwriting Agreement
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 Restated Certificate of Incorporation of the Company (included as
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 25, 1993, File No. 0-22480, and incorporated
herein by reference)
4.2 By-Laws of the Company, as amended (included as Exhibit 3.2 to the
Company's Current Report on Form 8-K dated January 14, 1997, File No.
0-22480, and incorporated herein by reference)
4.3 Specimen certificate for the Common Stock of the Company (included as
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-67512, and incorporated herein by reference)
LEGAL OPINION
5.1 Opinion of Foley, Hoag & Eliot LLP
MATERIAL CONTRACTS
10.1 Ninth Amended and Restated Registration Rights Agreement, dated as of
August 12, 1993, by and among the Company, Allstate Insurance Company,
Aegis II Limited Partnership and Aegis Select Limited Partnership
(included as Exhibit 10.4 to the Company's Registration Statement on
Form S-1, Registration No. 33-67512, and incorporated herein by
reference)
10.2 Lease Agreement dated September 14, 1989, between the Company and
Richard D. Matthews and Richard J. Valentine, Trustees of Bare Cove
Realty Trust established u/d/t dated January 10, 1984, as amended
(included as Exhibit 10.13 to the Company's Registration Statement on
Form S-1, Registration No. 33-67512, and incorporated herein by
reference)
10.3 Third Amendment to Lease Agreement dated September 14, 1989, between
the Company and Richard D. Matthews and Richard J. Valentine, Trustees
of Bare Cove Realty Trust established u/d/t dated January 10, 1984, as
previously amended (included as Exhibit 10.3 to the Company's
Transition Report on Form 10-K for the transition period from June 30,
1996 to December 28, 1996, File No. 0-22480, and incorporated herein
by reference)
10.4 Fourth Amendment to Lease Agreement dated September 14, 1989, between
the Company and Richard D. Matthews and Richard J. Valentine, Trustees
of Bare Cove Realty Trust established u/d/t dated January 10, 1984, as
previously amended (included as Exhibit 10.4 to the Company's
Transition Report on Form 10-K for the transition period from June 30,
1996 to December 28, 1996, File No. 0-22480, and incorporated herein
by reference)
10.5 Lease Agreement dated February 21, 1997, between the Company and
MacNeill Worldwide, Inc. (included as Exhibit 10.6 to the Company's
Transition Report on Form 10-K for the transition period from June 30,
1996 to December 28, 1996, File No. 0-22480, and incorporated herein
by reference)
10.6 1988 Incentive Stock Option Plan (included as Exhibit 10.17 to the
Company's Registration Statement on Form S-1, Registration No. 33-
67512, and incorporated herein by reference)
10.7 1993 Incentive and Nonqualified Stock Option Plan, as amended
(included as Appendix A to the Company's definitive Proxy Statement
for its annual meeting of shareholders held on May 8, 1997, File No.
0-22480, and incorporated herein by reference)
10.8 1993 Employee Stock Purchase Plan (included as Exhibit 10.19 to the
Company's Registration Statement on Form S-1, Registration No. 33-
67512, and incorporated herein by reference)
10.9 Employment Letter Agreement dated December 21, 1995, between the
Company and Gordon R. Cooke (included as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 30, 1995,
File No. 0-22480, and incorporated herein by reference)
10.10 Employment Letter Agreement dated May 7, 1996, between the Company and
John J. Hayes (included as Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended June 29, 1996, File No. 0-
22480, and incorporated herein by reference)
10.11 1997 Incentive Compensation Plan (included as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
29, 1997, File No. 0-22480, and incorporated herein by reference)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.12 Employment Letter Agreement dated February 25, 1997, between the
Company and David Brown (included as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 29, 1997, File No. 0-22480, and incorporated herein by
reference)
10.13 Merchant Services Agreement between the Company and Hurley State
Bank, dated July 18, 1995 (included as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 24, 1995, File No. 0-22840, and incorporated herein by
reference)
10.14 Loan Agreement dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts (included as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997, File No. 0-22480, and incorporated herein by
reference)
10.15 Revolving Note dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts (included as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997, File No. 0-22480, and incorporated herein by
reference)
10.16 Term Note dated June 5, 1997 between the Company and Citizens
Bank of Massachusetts (included as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28,
1997, File No. 0-22480, and incorporated herein by reference)
10.17 Interim Note dated June 5, 1997 between the Company and Citizens
Bank of Massachusetts (included as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28,
1997, File No. 0-22480, and incorporated herein by reference)
10.18 Security Agreement dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts (included as Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997, File No. 0-22480, and incorporated herein by
reference)
10.19 Grant of Security Interest in Trademarks dated June 5, 1997
between the Company and Citizens Bank of Massachusetts (included
as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1997, File No. 0-22480, and
incorporated herein by reference)
10.20 Account Control Agreement dated June 5, 1997 between the Company,
Citizens Bank of Massachusetts and Fleet National Bank (included
as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1997, File No. 0-22480, and
incorporated herein by reference)
10.21 Real Estate Note dated July 30, 1997 between the Company and
Citizens Bank of Massachusetts (included as Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997, File No. 0-22480, and incorporated herein by
reference)
10.22 Mortgage dated July 30, 1997 between the Company and Citizens
Bank of Massachusetts (included as Exhibit 10.9 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28,
1997, File No. 0-22480, and incorporated herein by reference)
10.23 Purchase and Sale Agreement dated August 12, 1997 between the
Company and Pike Industries, Inc.
*10.24 Sales Agreement and Deposit Receipt dated July 25, 1997 between
the Company and Kathryn M. DeLong
*10.25 Sales Agreement and Deposit Receipt dated July 25, 1997 between
the Company and Alice E. Fabian
*10.26 Sales Agreement and Deposit Receipt dated July 25, 1997 between
the Company and Ralph S. and Kelly F. Jesseman
10.27 Lease dated August 15, 1997 between the Company and Central NH
Realty, Inc.
PER SHARE EARNINGS
11.1 Statement re: computation of per share earnings
CONSENT OF EXPERTS AND COUNSEL
23.1 Consent of Coopers & Lybrand L.L.P. dated September 9, 1997
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
POWER OF ATTORNEY
24.1 Power of Attorney (included on page II-6)
FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
Exhibit 5.1
[LETTERHEAD OF FOLEY, HOAG & ELIOT LLP APPEARS HERE]
September 10, 1997
DM Management Company
25 Recreation Park Drive
Hingham, Massachusetts 02043
Ladies and Gentlemen:
We are familiar with the Registration Statement on Form S-2, (the
"Registration Statement") filed today by DM Management Company, a Delaware
corporation (the "Company"), with the Securities and Exchange Commission under
the Securities Act of 1933, as amended. The Registration Statement relates to
the proposed public offering by the Company of 1,412,861 shares (the "Company
Shares") of its Common Stock, $0.01 par value per share ("Common Stock"), to be
issued by the Company, and to the proposed public offering by certain
stockholders of the Company (the "Selling Stockholders") of an aggregate of
1,752,404 additional shares (the "Stockholder Shares") of such Common Stock.
(The foregoing number of Company Shares assumes exercise in full of the
over-allotment option described in the Registration Statement.)
In arriving at the opinions expressed below, we have examined and
relied on the following documents:
(1) the Certificate of Incorporation and By-Laws of the Company, each
as amended through the date hereof; and
(2) the records of all meetings and consents of the Board of Directors
and stockholders of the Company.
In addition, we have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such corporate records of the
Company and such other instruments and other certificates of public officials,
officers and representatives of the Company
<PAGE>
DM Management Company
September 10, 1997
Page 2
and such other persons, and we have made such investigations of law, as we have
deemed appropriate as a basis for the opinions expressed below.
Based on the foregoing, it is our opinion that:
1. The Company has corporate power adequate for the issuance of the
Company Shares in accordance with the Registration Statement. The Company has
taken all necessary corporate action required to authorize the issuance and sale
of the Company Shares. When certificates for the Company Shares have been duly
executed and countersigned, and delivered against due receipt of consideration
therefor as described in the Registration Statement, the Company Shares will be
legally issued, fully paid and non-assessable.
2. When new certificates for the Stockholder Shares have been duly
executed and countersigned, and delivered as described in the Registration
Statement, the Stockholder Shares will be legally issued, fully paid and non-
assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Legal Matters" in the
prospectus forming part of the Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By:/s/ David R Pierson
----------------------
A Partner
<PAGE>
Exhibit 10.23
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT made and entered into this 12th day of August, 1997, by and
between PIKE INDUSTRIES, INC., a Delaware Corporation, of Tilton, New Hampshire,
hereinafter referred to as "Seller", and DM MANAGEMENT, INC., a Delaware
Corporation, hereinafter referred to as "Buyer".
W I T N E S S E T H
In consideration of One Dollar ($1.00) and other good and valuable
consideration by each party hereto paid to the other party, the receipt and
sufficiency whereof are hereby acknowledged, and in further consideration of the
mutual covenants and agreements hereinafter set forth, the parties hereto do,
subject to terms and conditions hereinafter set forth, hereby agree as follows:
1. PROPERTY
--------
REAL ESTATE SOLD:
(A) Seller agrees to sell and convey all of that certain parcel of
land containing 355.0 acres, more or less, with buildings and structures
located thereon, as further identified by the Preliminary Plan of Land
prepared for Pike Industries, Inc. (Tilton site), Sheets 1 - 6, prepared by
Yerkes Surveying Consultants dated March 31, 1997 ("the Property"),
--------
together with all improvements thereon and all appurtenances thereto
including, but not limited to, all easements and rights of way benefiting
the Property and any land lying in the bed of any street or avenue, open or
proposed, in front of or adjoining said premises to the center line thereof
or such other point as may be owned by Seller. Buyer acknowledges that the
State of New Hampshire has expressed an intention to take, by Eminent
Domain, an 18 acre portion of the Property at the southwesterly corner of
the Property for improvements to Exit 20.
EMINENT DOMAIN
(B) Buyer acknowledges that Seller has reserved and saved, to itself,
the right to, in Buyer's name, negotiate, settle, compromise, litigate, if
necessary, and to receive any compensation paid for the State of New
Hampshire Eminent Domain Taking of this 18 acre parcel, which parcel, is
preliminarily revealed on Sheet 2 of 6 of the March 31, 1997 Plan of Land
Prepared for Pike Industries by Yerkes Surveying Consultants. Buyer,
hereby, agrees to fully cooperate and assist Seller in achieving just
compensation for any such taking. Buyer agrees to promptly inform Seller of
all Notices of Taking or other notices with regard to any Eminent Domain
proceedings. Buyer agrees to promptly pay over or assign to
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
<PAGE>
Seller the right to receive all sums paid for the estimated or final just
compensation for the Eminent Domain Taking. This obligation shall survive
the closing time.
OLIVER'S RESTAURANT
(C) Buyer acknowledges that it is obligated to convey a 1-1/2 acre,
more or less, parcel of land to the owners of Oliver's Restaurant, which
parcel of land is more particularly identified in the Preliminary Plan of
Land prepared by or to be prepared by Yerkes Surveying Consultants. This
acknowledgement by Buyer is its irrevocable commitment to honor the oral
agreement made between Seller and the owners of Oliver's Restaurant, for
the conveyance of the above-described parcel in exchange for a like
conveyance from the owners of Oliver's Restaurant of a 2 acre, more or
less, parcel of land located northerly on Route 132 as shown on the
Preliminary Plan of Land Prepared for Pike Industries, Sheet 2 of 6, dated
March 31, 1997 by Yerkes Surveying Consultants.
PURCHASE
(D) Buyer agrees to buy and purchase the Property, and to accept
delivery of possession of the Property, pursuant to the terms and
conditions herein contained.
DEFINITIONS
(E)(i) The "Closing Documents" are the Deed referred to in Article 2
-----------------
hereof, and any other documents required by law or are customarily provided
by sellers of real estate in the county where the property is located, and
any consents, discharges, releases and other documents required so that
Seller may transfer and convey title to the Property, as herein required,
and all other documents required to be delivered at the Closing Time
(defined in Article 5 hereof) by each party hereto.
(E)(ii) As used in this agreement "Hazardous Materials" includes
-------------------
hazardous material, hazardous waste, toxic substances, contaminants,
pollutants or hazardous substances, as those terms are defined by any
Federal, State and Local Laws, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. 9601 et seq. as amended by the Superfund Amendments and
---------------------
Reauthorization Act, the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. 6901 et seq., the Clean Water Act, 33 U.S.C. 1251 et
---------------------- -----------------
seq., as amended, and all New Hampshire Environmental Laws including,
---
without limitation, asbestos and asbestos-containing material.
(E)(iii) As used in this agreement, "Reclamation" means the
-----------
reclamation of those areas of the Property affected by the on site
excavation, which reclamation is specifically required by the provisions of
N.H. RSA 155-E:5 I-V.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
2
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2. TITLE
-----
DEED, ENCUMBRANCES
(A) Title to the Property shall be conveyed by Warranty Deed
(hereafter referred to as "the Deed") which shall convey a clear record,
good and marketable title thereto, in fee simple, subject to no mortgages,
easements, restrictions, leases, agreements, encroachments, liens or
encumbrances except as listed in Exhibit A hereto (all collectively
sometimes herein referred to as "Permitted Encumbrances").
----------------------
ASSIGNMENTS
(B) Seller shall, at the Closing Time, assign to Buyer (together with
any third party consents which may be required to effectuate such
assignments, all without any assumption of liability by Buyer), all
warranties, guarantees, permits and variances affecting the Property, and
all agreements benefiting the Property, assignment of which is, requested
by Buyer, to the fullest extent assignment of all the foregoing is
permitted under law, including without limitation all guarantees and
warranties Seller may have from its contractors and materialmen.
3. ASSIGNEE
--------
The Grantee or Buyer named in each of the Closing Documents shall be
Buyer or such assignee or assignees of the Buyer, as Buyer shall designate,
at any time prior to Closing Time. Timely notice of any such assignment
shall be made, in writing, to Seller, within seven (7) days of any such
assignment and in any event, not less than seven (7) days prior to Closing
Time and shall have the benefit of all of the provisions enuring to the
Buyer hereunder. Such assignment or notice thereof shall not, in any way,
limit or alter the obligations of any party executing this agreement.
4. PURCHASE PRICE
--------------
PAYMENT
(A) The agreed purchase price hereunder payable to Seller by Buyer
pursuant hereto is Three Million Six Hundred Fifty Thousand ($3,650,000.00)
Dollars (hereinafter referred to as the "Purchase Price"), payable as
follows:
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
3
<PAGE>
DEPOSIT
(B) Two Hundred and Ten Thousand ($210,000.00) Dollars (hereafter
referred to as "the Deposit") upon the execution and delivery of this
-----------
agreement by parties hereto (herein referred to as the "Execution Date", in
--------------
escrow, to be held in interest bearing escrow account by Douglas A.
McIninch, Esquire (Escrow Agent).
DEPOSIT INTEREST
(C) At closing, the interest earned by the escrowed deposit shall be
applied as a credit toward the purchase price. In the event that there is
no closing, the interest earned on the deposit escrow shall become the
property of the Seller.
DEPOSIT UPON DEFAULT
(D) Buyer agrees that in the event of default by Buyer, under this
Agreement, that the Deposit shall not be refunded to Buyer if Seller has
undertaken to complete the site preparation, reclamation and grading
required by Paragraph 10.
BALANCE
(E) The Seller shall be paid, at closing, (i) the Deposit and
(ii) Three Million, Four Hundred and Forty Thousand Dollars, less the
accrued interest in the Deposit, in cash or by certified check or bank
cashier's check or by federal funds wire transfer of immediately available
funds.
5. CLOSING TIME
------------
(A) The "Closing Time" shall be at 10:00 a.m. on September 30, 1997,
which Closing Time may be extended for a reasonable period of time not to
exceed ninety (90) days, upon the mutual agreement of the Buyer and Seller
in the event that any required environmental remediation has not been
completed in accordance with the terms of this Agreement or that any
required Reclamation has not been completed in accordance with the terms of
this Agreement. The Closing Time also may be further extended in accordance
with the provisions of Paragraph 12(A).
LOCATION
(B) Such closing shall take place at such time and/or location as
Seller and Buyer may hereafter, at their mutual election, agree upon in
writing.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
4
<PAGE>
6. DELIVERY
--------
POSSESSION CONDITION
(A) At the Closing Time, Seller shall deliver full possession of the
Property to Buyer, free of all signs, equipment, tenants, and occupants,
and in the condition required under Paragraph 10(A), 10(B) and 10(C) with
the sole exception that the Sellers stockpile of recycled asphalt may
remain in place until November 30, 1997 at which time it must have been
removed by Seller, at Seller's expense. The obligation to remove the
recycled asphalt, as set out herein, shall survive the Closing Time.
SURVEY
(B) The Buyer may, if it elects, subject the property to a survey at
its own expense. Upon execution of this agreement, Buyer, its agents or
designees, shall be granted access to the property for the purposes of
conducting such a survey. Buyer may deliver to Buyer's title insurance
company, a survey of the Property accompanied by a Surveyor's Certificate
and/or Affidavit in customary form for the locality in which the Property
is situated and satisfactory to Buyer's title insurance company for the
purposes of issuing the required title policy, and in a form satisfactory
for recording each dated as of the time for delivery thereof required
hereunder. Buyer shall pay the cost of such a survey, Surveyor's
Certificate and/or Affidavit.
7. INSPECTIONS
-----------
ACCESS
(A) At any time after the Execution of this Agreement, Buyer, its
agents or designees, shall have the right to enter upon the Property to
inspect the Property and to make borings, take soil and ground water
samples, survey the boundaries and to perform such other activities as may
be necessary for a thorough investigation of the Property as required for
major commercial real estate transactions. Buyer shall furnish Seller with
copies of all reports prepared on behalf of Buyer as a result of such
investigation. In the event Buyer does not consummate purchase of the
Property for any reason other than default by Seller, Buyer shall, upon
request of Seller, restore the surface of the Property to its former
condition and remove any signs installed hereunder installed by Buyer.
Buyer shall indemnify, defend and hold Seller harmless against any
loss as a result of a claim by a party other than Seller caused by Buyer's
entry upon the Property made by Buyer unless caused by the negligence of
Seller.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
5
<PAGE>
HAZARDOUS MATERIALS
(B) If Buyer shall find, upon inspection, that the Property is not
suitable for use due to the presence of Hazardous Materials (herein defined
at Article I (C)(ii) on, in or under the Property, then Buyer shall give
notice thereof to Seller. Buyer's written notice to Seller shall include
copies of all site inspection reports, studies and documents. In the event
that Seller reasonably determines, upon such notice, that the cost of
removal and remediation is no more than Two Hundred Fifty Thousand
($250,000.00) Dollars, of if Seller fails to respond to Buyer's notice
within a thirty (30) day period of such notice, then Seller shall complete
the remediation within ninety (90) days of the receipt of the notice from
Buyer. Seller shall, within thirty (30) days of the receipt of Buyer's
notice, inform Buyer whether it has determined that the cost of remediation
is reasonably estimated to be less than Two Hundred Fifty Thousand
($250,000.00) Dollars and if in excess of Two Hundred Fifty Thousand
($250,000.00) Dollars the amount by which it is expected to exceed Two
Hundred Fifty Thousand ($250,000.00) Dollars and that this Agreement is not
terminated, pursuant to the next paragraph, due to the presence of
Hazardous Materials.
In the event that Seller provides written notice to Buyer that the
reasonable cost of remediation will exceed Two Hundred Fifty Thousand
($250,000.00) Dollars, Seller will, then, have the election to: (i)
terminate this Agreement and the deposit, less Seller's cost of site
preparation and less interest, shall be returned to Buyer; or (ii) offer
the Buyer the opportunity to absorb any remediation cost above Two Hundred
Fifty Thousand ($250,000.00) Dollars. Notice of such election by Buyer
shall be made, in writing, to Seller within fifteen (15) days of Seller's
notice of the determination of the remediation costs. The Closing Time may
be extended for up to ninety (90) days to permit the completion of the
remediation.
8. ACCEPTANCE
----------
(A) Acceptance of the Deed by the Buyer shall constitute full
performance and discharge of every agreement and obligation of Seller,
express or implied, pursuant to this agreement, except with respect to the
obligation to remove the recycled asphalt and with respect to those
representations and warranties in Article 15(F). This Purchase and Sale
agreement constitutes the entire agreement between the parties hereto with
respect to the Property and no verbal statements made by anyone with regard
to the transaction which is the subject of this agreement shall be
construed as a part, hereof, unless the same are incorporated herein by
writing.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
6
<PAGE>
9. BROKERS
-------
(A) Each party hereby warrants and represents to the other that it
has dealt with no brokers other than Kent Locke (hereinafter called the
"Broker") in connection with this agreement or any aspect of the
transaction herein contemplated and that each party will indemnify the
other party against and save the other party harmless from, all
commissions, fees and other costs, and claims thereof, by any other broker
who shall allege such broker has dealt with the indemnitor hereunder in
connection with the transaction herein contemplated. Buyer shall indemnify
Seller against, and save Seller harmless from, all commissions, fees and
other costs and claims thereof of the Broker and any person anytime
employed by or employing the Broker. Buyer shall pay the Broker's
commission in the amount of One Hundred Forty-six Thousand ($146,000.00)
Dollars, at closing, which payment shall not be a charge against the
purchase price.
10. SITE CONDITIONS AT CLOSING
--------------------------
ROUGH GRADING
(A) At closing, Seller will deliver the site, rough graded, employing
free draining on-site material compacted to 95% of a Standard Proctor. All
grades will be held to one foot below the finished grade of 493 feet in the
building and paved areas. Grades will be held to 6 inches below finished
grade in the areas to be loamed. Reference is made to the grading plan of
Sasaki Associates, dated August __, 1997, to be attached hereto as Exhibit
B, which is being prepared. The area to be rough graded shall not exceed
750,000 square feet and will be in the general area of the plans already
provided.
EXCAVATION RECLAMATION
(B) Buyer acknowledges and agrees that it will complete the
Reclamation of the areas of the Property affected by previous, on site,
excavation as is required by and to the standards specified in N.H. RSA
155-E:5 IV. Seller's obligation, hereunder, shall survive the Closing Time.
All Reclamation shall be completed by June 1, 1998.
SITE WORK - BUILDING CONSTRUCTION
(C) Buyer shall, at least thirty (30) days prior to Closing Time,
provide Seller with the complete and final set of fully engineered plans
for the site preparation work for the building construction. Seller shall,
within fifteen (15) days of the receipt of plan, inform Buyer with Seller's
specification of the cost to perform the site preparation work. In the
event that Buyer does not accept Seller's price for the on-site work and
separately contract for the site work with Seller, then Buyer may put the
site work out to bid by
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
7
<PAGE>
third parties. Seller shall have the right to match the price of any bona
fide bid from a third party and to do the work for the site preparations.
Seller shall have the right to receive duplicate copies of the bids
specifications provided to third party along with the third party bids. The
obligations of this paragraph shall survive but not delay the closing.
UTILITIES
(D) Seller shall provide and install an 8-inch water line and an 8-
inch sewer line to the Property. Buyer may elect to have a 16-inch water
line installed provided Buyer absorbs the additional cost of increasing the
size of the water line above 8 inches. Buyer acknowledges that the water
system is under the control of a private owner who is subject to regulation
by the Public Utilities Commission and the New Hampshire Department of
Environmental Services, Water Supply Division and, therefore, Buyer
acknowledges that Seller has no control over the water supply itself.
11. NON-CONFORMANCE AND REMEDIES
----------------------------
EXTENSION TO CURE DEFECTS
(A) Buyer shall, on or before September 15, 1997, notify Seller of
any defects in marketable title to the property. Upon such notice, Seller
shall have forty-five (45) days to inform Buyer of Seller's intentions to
cure the identified defects in marketable title. If Seller shall be unable
to convey marketable title to, or deliver possession of, the Property, as
required by this agreement, or if at the Closing Time the Property does not
conform to the requirements of this agreement, including without
limitation, Seller's representations, then Seller shall use reasonable
efforts to remove any defects in title, or to deliver possession as
provided herein, and to make the Property, conform to the provisions hereof
and to Seller's representations and agreements, as the case may be, in
which event Seller shall give notice thereof to Buyer at or before the
Closing Time and thereupon the Closing Time may be extended for one period
of ninety (90) days. If the closing does not occur because of Seller's
inability to cure the identified defect in marketable title, then the
agreement shall terminate and the deposit, less interest and the costs
incurred by Seller to bring the Property to the 493 foot grade, will be
returned to Buyer.
WAIVER
(B) Buyer shall also have the election, at either the original or any
extended Closing Time, to accept such title as Seller can deliver to the
Property and in its then condition, and to pay therefor the Purchase Price
without deduction, in which case Seller shall convey such title and deliver
possession in its then condition.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
8
<PAGE>
REMEDIES OF SELLER
(C) Seller agrees that in the event of a default by Buyer under this
Agreement, Seller's remedies at law and/or in equity shall be limited to
recover from, and up to the amount of, the Deposit. No other assets and no
further amounts shall be subject to execution, levy or otherwise by Seller
as a result of a default by Buyer or its obligations under this Agreement.
12. ADJUSTMENTS
-----------
OPERATIONS
(A) Water and sewer charges, taxes and assessments payable for the
tax year in which the Closing occurs shall be adjusted as of the Closing
Time, and the net amount thereof shall be added to or deducted from, as the
case may be, the amount payable by Buyer at the Closing Time. Taxes and
betterments and other assessments assessed for the tax year prior to the
tax year in which the Closing occurs and/or any prior year shall be paid by
Seller, except that betterments or special assessments previously assessed
but payable in annual installments shall be adjusted as of the Closing
Time. If the Property shall be part of a larger parcel for tax assessment
purposes, then taxes upon the land of such larger parcel shall be allocated
to the Property on a proportionate basis, each square foot of land area in
such larger parcel being deemed equal in valuation to every other square
foot of land area therein; and Seller shall promptly pay, when due, all
such taxes upon such larger parcel except for the portion thereof so
allocable to the Property.
POST-CLOSING
(B) If the amount of any of said taxes is not known at the Closing
Time, such amount shall be apportioned on the basis of the taxes assessed
for the tax year most recently known, with apportionment as soon as the new
tax rate and valuation can be ascertained; and, if the taxes which are to
be apportioned shall thereafter be reduced by abatement, the amount of such
abatement, less the reasonable cost of obtaining the same, shall be
apportioned between Seller and Buyer, provided that neither party shall be
obligated to institute or prosecute proceedings for an abatement. Seller
shall, before and after the Closing Time, cooperate with Buyer in filing
such statements, returns, applications and other materials as shall be
required for the separate assessment and taxation of the Property after the
Closing Time.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
9
<PAGE>
GOVERNMENTAL CHARGES
(C) State, county and local transfer taxes shall be shared equally by
Buyer and Seller and recording charges applicable to the transaction
described herein shall be payable by Buyer. All such transfer taxes and
recording fees shall be paid to Escrowee in sufficient time prior to the
Closing Time to enable Escrowee to complete the transaction herein
described at the Closing Time. In addition Seller shall pay to Buyer,
promptly after demand therefor, the entire amount of any land use change
tax or similar tax assessed against the Property, including any such tax
assessed after the Closing Time and the provisions of this sentence shall
survive the Closing.
13. NOTICES
-------
(A) All notices, requests and other communications pursuant hereto
shall be given only in writing and shall be deemed to have been given only
upon the receipt thereof (or the refusal to accept delivery thereof),
postage prepaid, by registered or certified mail, return receipt requested,
or by Federal Express, Purolator Courier, or similar overnight courier
which delivers only against signed receipt by the addressee thereof, to
each party at the addresses, and with the duplicate copies, hereinafter
provided, or at such alternate address as shall be designated by like
notice.
(i) if given to Seller, c/o Randolph Pike, for mail: 3 Eastgate
Park Road, Belmont, New Hampshire 03220, with a duplicate copy to Douglas
A. McIninch, Esquire, 650 Elm Street, Suite 403, Manchester, New Hampshire
03101.
(ii) if given to Buyer, Samuel Shanaman, at DM Management, 1
Winterbrook Way, Meredith, New Hampshire 03253, with a duplicate copy to
Donald Gartrell, Esquire, Gallagher, Callahan & Gartrell, 214 North Main
Street, P. O. Box 1415, Concord, New Hampshire 03302-1415.
14. MISCELLANEOUS
-------------
CHOICE OF LAW
(A) This agreement shall be construed in accordance with the laws of
New Hampshire.
AMENDMENT
(B) This agreement sets forth the entire understanding and agreement
of the parties. This agreement shall not be changed except by an instrument
in writing signed by both parties hereto. Any of the provisions of this
agreement may be waived only by an instrument in writing signed by the
party who desires to waive such provision.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
10
<PAGE>
SUCCESSORS
(C) This agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
COUNTERPARTS
(D) This agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts has been signed by each of the
parties and delivered to the other parties.
CAPTIONS
(E) The captions and marginal notes used herein are included only for
ease of reference and shall have no meaning whatsoever in the construction
of this instrument.
AUTHORITY
(F) Seller warrants and represents to Buyer, as follows:
(i) Seller is validly existing and in good standing under the
laws of the State of Delaware, and is specifically authorized to do
business in the State of New Hampshire, and has all authorization and
direction necessary to execute and deliver this agreement and to perform
the obligations of Seller hereunder. This agreement has been duly executed
and delivered by Seller and constitutes Seller's legal, valid, and binding
obligation, enforceable in accordance with its terms except as such
enforceability is subject to applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting creditors'
rights generally and to generally applicable principles of equity.
(ii) No suit, action, litigation or administrative proceeding is
threatened or commenced against Seller which affects the Property or which
may affect Seller's performance hereunder or which could give rise to a
lien against the Property, including without limitation, eminent domain
proceedings other than as referenced in Paragraph 1(B).
COST AND EXPENSE
(G) Wherever it is herein provided that a party shall or may perform
any activity the same shall be done at its sole cost and expense unless a
contrary intent is expressly set forth herein.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
11
<PAGE>
WARRANTIES AND REPRESENTATIONS
(H) Buyer warrants and represents to Seller, as follows:
(i) Buyer is a corporation validly existing and in good standing
under the laws of the State of Delaware and is specifically authorized to
do business in the State of New Hampshire, and has all the requisite power
and authority to purchase and own real estate.
SURVIVAL
(I) It is the intention of the parties hereto that the Closing may
occur, notwithstanding the need for Buyer and/or Seller to continue to
remain obligated to perform and be bound by certain obligations and
agreements set forth in this Agreement. In that regard, the parties hereto
agree that the terms, covenants, agreements and conditions of this
Agreement shall survive Closing, as may be necessary to carry out the
intent of the parties hereto under this Agreement.
Date: PIKE INDUSTRIES INC.
/s/ Paul E. Swenson /s/ Randolph K. Pike
_______________________________ By:_____________________________
Witness Its: Randolph K. Pike
Taxpayer ID No. 02-0422469
Date: 8/13/97 DM MANAGEMENT
/s/ Stephen W. Lord /s/ Samuel L. Shanaman
_______________________________ By:_____________________________
Witness Its: Chief Operating Officer
Taxpayer ID No. 04-2973769
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
12
<PAGE>
EXHIBIT A
PERMITTED ENCUMBRANCES
1. Existing building and zoning laws.
2. Taxes and other similar municipal charges for the year in which the
closing occurs which are not due and payable as of the Closing Time.
3. The 135' power line easement to the Public Service Company of New
Hampshire shown more particularly on the Preliminary Plan of Land
Prepared for Pike Industries by Yerkes Surveying Consultants dated
March 31, 1997 at Sheet 3 of 6.
4. A potential 20 foot expansion of the Route 132 right-of-way.
Douglas A. McIninch, Attorney At Law, The Center of New Hampshire Office Tower
650 Elm Street--Suite 403, Manchester, NH 03101--Tel. 603-669-7530
13
<PAGE>
EXHIBIT 10.27
LEASE
-----
In consideration of the covenants herein contained, CENTRAL NH REALTY,
INC., of 144 Lexington Drive, Laconia, New Hampshire, 03246, hereinafter called
"LESSOR", which expression shall include successors and assigns where the
context so admits, does hereby lease to DM MANAGEMENT COMPANY, having an address
at One Winterbrook Way, Meredith, New Hampshire, 03253, hereinafter called
"LESSEE", which expression shall include successors, executors, administrators
and assigns where the context so admits, and LESSEE hereby lease the following
described premises, hereinafter called the "Leased Premises".
112,900 square feet of office/industrial/warehouse/distribution space in
the building located at 144 Lexington Drive, Laconia, New Hampshire. The
112,900 sq. ft. represents the entire portion of the subject building.
TO HAVE AND HOLD the Leased Premises for a term of two (2) years commencing
on or before September 15, 1997 (see Appendix I attached hereto). The Lessor
also agrees to provide the option of an additional one (1) year period. The
lease rate for any option period would be subject to renegotiation. The Lessor
and Lessee would be obligated to provide a 180 day notice period to each other.
In other words, if the Lessor is going to need the lease space, the Lessor would
give 180 day notice to the Lessee that the option to renew is not available.
Likewise, the Lessee would provide 180 day notice to the Lessor in the event
they elect not to extend for a (1) year period.
LESSOR and LESSEE now covenant and agree that the following terms and
conditions shall govern this lease during the term hereof and for such further
time as LESSEE shall hold the Leased Premises.
1. BASE RENT AND NOTICE - Lessee shall pay to Lessor the rent at the rate
--------------------
of Three Dollars and Seventy-five Cents ($3.75) per square foot for an area of
approximately 108,000 sq. ft. And Four Dollars and Fifty Cents ($4.50) per
square foot for an area of approximately 4,900 sq. ft. with a total rent of
$427,050 per year or $35,587.50 per month.
All payments are to be made to LESSOR: CENTRAL NH REALTY, INC. At 144
LEXINGTON DRIVE, LACONIA, NEW HAMPSHIRE 03246.
2. SECURITY DEPOSIT: An additional deposit which equals two month's rent
----------------
and totals $71,175.00 will be due upon execution of this Lease.
3. USE OF PREMISES: Lessee shall use the Leased Premises for the purpose
---------------
of storage and distribution of dry goods (clothing) or any uses associated with
such an operation.
4. ADDITIONAL RENT: The Lessee shall be responsible for all expenses
---------------
associated with the space with the exception of structural maintenance only. In
other words, this lease is a triple net lease or (absolute lease) with the
Lessee paying the real estate taxes, insurance, all utilities, grounds
1
<PAGE>
maintenance, snow removal, and any other expenses incidental maintaining the
premises and such expenses shall constitute additional rent. In the case of
utilities, the Lessee shall arrange direct service from the appropriate vendors
and pay such obligations directly to said vendor. In the case of real estate
taxes, the Lessor shall bill the Lessee upon receipt of tax bills from the City
and these will be due approximately at the end of the third and the ninth month
of the term of said lease. The Insurance obligation for that portion of the
building occupied by the Lessee shall also be billed at the same time as the
real estate taxes or in other words, two billings during the lease period. The
snow removal, grounds maintenance and other incidental expenses shall be billed
monthly or shall be the Lessee's responsibility. Lessee is free to make all
arrangements for care and maintenance of the property, since they are the sole
tenant after approximately December 21, 1997.
5. UTILITIES - As stated above under additional rent, the Lessee shall be
---------
responsible for the expense of electricity and any electrical improvements
necessary to accommodate Lessee's operations.
6. COMPLIANCE WITH LAWS - Lessee acknowledges that no trade or occupation
--------------------
shall be conducted on the Premises or use made thereof which will be unlawful,
improper, noisy or offensive, or contrary to any state or federal law or any
municipal ordinance in force during the term hereof.
7. FIRE INSURANCE - Lessee shall not permit any use of the leased Premises
--------------
which will cause or increase in the Lessor's insurance premium or make voidable
any insurance on the property of which the Premises are a part, or on the
contents of said property or which shall be contrary to any law or regulation
from time to time established by the New England Insurance Rating Association,
or any similar body. Lessee shall, on demand, reimburse Lessor, all extra
insurance premiums caused by Lessee's use of the Premises.
8. MAINTENANCE OF PREMISES - Lessee shall be responsible for the
-----------------------
maintenance of the space that they occupy and as appropriate, any common areas
they occupy. Said common area(s) to be applicable only during the initial lease
period, since the building will be fully occupied by the Lessee by December 21,
1997.
9. ASSIGNMENT - SUBLEASING - Lessee shall not assign or sublet the whole
-----------------------
or any part of the Premises without Lessor's prior written consent not to be
unreasonably withheld. In the event a sublease is consented to, Lessee will
remain liable to Lessor for the payment of all rent and for the full performance
of the covenants and conditions of this lease.
10. SUBORDINATION - Only insofar as advance rent beyond the normal thirty
-------------
days in advance for improvements, etc., shall this Lease be subject and
subordinate to any and all mortgages and other instruments in the nature of a
mortgage, now or at any time hereafter and Lessee shall, when requested,
promptly execute and deliver such written instruments as shall be necessary to
show the subordination of this lease to said mortgages or other such instruments
in the nature of a mortgage insofar as any additional rent obligation, but this
shall not apply to the base rent which has, in fact, been paid in advance.
2
<PAGE>
11. LESSOR'S ACCESS - Lessor or agents of Lessor may at reasonable times
---------------
enter to view the Premises and may remove any signs not approved and affixed as
herein provide, and may make repair and alterations as Lessor should elect to do
and repairs which Lessee is required but has failed to do. Said Lessor's access
shall also provide for limited and reasonable access to the mezzanine area
retained within the demised premises.
12. INDEMNIFICATION AND LIABILITY - Lessee shall save Lessor harmless and
-----------------------------
indemnify it from and against any and all claims, actions, loss, damages,
liabilities and expense including attorney's fees in connection with the loss of
life, personal injury and/or damage to property arising out of or resulting from
any occurence upon the Leased Premises during the term of this Lease, if
occasioned wholly or in part by any act, neglect, failure or omission of Lessee,
its officers, agents or employees, on the Leased Premises, except to the extent
such indemnity is prohibited by law. In case Lessor shall, without fault on its
part, be made a party to any litigation commenced by or against Lessee, then
Lessee shall protect and hold Lessor harmless and indemnify it from and against
any and all claims, actions, loss damages, liabilities and expense including
attorney's fee in connection with the loss of life, personal injury and/or
damage to property arising out of or resulting from any occurrence upon the
Lease Premises during the term of this Lease, if occasioned wholly or in part by
any act, neglect, failure or omission of LESSEE, its officers, agents or
employees, on the Leased Premises, except to the extent such indemnity is
prohibited by law.
13. LESSEE'S LIABILITY INSURANCE - Lessee shall be solely responsible as
----------------------------
between Lessor and Lessee for deaths or personal injuries to all persons
whomsoever occurring on the Premises from whatever cause arising and damage to
property to whosoever belonging arising out of the use, control, condition or
occupation of the Premises by Lessee; and Lessee agrees to indemnify and save
harmless Lessor from any and all liability, reasonable expenses, damage causes
of actions, suits, claims or judgments caused by or in any way growing out of
any matters aforesaid, except for death, personal injuries or property damage
directly resulting from a negligent act or acts on the part of Lessor; and
Lessee will secure and carry out at its own expense a public liability policy
insuring it and Lessor against any claims based on bodily injury (including
death) arising out of the condition of the Premises or their use by Lessee; such
policy to insure Lessee and Lessor against any claim up to Five Hundred Thousand
Dollars ($500,000.00) in the case of one person and up to One Million Dollars
($1,000,000.00) in the case of any one accident involving bodily injury
(including death) to more than one person, and insuring Lessor and Lessee
against any claims for damage to property up to an amount of One Hundred
Thousand Dollars ($100,000.00). Lessee will promptly file with Lessor
certificates showing that such insurance is in force and thereafter within
thirty (30) days prior to the expiration of any such policies. All such
insurance certificates shall provide that such policies shall not be canceled
without at least ten (10) days prior written notice to each assured named
therein.
WAIVER OF SUBROGATION - The parties release each other and their respective
authorized representatives from any claims for damages to any person or to
the Leased Premises, fixtures, personal property, improvements and
alterations of either Lessor or Lessee inor on the Leased Premises that are
caused by or result from risks insured against under any insurance policy
carried by the parties and in full force at the time of any such damage.
3
<PAGE>
Within ninety (90) days of the execution of this Lease each party shall
cause each insurance policy obtained by it to provide that the insurance
company waives all rights of recovery by way of subrogation against either
party in connection with any damages covered by any policy. Neithe rparty
shall be liable to the other for any damage caused by fire or any of the
risks insured against under any insurance policy required by this Lease.
If any insurance policy cannot be obtained with a wiaver of subrogation,
the party undertaking to obtain the insurance shall notify the other party
of this fact and the other party is relieved of the obligation to obtain a
waiver of subrogation rights with respect to the particular insurance
involed.
15. FIRE, CASUALTY - EMINENT DOMAIN - Should a substantial portion of the
-------------------------------
Premises, or of the property of which they are a part, be substantially damaged
by fire or other casualty, or be taken by eminent domain, Lessor may elect to
terminate this lease. When such fire casualty, or taking renders the Premises
substantially unsuitable for their intended use, a just and proportionate
abatement of rent shall be made and Lessee may elect to terminate this lease if:
a. Lessor fails to give written notice within thirty (30) days of
intention to restore the Premises, or
b. Lessor fails to restore the Premises to a condition substantially
suitable for their intended use within ninety (90) days of said fire, casualty
or taking.
Lessor reserves, and Lessee grants to Lessor, all rights which Lessee may
have for damages or injury to the Premises for any taking by eminent domain,
except for damage to Lessee's fixtures, property or equipment or other damages
specifically allocated to Lessee by any taking authority.
16. DEFAULT AND BANKRUPTCY - The provisions of this paragraph shall not
----------------------
apply insofar as any advanced rent that may be made is concerned, to Lessor upon
execution of said Lease or thereafter. However, insofar as any additional rent
obligation created by ongoing monthly expenses which constitute additional rent,
then, in the event that:
a. Lessee shall be declared bankrupt or insolvent according to law, or if
any assignment shall be made of Lessee's property for the benefit of creditors;
or
b. Lessee shall default in the payment of any additional rent or other
sums herein specified and such default shall continue for ten (10) days after
written notice thereof; or
c. Lessee shall default in the observance or performance of any other of
Lessee's covenants, agreements, or obligations hereunder and such default shall
not be corrected within thirty (30) days after written notice thereof;
Then Lessor shall have the right thereafter while such default continues,
to re-enter and take complete possession of the Premises, to declare the term of
this lease ended, and remove Lessee's
4
<PAGE>
effects, without being deemed guilty of any manner of trespass and without
prejudice to any remedies which might be otherwise used for arrears of
additional rent or other default or breach of covenants,
Lessee shall indemnify Lessor against all loss of additional rent and other
payments which Lessor may incur by reason of such termination during the residue
of the term.
If Lessee shall default, after reasonable notice thereof, in the observance
or performance of any conditions or covenants on Lessee's part to be observed or
performed under or by virtue of any of the provisions in any article of this
lease, lessor, without being under any obligation to do so and without thereby
waiving such default, may remedy such default to the account and at the expense
of Lessee. If the payment of money in connection therewith, including but not
limited to reasonable attorney's fees in instituting, prosecuting or defending
any action or proceeding, such sums paid or obligations incurred, shall be paid
to Lessor with interest at the rate of one and one-half percent (1.5%) per month
by Lessee.
17. NOTICE - Any notice from Lessor to Lessee relating to the Premises or
------
to the occupancy thereof shall be deemed duly served, if mailed to Lessee (DM
MANAGEMENT COMPANY, One Winterbrook Way, Meredith, NH, 03253) by registered or
certified mail, return receipt requested, postage prepaid. Any notice from
Lessee to Lessor relative to the Premises or to the occupancy hereof, shall be
deemed duly served, if mailed to Lessor by registered or certified mail, return
receipt requested, postage prepaid, addressed to Lessor at such address as
Lessor has last designated.
18. ACCESS, PARKING AND USE OF COMMON AREAS - Lessee will not obstruct in
---------------------------------------
any manner any portion of the building not hereby leased, including driveways
and approaches to said building, the shipping/receiving area, and the truck
docks and will conform to all reasonable rules now or hereafter made by Lessor
concerning the use of common areas and for the care and use of the building, its
facilities and approaches. Lessee further warrants that Lessee will not permit
any employ to violate this or any other covenants or obligation of Lessee and
will take reasonable steps to prevent violation by its invitees. Lessee shall
have the right to park necessary vehicles in the front of the demised space.
19. FIRE PREVENTION - Lessee agrees to provide and maintain approved,
---------------
labeled fire extinguishers within the Premises as recommended by the New England
Insurance Rating Association for protective credit.
20. USE OF COMMON AND OUTSIDE AREAS - No goods or things of any type or
-------------------------------
description shall be held or stored outside of the Premises or in a common area
for longer than one (1) week without the express written approval of Lessor.
Lessee shall be responsible for disposal and removal of their own trash.
21. RESPONSIBILITY - Lessor shall not be held liable to anyone for the
--------------
cessation of any service rendered customarily to said Premises or building
agreed to by the terms of this lease, due to any accident, to the making of
repairs, alterations or improvements, to labor difficulties, to mechanical
breakdowns, to trouble in obtaining fuel, electricity, service or supplies from
the sources from which they are usually obtained for said building or to any
cause beyond the Lessor's immediate control.
5
<PAGE>
Notwithstanding the foregoing, any repairs or alterations to the Premises made
by Lessor shall not unduly interfere with Lessee's use and enjoyment of same.
22. ENVIRONMENT - Both Lessor and Lessee agree to maintain efficient and
-----------
effective devices for preventing and eliminating any odors or interfere with the
use and enjoyment of other portions of buildings by others by reasons of odors,
noise, accumulation of garbage or trash, vermin or other pests or otherwise.
Insofar as appropriate for any permits necessary to accommodate the Lessee's
use, Lessee acknowledges that it is solely responsible for the acquisition of
such permits prior to commencing operations for such permits which may be
required by any governmental unit or agency.
23. SURRENDER - Lessee shall, at the expiration or other termination of
---------
this lease, remove all of Lessee's goods and effects from the Premises. Lessee
shall deliver to Lessor the Premise and all keys, locked thereto, and other
fixtures connected therewith and all alterations and additions made to or upon
the Premises, broom clean and in the same condition as they were at the
commencement of the term, or as they were put in during the term hereof
reasonable wear and tear and damage by fire or other casualty excepted. In the
event of Lessee's failure to remove any of Lessee's property from the Premises,
Lessor is hereby authorized, with liability to Lessee for loss or damage thereto
and at the sole risk of Lessee, to remove and store any property at Lessee's
expense, or to retain same under Lessor's control or to sell at public or
private sale, without notice, any or all of the property not so removed and to
apply the net proceeds of such sale to the payment of any sum due hereunder or
to destroy such property.
24. WAIVERS - No consent or waiver, express or implied, by Lessor, to or
-------
of any breach of any covenant, condition or duty of Lessee, shall be construed
as a consent or waiver to or of any other breach of the same or any other
covenant, condition or duty. If Lessee is several person or a Partnership,
Lessee's obligations are joint or partnership and also several. Unless
repugnant to the context, Lessor and Lessee mean the person or persons, natural
or corporate, named above as Lessor and Lessee respectively, and their
respective heirs, executors, administrators, successors and assigns.
25. ADDITIONAL PROVISIONS - All movable trade fixtures and racking devices
---------------------
installed by Lessee in the premises shall remain the property of the Lessee and
shall be removable from time to time prior to the expiration of the lease or
upon expiration of the lease. Furthermore, any improvements required by the
Lessee to accommodate occupancy and security shall be installed by the Lessee.
For example, any partitions required to separate the lease space from space
occupied by other temporary tenants, such as the wall between Aavid Engineering
and the Lessee and the separation of the loading docks on the north end of the
building. This is not intended to be in conflict with the Addendum to Lease and
Deposit Receipt between the Lessor and Lessee dated August 13, 1997 and attached
hereto.
26. HAZARDOUS WASTE - A "hazardous substance" is any petroleum product,
---------------
asbestos product, or other material, substance or waste which is recognized as
being hazardous or dangerous to health or the environment of any federal, state,
or local agency having environmental protection jurisdiction over the Premises.
Lessor and Lessee agree not to generate, store, handle or dispose of any
hazardous substance in or upon the Premises during the term of this Lease. In
the event, however, that any substance currently used in Lessor's or Lessee's
business during the Lease term is or shall become designated a hazardous
substance, Lessor or Lessee shall, to the extent practicable, discontinue the
use of the substance on the Premises. If not practicable, for Lessor or Lessee
to
6
<PAGE>
discontinue such use, then Lessor or Lessee agree that it will only continue the
use of the hazardous substance on the Premises in a manner consistent with all
standards and regulations for safe use of such hazardous substance promulgated
by governmental agencies having jurisdiction. Lessee shall indemnify and hold
Landlord harmless from and against any and all demands, claims, enforcement
actions, costs and expenses, including reasonable attorney's fees, arising out
of the breach of this paragraph by Lessee and Lessor shall hold Lessee likewise
harmless in the event that the Lessor is the generator of the hazardous waste.
27. HOLDING OVER: If LESSEE holds over or remains in possession of the
--------------
Leased premises after the expiration of the original term of this Lease or any
renewal term, without Lessor's prior written consent, Lessor may at Lessor's
option: (1) deem such hold over a renewal of this Lease for a 1 year term under
the same terms, covenants and conditions, or (2) Lessor may take such steps as
may be required to remove Lessee from the Leased premises and until Lessee
vacates or is removed from the Leased Premises, Lessor shall be entitled to
payment from Lessee of rent for each month or fraction of a month during which
Lessee hold over.
28. NOTICE TO QUIT: LESSEE waives notice to quit and agrees to surrender
--------------
the Leased Premise, at the expiration of said term, or the termination of this
Lease or any renewal thereof, without any notice whatsoever.
29. MERGER: This Lease contains the entire agreement between the parties
------
and no agreement shall be effected to change, modify or terminate this Lease in
whole or in part unless such is in writing and duly signed by the party against
who enforcement of such change, modification or termination is sought. Lessee
acknowledges that it is not relying on any representations or promises of the
Lessor, or of any agent of the Lessor, except as may be expressly set forth in
this Lease.
30. PARTIAL INVALIDITY: If any term, covenant or condition of this Lease
------------------
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Lease or the application of
such term, covenant or condition to the persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be effected
thereby and each term, covenant or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
31. PARAGRAPH HEADINGS: The paragraph headings as to the content of
------------------
particular paragraphs herein are inserted only for convenience and are in no way
to be construed as part of such paragraph or as a limitation on the scope of the
particular paragraph to which they refer.
The conditions and terms of the lease and building specifications other
than hereinabove provided shall be subject to the mutual approval of the Lessee
and Lessor.
7
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have hereunto set their hands and
common seals this 15th day of August, 1997.
In presence of: CENTRAL NH REALTY, INC., LESSOR
/s/ Kent D. Locke, Jr. BY: /s/ Odilon A. Cormier
- -------------------------------------- ----------------------------------
Witness Its: Pres.
DM MANAGEMENT COMPANY,
LESSEE
/s/ Kent D. Locke, Jr. BY: /s/ Stephen W. Lord
- -------------------------------------- ----------------------------------
Witness Its: Director Distribution Center
8
<PAGE>
APPENDIX 1
----------
SCHEDULE OF LEASE SPACE AND PAYMENT PLAN
<TABLE>
<CAPTION>
Designated Space Occupancy Date Square Footage Total Lease Rate/Mo.
---------------- -------------- -------------- --------------------
<S> <C> <C> <C>
A Sept. 15, 1997 20,000 SF w/dock $6,250.00
B Sept. 30, 1997 20,000 SF w/dock $6,250.00
C Sept. 8, 1997 8,000 SF $2,500.00
D Sept. 8, 1997 2,000 SF $ 625.00
E Sept. 8, 1997 21,000 SF w/office $6,868.80
F Sept. 15, 1997 12,900 SF $4,031.25
G Sept. 15, 1997 13,000 SF $4,062.50
H Dec. 21, 1997 16,000 SF $5,000.00
</TABLE>
Breakdown of time schedule for designated areas:
<TABLE>
<CAPTION>
Area Total
---- ------
<S> <C> <C> <C>
Sept. 8, 1997 Areas C, D, E = $ 9,993.80/mo.
Sept. 15, 1997 Areas A, F, G = $14,343.75/mo. $24,337.60
----------
Sept. 30, 1997 Area B = $ 6,250.00/mo. $30,587.60
----------
Dec. 21, 1997 Area H = $ 5,000.00/mo. $35,587.50
==========
</TABLE>
<PAGE>
[Floor Plan]
<PAGE>
EXHIBIT 11.1
DM MANAGEMENT COMPANY AND SUBSIDIARY
REGISTRATOIN STATEMENT ON FORM S-2
COMPUTATION OF PER SHARE EARNINGS
<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> <C>
Primary:
Weighted average shares
of common stock outstanding
during the period............ 2,712,491 4,229,390 4,276,679 4,261,962 4,364,723 4,291,962 4,529,189
Adjustments:
Assumed exercise of options... 463,517 380,163 163,925 - 371,719 327,850 527,347
Preferred stock............... 476,387 - - - - - -
Shares relating to SAB 83
for stock options............ 66,464 - - - - - -
Shares relating to SAB 83
for preferred stock.......... 358,038 - - - - - -
--------- --------- --------- --------- --------- --------- ---------
4,076,897 4,609,553 4,440,604 4,261,962 4,736,442 4,619,812 5,056,536
========= ========= ========= ========= ========= ========= =========
</TABLE>
<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> <C>
Fully diluted:
Weighted average shares
of common stock outstanding
during the period............ 2,712,491 4,229,390 4,276,679 4,261,962 4,364,723 4,291,962 4,529,189
Adjustments:
Assumed exercise of options... 467,634 389,564 241,260 - 371,763 382,080 680,337
Preferred stock............... 476,387 - - - - - -
Shares relating to SAB 83
for stock options............ 66,688 - - - - - -
Shares relating to SAB 83
for preferred stock.......... 358,038 - - - - - -
--------- --------- --------- --------- --------- --------- ---------
4,081,238 4,618,954 4,517,939 4,261,962 4,736,486 4,674,042 5,209,526
========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 of our
report dated February 4, 1997, on our audits of the 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.
We also consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Financial Data."
We also consent to the incorporation by reference in the registration statement
of DM Management Company and subsidiary on Form S-2 of our report dated August
9, 1996, except as to the information presented in Note D, for which the date is
September 10, 1996, on our audits of the consolidated financial statements and
financial statement schedules of DM Management Company and subsidiary as of June
24, 1995 and June 29, 1996, and for each of the three fiscal years in the period
ended June 29, 1996.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 9, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT JUNE 28, 1997 AND FROM THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 28, 1997 CONTAINED IN THE
COMPANY'S REGISTRATION STATEMENT ON FORM S-2 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REGISTRATION STATEMENT ON FORM S-2.
</LEGEND>
<CIK> 0000910721
<NAME> DM MANAGEMENT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 6,388
<SECURITIES> 3,872
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 11,279
<CURRENT-ASSETS> 28,936
<PP&E> 7,033
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,995
<CURRENT-LIABILITIES> 15,132
<BONDS> 4,446
0
0
<COMMON> 46
<OTHER-SE> 23,371
<TOTAL-LIABILITY-AND-EQUITY> 42,995
<SALES> 57,428
<TOTAL-REVENUES> 57,428
<CGS> 25,415
<TOTAL-COSTS> 35,628
<OTHER-EXPENSES> 18,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 2,862
<INCOME-TAX> 1,116
<INCOME-CONTINUING> 1,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,746
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
</TABLE>
