<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1997
REGISTRATION NO. 333-35267
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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. [_]
---------------
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 OCTOBER 17, 1997
2,752,404 Shares
LOGO
LOGO
Common Stock
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Of the 2,752,404 shares of Common Stock offered hereby, 1,000,000 shares are
being sold by DM Management Company ("DM Management" or the "Company") and
1,752,404 shares are being sold by the Selling Stockholders. The Selling
Stockholders will not own any shares immediately after the completion of this
offering. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"DMMC." On September 30, 1997, the last reported sale price for the Common
Stock on the Nasdaq National Market was $13 7/8. 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
NationsBanc Montgomery Securities, Inc.
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 SHOES, PURSE AND OTHER
ACCESSORIES]
[IMAGE OF WOMAN]
POLISHED ACCESSORIES
[IMAGE OF J. JILL CATALOGS]
GLAMOROUS GIFTS
HOME AT LAST [IMAGE OF CANDLESTICKS]
[IMAGE OF CHAIR]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus or
incorporated by reference herein. Except as otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option. In January 1997 the Company changed its fiscal year end from
the last Saturday in June to the last Saturday in December. References in this
Prospectus to fiscal 1994, fiscal 1995 and fiscal 1996 mean the Company's
fiscal year ended in June 1994, 1995 and 1996, respectively, references to the
transition periods mean the six-month transition period ended December 28, 1996
and the comparable six-month period ended December 30, 1995, and references to
fiscal 1997 mean the Company's fiscal year ending December 27, 1997.
THE COMPANY
DM Management Company ("DM Management" or the "Company") is a leading
specialty direct marketer of high quality women's apparel, accessories, shoes
and gifts. The Company currently markets its products through two discrete
catalog concepts, J. Jill and Nicole Summers. These concepts are designed to
appeal to active, affluent women age 35 and older, with each concept aimed at a
distinct lifestyle segment within this demographic group. DM Management's
objective is to be a fashion authority for its target market. The Company seeks
to distinguish its catalogs and reinforce the brand identity of the J. Jill and
Nicole Summers names through exclusive private label merchandise offerings, a
broad assortment of extended sizes, "total look" wardrobing and editorial
lifestyle photography.
The J. Jill concept is characterized by the simple, comfortable style of its
apparel offerings, which range from relaxed career wear to weekend wear. These
apparel offerings are predominantly private label, with emphasis on natural
fibers and creative details. The J. Jill concept's target customers are active,
affluent women age 35 to 55. During the six months ended June 28, 1997, J. Jill
net sales accounted for approximately 42% of the Company's total net sales, up
from approximately 24% for the comparable period of the prior year. The Company
believes that this growth is being driven by the emerging market for more
casual apparel, particularly for the workplace, and the need active, working
women have for comfortable, versatile clothing. The Company also believes that
this market has not been well served by other direct marketers or retailers.
The Nicole Summers concept is characterized by its edited assortment of
updated classic apparel. Its target customers are affluent women age 45 and
older who have an active but formal lifestyle and, most importantly, are
younger in their outlook than their peers in previous generations. Since
January 1996, the merchandise assortment and creative presentation in the
Nicole Summers catalogs have been updated in a continuing effort to align the
concept with the changing tastes and evolving lifestyle needs of these
customers. The Company believes that these women are not well served by the
direct marketers and department stores that have traditionally served older
women and that the design and creative presentation of the Nicole Summers
catalogs differentiate the concept in its target market.
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 five consecutive quarters of dramatic profit improvement as
compared to the comparable quarter of the prior year. Most recently, in the
quarter ended September 27, 1997 net sales increased 54.1% to $31.6 million
from $20.5 million during the corresponding quarter of the prior year and net
income rose 176.4% to $0.7 million from $0.3 million during the corresponding
quarter of the prior year.
At June 28, 1997, the Company's customer database contained approximately 2.2
million individual customer names, including approximately 724,000 individuals
who had made a purchase within the previous 24 months. Catalog circulation for
the Company was 37.9 million for calendar 1996 and 21.5 million for the first
six months of 1997.
The Company is a Delaware corporation incorporated in 1987. The Company's
executive offices are located at 25 Recreation Park Drive, Hingham,
Massachusetts 02043, and its telephone number is (781) 740-2718.
----------------
J. Jill Ltd. and Nicole Summers are registered trademarks and service marks
of the Company in the United States. This Prospectus also includes trade names,
trademarks and service marks of companies other than DM Management.
----------------
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which involve risks and uncertainties. For this purpose, any
statements contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the generality of the foregoing, the words "believes," "anticipates,"
"plans," "expects" and similar expressions are intended to identify forward-
looking statements. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."
4
<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
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<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $63,337 $72,691 $80,585 $39,267 $43,324 $41,318 $57,428
Income (loss) from
continuing operations.. 3,269 765 235 (560) 11,563 795 1,746
Net income (loss)....... 3,269 773 (9,350) (1,158) 11,563 (8,192) 1,746
Income (loss) from con-
tinuing operations per
share.................. $ 0.80 $ 0.17 $ 0.05 $ (0.13) $ 2.44 $ 0.17 $ 0.35
Net income (loss) per
share.................. $ 0.80 $ 0.17 $ (2.11) $ (0.27) $ 2.44 $ (1.77) $ 0.35
Weighted average shares
outstanding............ 4,077 4,610 4,441 4,262 4,736 4,620 5,057
SELECTED OPERATING DATA:
Catalog circulation (2). 32,400 40,300 41,600 22,100 18,400 19,500 21,500
Total active customers
(3).................... 473 579 638 611 657 638 724
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
-----------------------
ACTUAL AS ADJUSTED (4)
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<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................................ $42,995 $55,607
Working capital......................................... 13,804 26,416
Long-term debt, less current portion.................... 4,446 4,446
Stockholders' equity.................................... 23,417 36,029
</TABLE>
- --------
(1) Based on the number of shares outstanding as of September 1, 1997. Excludes
(i) 1,021,549 shares of Common Stock issuable upon exercise of stock
options outstanding as of September 1, 1997 at a weighted average exercise
price per share of $4.92 (ii) 303,800 shares of Common Stock reserved for
future option grants under the Company's 1993 Incentive and Nonqualified
Stock Option Plan and (iii) 37,302 shares of Common Stock reserved for
issuance under the Company's 1993 Stock Purchase Plan.
(2) In order to more closely match net sales to catalog circulation, the
Company calculates catalog circulation on a percentage of completion basis.
This calculation takes into account the total number of catalogs mailed
during all periods and the Company's estimate of the expected sales life of
each catalog edition. As used throughout this Prospectus, the term "catalog
circulation" refers to circulation of the Company's catalogs calculated in
such fashion.
(3) As used throughout this Prospectus, the term "active customers" means
customers who have made a purchase from the Company within the previous 24
months.
(4) Adjusted to give effect to the sale of the 1,000,000 shares of Common Stock
offered by the Company hereby at an estimated offering price of $13 7/8 per
share (the last reported sale price of the Common Stock on September 30,
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
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
RISKS ASSOCIATED WITH NEW FULFILLMENT CENTER. The Company's fulfillment
center in Meredith, New Hampshire is currently operating near capacity and, as
a result, the Company is experiencing inefficiencies and increased costs in
its fulfillment operations. The Company has recently purchased approximately
360 acres of land in Tilton, New Hampshire, which is intended to be the site
of a new fulfillment center. This new fulfillment center is not expected to be
operational until early 1999. Until the completion of the new fulfillment
center, the Company plans to operate two temporary facilities in Laconia, New
Hampshire in addition to its facility in Meredith and, as a result, expects
that the inefficiencies and increased costs it is currently experiencing in
its fulfillment operations will continue and may increase. The Company has no
experience in operating multiple fulfillment centers, and there can be no
assurance that such operations will not disrupt its order processing or result
in costs in excess of management's expectations. In addition, there can be no
assurance that construction of the new fulfillment center will be completed on
a timely basis. Any delay in completing the new fulfillment center or
difficulties in managing the transition of operations to the new fulfillment
center could result in delivery delays, customer service problems, continued
operating inefficiencies and increased costs, and could have a material
adverse effect on the Company's financial condition and results of operations.
The total cost of the Company's new fulfillment center, including land,
construction and equipment, is expected to be between $33.0 and $37.0 million,
but the actual costs of the facility may exceed the Company's estimates. In
addition, upon completion of the new fulfillment center the Company expects to
incur costs relating to the commencement of operations at that facility, the
termination of operations at the temporary Laconia sites and the continued
operation of the Company's facility in Meredith. If the Company is unable to
generate increased sales and gross profit sufficient to absorb increased
overhead and other costs associated with its new fulfillment center, the
Company's financial condition and results of operations would be materially
and adversely affected. See "Business--Fulfillment."
DEPENDENCE ON INFORMATION SYSTEMS. The Company depends on its information
systems to process orders, respond to customer inquiries, manage inventory,
purchase, sell and ship goods on a timely basis and maintain cost-efficient
operations. The Company is in the process of upgrading certain of these
systems to provide additional capabilities and anticipates that the project
will be complete in the second half of 1998. There can be no assurance that
the Company will not experience operational problems as a result of delays or
difficulties in the transition to its new information systems, or that such
new systems will be adequate to support its future growth. Any interruption in
the availability or use of the Company's information systems as a result of
system failure or otherwise could have a material adverse effect on its
financial condition and results of operations. See "Business--Information
Systems and Technology."
RISKS ASSOCIATED WITH GROWTH STRATEGY. The Company's growth strategy is
based on the following components: expanding its customer base through
targeted marketing programs; introducing new merchandise categories; acquiring
or internally developing complementary catalog concepts; and expanding into
other distribution channels where appropriate. There can be no assurance that
the Company will be successful in implementing these measures. The Company's
marketing programs, particularly for J. Jill, rely on a high level of prospect
mailings and consequently involve additional risks, including potentially
lower and less predictable response rates and the possibility that third
parties who provide customer lists may cease to make them available to the
Company. The failure of the Company to successfully implement any or all of
these measures could have a material adverse effect on its financial condition
and results of operations. In addition, continued growth could result in a
strain on the Company's management, financial, merchandising, marketing,
distribution and other resources. There can be no assurance that the Company
will be able to manage growth effectively, and any failure to do so could have
a material adverse effect on the Company's financial condition and results of
operations. See "Business--Growth Strategy."
6
<PAGE>
The Company may need to raise additional funds in order to support its
planned expansion. There can be no assurance that funds will be available to
the Company on terms satisfactory to the Company when needed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
FINANCIAL RISKS INHERENT IN CATALOG BUSINESS. The Company's catalog
operations involve a number of inherent financial risks. Each edition of a
catalog requires substantial investments in layout and design, paper,
printing, postage and inventory prior to mailing. As a result, the Company is
not able to adjust these costs in connection with a particular mailing to
reflect the actual performance of the catalog. If for any reason the Company
were to experience a significant shortfall in anticipated revenue from a
particular mailing, its financial condition and results of operations would be
materially and adversely affected. In addition, customer response to the
Company's mailings and, as a result, revenues generated by such mailings can
be affected by factors which are outside the Company's control, such as
consumer preferences, economic conditions and vendor work stoppages. Further,
the Company has historically experienced fluctuations in customer response to
its mailings. Any inability of the Company to achieve anticipated customer
response could result in lower sales, which would have a material adverse
effect on the Company's financial condition and results of operations. See
"Business."
RISKS OF CATALOG OPERATIONS. The operation of the Company's direct marketing
business is dependent on its ability to prepare catalogs in a timely manner
and to maintain the efficient and uninterrupted operation of its order
processing and fulfillment systems. Preparation of the Company's catalogs
requires the involvement of many different groups within the Company as well
as certain outside vendors, and a delay in the completion of any catalog could
cause its customers to forego or defer purchases from the Company. Any
material disruption or slowdown in the Company's order processing or
fulfillment systems, including any resulting from strikes or labor disputes,
disruptions in telephone service, electrical outages, mechanical problems,
human error or accidents, fire, natural disasters, adverse weather conditions
or inadequate order taking or order fulfillment capacity could cause delays in
the Company's ability to receive and fulfill orders, could cause orders to be
lost or to be shipped or delivered late and could cause customers to cancel
orders or refuse to receive goods on account of late shipments. Such problems
could result in a reduction in net sales, as well as increased administrative
and shipping costs. Any failure by the Company to manage its catalog
operations effectively could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Creative
Presentation and Catalog Production," "--Inventory Management and Purchasing"
and "--Fulfillment."
POSSIBLE QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. The following factors,
among others, could cause the Company's future operating results to fluctuate
from quarter to quarter: the timing and size of catalog mailings, the costs of
producing and mailing catalogs, customer response to such mailings, the timing
of merchandise receipts, merchandise returns, changes in merchandise mix and
presentation, the incurrence of other operating costs and factors beyond the
Company's control, such as general economic conditions and actions of
competitors. The Company's current expense levels are based in part on its
expectations of future net sales and, as a result, net income for a given
period could be disproportionately affected by any reduction in net sales for
that period. There can be no assurance that the Company's net sales in the
future will not decrease from past levels or that in some future quarter the
Company's net sales or operating results will not be below the expectations of
securities analysts and investors. In such event, the Company's financial
condition and results of operations and the market price of its Common Stock
would likely be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION. The market for the Company's merchandise is highly competitive.
The Company competes with other direct marketers, specialty apparel and
accessory retailers and traditional department store retailers. There are few
barriers to entry in the women's specialty apparel and accessory market.
Moreover, the Company believes that its recent success, as well as the sales
growth in the direct marketing industry, has encouraged or will encourage many
new competitors. In particular, the Company believes that its J. Jill catalog
concept serves an emerging market niche in which competition is limited
currently but is likely to increase in the future. Many
7
<PAGE>
of the Company's competitors are larger and have substantially greater
financial, marketing and other resources than the Company. Due to the
Company's participation in a highly competitive business and its relatively
short history of profitable operations, there can be no assurance that its
sales growth and profitability can or will be sustained in the future. The
failure of the Company to compete successfully would materially and adversely
affect its financial condition and results of operations. See "Business--
Competition."
CHANGING CONSUMER PREFERENCES AND FASHION TRENDS. The Company's future
success depends in part on its ability to anticipate and respond to changes in
consumer preferences and fashion trends in its target customer market. Failure
to anticipate and respond to changing consumer preferences and fashion trends
would have a material adverse effect on the Company's financial condition and
results of operations. The Company begins to make merchandise commitments as
early as nine months before the merchandise is available to customers through
the Company's catalogs and any changes in consumer preferences or fashion
trends after merchandise commitments are made could materially and adversely
affect the performance of the catalogs. There can be no assurance that the
Company will be able to continue to identify and offer merchandise that
appeals to its customer base or that any introduction of new merchandise
categories will be successful or profitable. See "Business--Merchandising."
RISKS ASSOCIATED WITH PRIVATE LABEL MERCHANDISE STRATEGY. In the spring 1997
season, private label merchandise represented approximately three-quarters and
one-third of the apparel styles offered in the Company's J. Jill and Nicole
Summers catalogs, respectively. The percentage of private label merchandise in
J. Jill is expected to increase. The Company's use of private label
merchandise requires it to incur costs and risks relating to the design and
purchase of its products, including longer lead times for orders and higher
initial purchase commitments, and limits its ability to offer other brands
that its customers may seek. The Company's failure to successfully execute its
private label merchandise strategy could have a material adverse effect on its
financial condition and results of operations. See "Business--Business
Strategy" and "--The Company's Catalogs."
RISKS ARISING FROM USE OF FOREIGN SUPPLIERS. During recent years, the
Company has purchased approximately 5% to 15% of its merchandise directly from
foreign suppliers, and the Company expects that it will continue to purchase
merchandise from foreign suppliers in the future. In recent periods, these
foreign suppliers have been primarily located in Hong Kong, Singapore and
Israel. In addition, the Company believes that its domestic suppliers may
purchase a portion of the goods they sell to the Company from foreign
suppliers. Accordingly, the Company's operations are subject to the customary
risks of purchasing merchandise abroad, including fluctuations in the value of
the currencies, export duties, quotas, work stoppages and, in certain parts of
the world, political instability. In particular, suppliers located in Hong
Kong, China and the Middle East may be affected by political conditions in
these regions, including the recent transition of Hong Kong to the People's
Republic of China and political instability in the Middle East. The Company
does not currently engage in hedging transactions to reduce its exposure to
foreign currency fluctuations. See "Business--Inventory Management and
Purchasing."
DEPENDENCE ON THIRD PARTIES. The Company's ability to distribute catalogs
and fulfill orders depends on the performance of third parties such as
manufacturers, printers, shipping companies, the United States Postal Service,
mailing list vendors and list processing and credit card processing companies.
Any interruptions or delays in these services, such as those arising from the
recent United Parcel Service strike, could result in delays in catalog or
order shipments or an inability to process orders which could materially and
adversely affect the Company's financial condition and results of operations.
In addition, any perceived inability of the Company to fulfill orders based on
conditions affecting the shipping industry generally could reduce demand for
the Company's products and result in a reduction in net sales. Although the
Company believes that, in general, the goods and services it obtains from
third parties could be purchased from other sources, identifying and obtaining
substitute goods and services could result in delays in shipments and
increased costs to the Company. The Company does not maintain supply contracts
with any of its private label or other merchandise vendors. Rather, the
Company acquires merchandise via purchase orders that terminate upon
completion of the order. During the
8
<PAGE>
six months ended June 28, 1997, the Company made approximately 4% of its
inventory purchases from one foreign private label vendor. If any significant
vendor were to suddenly discontinue its relationship with the Company, the
Company could experience temporary delivery delays until such time as a
substitute supplier could be found. See "Business."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon Gordon R. Cooke, its President and Chief Executive Officer and the
Chairman of its Board of Directors, and certain other current members of
senior management. The loss of the services of one or more of these key
employees could have a material adverse effect on the Company's financial
condition and results of operations. The Company does not have employment
contracts with any members of its senior management that would prohibit such
persons from competing with the Company following the termination of their
employment and does not maintain "key man" life insurance on the lives of any
members of its senior management. See "Management."
POTENTIAL INCREASES IN EXTERNAL COSTS. The Company's business is subject to
a number of costs that it cannot control, including paper and postage expenses
associated with mailing catalogs, shipping charges associated with
distributing merchandise to customers and labor costs. The Company's paper
costs have historically been volatile and, in particular, increased
substantially in 1995. Postage is an expense of the Company which also has
experienced significant increases and which can be expected to increase in the
future. Although the Company ships the majority of its merchandise through the
United States Postal Service, it also ships products through a commercial
shipping company. The prices charged by commercial shipping companies can be
expected to change from time to time. In addition, the Company's order
processing and fulfillment centers are labor intensive operations, and the
Company's labor costs could increase as a result of changes in prevailing
wages or other factors. Any increase in paper, postage, shipping, labor or
other external costs could have a material adverse effect on the Company's
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ECONOMIC CONDITIONS. The success of the Company is influenced by a number of
economic conditions affecting disposable consumer income, such as employment
levels, business conditions, interest rates and taxation rates. Adverse
changes in these economic conditions may restrict consumer spending, thereby
negatively affecting the Company's growth and profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. An element of the Company's
growth strategy is to pursue strategic acquisitions that either expand or
complement the Company's business. Future acquisitions may result in dilutive
issuances of equity securities, the incurrence of additional debt and the
amortization of expenses related to goodwill and other intangible assets.
Future acquisitions would involve numerous additional risks, including
difficulties in the assimilation of the operations, products and personnel of
the acquired company, the diversion of management's attention from other
business concerns, entering markets in which the Company has little or no
direct prior experience and the potential loss of key employees of the
acquired company. The Company currently has no commitments or agreements with
regard to any acquisition. See "Business--Growth Strategy."
POSSIBLE VOLATILITY OF STOCK PRICE. The Company's stock price has fluctuated
substantially since its initial public offering in 1993. There can be no
assurance the market price of the Common Stock will not decline below the
public offering price set forth on the cover page of this Prospectus. The
Company believes factors such as quarterly operating results, changes in
market conditions, securities analysts' estimates of future operating results,
and the overall performance of the stock market may cause the market price of
the Common Stock to fluctuate significantly. The Nasdaq National Market has
experienced a high level of price and volume volatility and market prices for
the stock of many companies have experienced wide price fluctuations not
necessarily related to the operating performance of such companies. See "Price
Range of Common Stock."
STATE TAXES ON SALES. The Company currently collects sales taxes only on
sales to its Massachusetts customers. Many states have attempted to require
that out-of-state direct marketers collect use taxes on sales of
9
<PAGE>
products shipped to their residents. In 1992, the United States Supreme Court
held unconstitutional a state's imposition of use tax collection obligations
on an out-of-state mail order company whose only significant contacts with the
state were the distribution of catalogs and other advertising materials
through the mail and subsequent delivery of purchased goods by mail or common
carriers, but stated that Congress could enact legislation authorizing the
states to impose such obligations. In 1995, however, the United States Supreme
Court let stand a decision of New York's highest state court requiring an out-
of-state catalog company to collect use tax (including a retroactive
assessment and penalties) on its mail order sales in the state, where the
catalog company's reported contact with New York included a limited number of
visits by sales force employees. If Congress enacts legislation permitting
states to impose use tax collection obligations on out-of-state mail order
businesses, or if the Company otherwise is required to collect additional
sales or use taxes, such tax collection obligations would make it more
expensive to purchase the Company's products and increase the Company's
administrative costs, and could therefore have a material adverse effect on
the Company's financial condition and results of operations. See "Business--
Government Regulation."
ANTITAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS. The Company's
Certificate of Incorporation and By-Laws contain provisions that may
discourage acquisition bids for the Company or make unsolicited acquisition
attempts more difficult. These provisions could prevent an acquisition of the
Company at a price that many stockholders find attractive and limit the price
that certain investors might be willing to pay in the future for shares of the
Common Stock. See "Description of Capital Stock--Antitakeover Effects of
Provisions of the Certificate of Incorporation and By-Laws and of Delaware
Law."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $12.6 million
($18.0 million if the Underwriters' over-allotment option is exercised in
full), assuming a public offering price of $13 7/8 per share (the last
reported sale price of the Common Stock on September 30, 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 its recent purchase of a 360-acre
parcel of land in Tilton, New Hampshire and the construction of a new
fulfillment center at the site. The Company currently estimates that the cost
of its new fulfillment center, including land, construction and equipment,
will be between $33.0 and $37.0 million. The Company intends to finance the
balance of the cost of the fulfillment center by other financing arrangements,
which may include, without limitation, one or more of the following: bank
financing, a sale-leaseback transaction or government sponsored financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Facilities." The
Company intends to use the remainder of the net proceeds, if any, for working
capital and other general corporate purposes.
The Company may also use a portion of the net proceeds of this offering to
acquire businesses complementary to that of the Company, although the Company
does not currently have any plans, commitments or agreements for any such
acquisitions and there can be no assurance that any such acquisitions will be
made.
Pending application of the proceeds as described above, the Company intends
to invest the net proceeds of this offering in investment-grade, interest-
bearing securities.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading on the Nasdaq National Market on
November 2, 1993. Prior to November 2, 1993, there was no public market for
the Common Stock or any other securities of the Company. The Company's Common
Stock trades on the Nasdaq National Market under the symbol "DMMC." As of
September 1, 1997, the approximate number of holders of record of Common Stock
of the Company was 285.
The following table sets forth, for the periods indicated, the high and low
sales prices for the Company's Common Stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CALENDAR YEAR 1994
Quarter ended September 24, 1994............................. $10 $8 1/4
Quarter ended December 24, 1994.............................. 9 4 1/8
CALENDAR YEAR 1995
Quarter ended March 25, 1995................................. 5 1/4 2 1/2
Quarter ended June 24, 1995.................................. 3 3/4 2 1/4
Quarter ended September 30, 1995............................. 4 1/8 1 7/8
Quarter ended December 30, 1995.............................. 2 5/8 1 7/8
CALENDAR YEAR 1996
Quarter ended March 30, 1996................................. 2 7/8 2
Quarter ended June 29, 1996.................................. 5 3/8 2 5/8
Quarter ended September 28, 1996............................. 4 7/8 2 7/8
Quarter ended December 28, 1996.............................. 4 1/4 3
CALENDAR YEAR 1997
Quarter ended March 29, 1997................................. 8 1/8 3 5/8
Quarter ended June 28, 1997.................................. 11 1/4 6 3/4
Quarter ended September 27, 1997............................. 14 1/4 9 3/4
</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 7/8 per
share (the last reported sale price of the Common Stock on September 30, 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 53,103
Unrealized loss on marketable securities................ (122) (122)
Accumulated deficit..................................... (17,008) (17,008)
-------- -------
Total stockholders' equity............................. 23,417 36,029
-------- -------
Total capitalization.................................. $ 27,863 $40,475
======== =======
</TABLE>
- --------
(1) Excludes (i) 1,013,381 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 28, 1997 at a weighted average
exercise price per share of $4.70, (ii) 323,500 shares of Common Stock
reserved for future option grants under the Company's 1993 Incentive and
Nonqualified Stock Option Plan and (iii) 37,302 shares of Common Stock
reserved for issuance under the Company's 1993 Stock Purchase Plan.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data as of June 24, 1995, June 29,
1996, and December 28, 1996 and the selected consolidated statement of
operations data for each of fiscal 1994, 1995 and 1996 and for the six months
ended December 28, 1996 have been derived from the Company's consolidated
financial statements, which have been audited by Coopers & Lybrand L.L.P.,
independent public accountants, included elsewhere in this Prospectus. The
selected consolidated balance sheet data as of June 27, 1992, June 26, 1993
and June 25, 1994 and the selected consolidated statement of operations data
for the years ended June 27, 1992 and June 26, 1993 have been derived from the
Company's consolidated financial statements, which have also been audited by
Coopers & Lybrand L.L.P., not included in this Prospectus. The selected
consolidated balance sheet data as of December 30, 1995 and June 28, 1997 and
the selected consolidated statement of operations data for the six months
ended December 30, 1995, June 29, 1996 and June 28, 1997 have been derived
from the Company's unaudited consolidated financial statements, which have
been prepared on a basis substantially consistent with the audited
consolidated financial statements and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operation for
these periods. The results of operations for the six months ended June 28,
1997 are not necessarily indicative of the results to be expected for the full
fiscal year. The following selected consolidated financial data are qualified
by the more detailed consolidated financial statements and notes thereto
included elsewhere in this Prospectus, and should be read in conjunction
therewith and with the discussion under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
TRANSITION PERIOD
FISCAL YEAR ENDED ENDED SIX MONTHS ENDED
--------------------------------------------- ------------------ ------------------
JUNE 27, JUNE 26, JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 (1) 1996 (1) 1995 1996 (2) 1996 (1) 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $41,532 $47,510 $63,337 $72,691 $80,585 $39,267 $43,324 $41,318 $57,428
Income (loss) from
continuing operations
before income taxes.... (2,411) 1,608 3,604 851 261 (623) 1,072 884 2,862
Income (loss) from
continuing operations.. (2,411) 1,547 3,269 765 235 (560) 11,563 795 1,746
Net income (loss)....... (2,411) 1,547 3,269 773 (9,350) (1,158) 11,563 (8,192) 1,746
Income (loss) from
continuing operations
per share.............. $ (2.07) $ 0.60 $ 0.80 $ 0.17 $ 0.05 $ (0.13) $ 2.44 $ 0.17 $ 0.35
Net income (loss) per
share.................. $ (2.07) $ 0.60 $ 0.80 $ 0.17 $ (2.11) $ (0.27) $ 2.44 $ (1.77) $ 0.35
Weighted average shares
outstanding............ 1,167 2,586 4,077 4,610 4,441 4,262 4,736 4,620 5,057
CONSOLIDATED BALANCE
SHEET DATA:
Total assets............ $ 6,935 $ 8,849 $26,923 $31,612 $27,069 $34,694 $38,109 $27,069 $42,995
Working capital......... 737 1,075 9,305 6,315 6,988 11,019 10,662 6,988 13,804
Long-term debt, less
current portion........ 7,219 417 248 3,634 4,380 5,522 4,540 4,380 4,446
Stockholders' equity
(deficit).............. (5,962) 1,645 17,861 18,851 9,480 17,729 21,223 9,480 23,417
SELECTED OPERATING DATA:
Catalog circulation..... 24,100 24,000 32,400 40,300 41,600 22,100 18,400 19,500 21,500
Total active customers.. N/A 448 473 579 638 611 657 638 724
</TABLE>
- --------
(1) In December 1994, the Company purchased certain assets and assumed certain
liabilities of Carroll Reed, Inc. and Carroll Reed International Limited.
In connection with the purchase, the Company paid $5,031,000 and
established accruals totaling $1,180,000. On May 20, 1996, the Company
announced its plan to divest its Carroll Reed segment and recorded a
charge of $8,511,000 for the loss on disposal of discontinued operations.
The results of the Carroll Reed operations through May 20, 1996 have been
classified as income (loss) from discontinued operations. See Note B to
the accompanying consolidated financial statements.
(2) During the six-month period ended December 28, 1996, the Company
recognized a deferred tax benefit of $10,598,000. See Note H to the
accompanying consolidated financial statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors
set forth below and elsewhere in this Prospectus, particularly under the
caption "Risk Factors."
OVERVIEW
The Company was incorporated in Delaware in 1987 with funding from venture
capital investors to make acquisitions of undervalued and underperforming
catalogs. In 1987 and 1988, in a series of unrelated transactions, the Company
acquired the assets of various catalogs and related operations. The acquired
catalog assets included assets related to the Company's J. Jill, Nicole
Summers and The Very Thing! concepts, in addition to other non-apparel catalog
concepts. In 1989, the Company decided to focus exclusively on women's
apparel, a market in which the Company's management team had extensive
experience and which management believed provided substantial growth
opportunities. At this time, the Company discontinued the operations of its
non-apparel catalog concepts.
In fiscal 1994, the Company completed its initial public offering and
achieved income from continuing operations before income taxes of $3.6
million, or 5.7% of net sales. In fiscal 1995, the Company acquired certain
assets and assumed certain liabilities related to the Carroll Reed concept. A
combination of significant increases in postage and paper prices, a weak
women's apparel market and an overly aggressive circulation strategy led to
disappointing earnings for fiscal 1995. Subsequently, the Company's Board of
Directors concluded that a new strategic direction was needed and recruited
Gordon R. Cooke as President and Chief Executive Officer.
Since December 1995, under Mr. Cooke's leadership, the Company has
repositioned itself as a leading specialty direct marketer of high quality
women's apparel, accessories, shoes and gifts by implementing the following
strategic initiatives:
. Introducing a new merchandising approach to position the Company as a
fashion authority for its target market;
. Emphasizing creative presentation and differentiation in merchandise
execution as well as circulation management as primary drivers of growth
and profitability;
. Assembling a management team to support the Company's future growth;
. Curtailing unproductive cross-mailings to existing customers and
reinvesting the resulting circulation cost savings in increased
prospecting;
. Merging the Company's The Very Thing! concept into its Nicole Summers
concept in order to increase the operating efficiencies of what had
become two very similar catalog concepts with significant overlap in
their customer bases and product offerings;
. Phasing out the operations of the Carroll Reed segment, which was
incompatible with the Company's new strategic emphasis;
. Increasing merchandise offerings to include a greater assortment of
accessories, shoes and gifts; and
. Undertaking marketing and merchandising initiatives to increase sales
during traditionally slow periods.
The Company believes that its recent financial results have begun to
demonstrate the successful implementation of these strategic initiatives.
During the first six months of 1997, net sales increased 39.0% to $57.4
million from $41.3 million during the corresponding period in 1996 and income
from continuing operations rose 119.6% to $1.7 million from $0.8 million
during the corresponding period in 1996. During the
15
<PAGE>
quarter ended June 28, 1997, net sales increased 52.4% to $32.9 million from
$21.6 million during the corresponding quarter in 1996 and income from
continuing operations rose 121.1% to $1.2 million from $0.5 million during the
corresponding quarter of the prior year. The Company believes that these
recently implemented strategic initiatives have positioned it well for future
growth.
RECENT OPERATING RESULTS
The Company had net sales of $31.6 million for the three months ended
September 27, 1997, compared to $20.5 million for the three months ended
September 28, 1996, representing an increase of 54.1%. During the three months
ended September 27, 1997, net income increased to $0.7 million from $0.3
million in the prior year period, an increase of 176.4%, and earnings per
share increased to $0.13 from $0.05, an increase of 160.0%. This quarter
marked the fifth consecutive quarter of profit improvement as compared to the
comparable quarter of the prior year.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, certain
items from the Company's consolidated statements of operations expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
TRANSITION PERIOD
FISCAL YEAR ENDED ENDED SIX MONTHS ENDED
-------------------------- ------------------ ------------------
JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1994 1995 1996 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Product................ 42.7 42.9 43.5 44.0 44.9 43.0 44.3
Operations............. 16.5 16.9 17.3 17.5 15.9 17.2 17.8
Selling................ 27.4 30.7 30.3 31.6 27.1 29.1 24.6
General and
administrative........ 7.9 8.3 8.2 8.2 9.3 8.2 8.2
Interest, net.......... (0.2) -- 0.4 0.3 0.3 0.4 0.1
----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations
before income taxes... 5.7 1.2 0.3 (1.6) 2.5 2.1 5.0
Provision (benefit) for
income taxes.......... 0.5 0.1 -- (0.2) (24.2) 0.2 2.0
----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations.. 5.2 1.1 0.3 (1.4) 26.7 1.9 3.0
Income (loss) from
discontinued
operations............. -- -- (11.9) (1.5) -- (21.7) --
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 5.2% 1.1% (11.6)% (2.9)% 26.7% (19.8)% 3.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Net Sales
In fiscal 1995 net sales increased by $9.4 million, or 14.8%, to $72.7
million from $63.3 million in fiscal 1994. Catalog circulation increased by
24.4% to 40.3 million in fiscal 1995 from 32.4 million in fiscal 1994. A soft
women's apparel market combined with an industry-wide surge in circulation
resulted in net sales growth that fell short of the increase in circulation.
The number of active customers grew to 579,000 at the end of fiscal 1995 from
473,000 at the end of fiscal 1994, an increase of 22.4%.
In fiscal 1996 net sales increased by $7.9 million, or 10.9%, to $80.6
million from $72.7 million in fiscal 1995. Catalog circulation increased by
3.2% to 41.6 million in fiscal 1996 from 40.3 million in fiscal 1995. Fiscal
1996 was a year of transition for the Company. Although the most significant
changes to the Company's business strategy were not then in place, the Company
had adopted a more selective approach to mailing which enabled it to achieve
an increase in net sales that was significant in comparison to the increase in
circulation. The number of active customers grew to 638,000 at the end of
fiscal 1996 from 579,000 at the end of fiscal 1995, an increase of 10.2%.
16
<PAGE>
During the six months ended December 28, 1996 net sales increased by $4.0
million, or 10.3%, to $43.3 million from $39.3 million during the six months
ended December 30, 1995. Catalog circulation declined by 16.7% to 18.4 million
during the six months ended December 28, 1996 from 22.1 million during the six
months ended December 30, 1995. The Company advanced the implementation of its
new business strategies during the six months ended December 28, 1996. During
this period, the first edition of the Nicole Summers catalog after the
combination of the Nicole Summers and The Very Thing! concepts was mailed, and
third mailings of catalog editions were eliminated. The impact of the new
business strategies was dramatic, as net sales increased despite a significant
reduction in circulation. The number of active customers grew to 657,000 at
December 28, 1996 from 611,000 at December 30, 1995, an increase of 7.5%.
During the six months ended June 28, 1997 net sales increased by $16.1
million, or 39.0%, to $57.4 million from $41.3 million during the six months
ended June 29, 1996. Catalog circulation increased by 10.3% to 21.5 million
during the six months ended June 28, 1997 from 19.5 million during the six
months ended June 29, 1996. By January 1997 all of the strategic initiatives
described above were in place, making the six months ended June 28, 1997 the
first period to fully benefit from these initiatives. The number of active
customers grew to 724,000 at June 28, 1997 from 638,000 at June 29, 1996, an
increase of 13.5%.
Product
Product costs consist primarily of merchandise acquisition costs (net of
term discounts and advertising allowances), including freight costs, and
provisions for markdowns. In fiscal 1995 product costs increased by $4.2
million, or 15.4%, to $31.2 million from $27.0 million in fiscal 1994. As a
percentage of net sales, product costs increased to 42.9% in fiscal 1995 from
42.7% in fiscal 1994. This slight increase in product costs as a percentage of
net sales was primarily due to an increase in the Company's overstock
liquidation activity, offset to some extent by improved margins from the
Company's growing private label business.
In fiscal 1996 product costs increased by $3.8 million, or 12.3%, to $35.0
million from $31.2 million in fiscal 1995. As a percentage of net sales,
product costs increased to 43.5% in fiscal 1996 from 42.9% in fiscal 1995.
This increase in product costs as a percentage of net sales was primarily
attributable to a more competitive pricing environment in the women's apparel
market.
During the six months ended December 28, 1996 product costs increased $2.1
million, or 12.5%, to $19.4 million from $17.3 million during the six months
ended December 30, 1995. As a percentage of net sales, product costs increased
to 44.9% during the six months ended December 28, 1996 from 44.0% during the
six months ended December 30, 1995. A continuation of the pricing pressures
experienced in fiscal 1996 was responsible for this increase in product costs
as a percentage of net sales.
During the six months ended June 28, 1997 product costs increased $7.6
million, or 43.0%, to $25.4 million from $17.8 million during the six months
ended June 29, 1996. As a percentage of net sales, product costs increased to
44.3% during the six months ended June 28, 1997 from 43.0% during the six
months ended June 29, 1996. This increase in product costs as a percentage of
net sales was primarily attributable to increased promotional activity, as the
Company introduced a new edition of the Nicole Summers catalog designed to
compete directly with late-in-the-season retail store offerings. This new
catalog edition has provided the Company with an opportunity to increase sales
during a traditionally slow period by offering new merchandise at value prices
while at the same time serving as an additional vehicle for liquidating
overstocked in-season merchandise.
Operations
Operating expenses consist primarily of order processing costs, such as
telemarketing, customer service, fulfillment, shipping, warehousing and credit
card processing costs. In fiscal 1995 operating expenses increased by $1.9
million, or 17.6%, to $12.3 million from $10.4 million in fiscal 1994. As a
percentage of net sales, operating expenses increased to 16.9% in fiscal 1995
from 16.5% in fiscal 1994. This increase in operating expenses as a percentage
of net sales was primarily attributable to higher occupancy costs associated
with the Company's then recently expanded fulfillment center in Meredith, New
Hampshire.
17
<PAGE>
In fiscal 1996 operating expenses increased by $1.7 million, or 13.6%, to
$14.0 million from $12.3 million in fiscal 1995. As a percentage of net sales,
operating expenses increased to 17.3% in fiscal 1996 from 16.9% in fiscal
1995. This increase in operating expenses as a percentage of net sales was
primarily attributable to operational inefficiencies at the Company's
fulfillment center.
During the six months ended December 28, 1996 operating expenses increased
by 0.8% to $6.9 million as compared to the six months ended December 30, 1995.
As a percentage of net sales, operating expenses declined to 15.9% during the
six months ended December 28, 1996 from 17.5% during the six months ended
December 30, 1995. When the operational inefficiencies at the Company's
fulfillment center became apparent in fiscal 1996, the Company embarked upon a
detailed review and reengineering of its order processes and delivery
mechanisms. This reengineering effort resulted in the decrease in operating
expenses as a percentage of net sales during the six months ended December 28,
1996 compared to the same period of the prior year.
During the six months ended June 28, 1997 operating expenses increased
$3.1 million, or 44.0%, to $10.2 million from $7.1 million during the six
months ended June 29, 1996. As a percentage of net sales, operating expenses
increased to 17.8% during the six months ended June 28, 1997 from 17.2% during
the six months ended June 29, 1996. This increase in operating expenses as a
percentage of net sales was caused in part by higher than anticipated demand
levels for the Company's products, which resulted in order processing
inefficiencies and increased back order processing costs, including higher
postage and handling charges from increased packages per order, and by changes
in the mix of products sold. The Company anticipates that these trends will
continue at least until the Company's planned new fulfillment center in
Tilton, New Hampshire becomes fully operational. The Company also anticipates
that operating expenses will increase as a percentage of net sales as a result
of the operation of its Meredith fulfillment center at or near capacity and
the operation of multiple fulfillment centers.
Selling
Selling expenses consist primarily of the cost to produce, print and
distribute catalogs. In fiscal 1995 selling expenses increased by
$4.9 million, or 28.3% to $22.3 million from $17.4 million in fiscal 1994. As
a percentage of net sales, selling expenses increased to 30.7% in fiscal 1995
from 27.4% in fiscal 1994. During the latter half of fiscal 1995 the Company
experienced higher costs, as U.S. Postal Service rates and paper prices
increased. The impact of these increases on selling expenses as a percentage
of net sales was exacerbated by net sales growth that fell short of catalog
circulation growth.
In fiscal 1996 selling expenses increased by $2.1 million, or 9.4%, to $24.4
million from $22.3 million in fiscal 1995. As a percentage of net sales,
selling expenses declined to 30.3% in fiscal 1996 from 30.7% in fiscal 1995.
As a result of the Company's more selective circulation strategy during fiscal
1996, this decline on a percentage basis was accomplished even though postage
and paper cost increases were in effect for all of fiscal 1996 versus only the
latter half of fiscal 1995.
During the six months ended December 28, 1996 selling expenses decreased by
$0.7 million, or 5.5%, to $11.7 million from $12.4 million during the six
months ended December 30, 1995. As a percentage of net sales, selling expenses
decreased to 27.1% during the six months ended December 28, 1996 from 31.6%
during the six months ended December 30, 1995. This decrease in selling
expenses as a percentage of net sales reflects the impact of the new business
strategies which the Company was implementing during this period.
During the six months ended June 28, 1997 selling expenses increased by $2.1
million, or 17.8%, to $14.1 million from $12.0 million during the six months
ended June 29, 1996. As a percentage of net sales, selling expenses decreased
to 24.6% during the six months ended June 28, 1997 from 29.1% during the six
months ended June 29, 1996. The impact of the full implementation of the
Company's new business strategies as well as lower paper prices resulted in
this decline in selling expenses as a percentage of net sales. The Company
does not expect further decreases in selling expenses as a percentage of net
sales.
18
<PAGE>
General and Administrative
General and administrative expenses consist primarily of executive,
marketing, information systems and finance expenses. In fiscal 1995 general
and administrative expenses increased by $1.0 million, or 20.6%, to
$6.0 million from $5.0 million in fiscal 1994, primarily as a result of the
expansion of the Company's marketing and information systems departments. As a
percentage of net sales, general and administrative expenses increased to 8.3%
in fiscal 1995 from 7.9% in fiscal 1994.
In fiscal 1996 general and administrative expenses increased by $0.6
million, or 9.9%, to $6.6 million from $6.0 million in fiscal 1995, primarily
due to the Company's decision to broaden and strengthen its management team.
As a percentage of net sales, general and administrative expenses declined
slightly to 8.2% in fiscal 1996 from 8.3% in fiscal 1995.
During the six months ended December 28, 1996 general and administrative
expenses increased by $0.8 million, or 26.2%, to $4.0 million from $3.2
million during the six months ended December 30, 1995, primarily as a result
of performance bonuses and additions to the management team. As a percentage
of net sales, general and administrative expenses increased to 9.3% during the
six months ended December 28, 1996 from 8.2% during the six months ended
December 30, 1995.
During the six months ended June 28, 1997 general and administrative
expenses increased by $1.3 million, or 39.4%, to $4.7 million from $3.4
million during the six months ended June 29, 1996. This increase is primarily
attributable to performance bonuses, increased management infrastructure,
increased outside consulting fees related to various systems and facilities
projects and increased depreciation and occupancy costs. As a percentage of
net sales, general and administrative expenses remained unchanged at 8.2%
during the six months ended June 28, 1997 and the six months ended June 29,
1996.
Income Taxes
The Company provides for income taxes at an effective tax rate that includes
the full federal and state statutory tax rates. Prior to December 1996, the
Company reduced the income tax provision recorded in its financial statements
by recording a tax benefit associated with its net deferred tax assets,
primarily net operating loss carryforwards ("NOLs"). Because of the
uncertainty surrounding the realizability of these assets, the Company placed
a valuation allowance against the entire balance of its net deferred tax
assets. As a result, the associated tax benefit was recognized as income was
earned, resulting in a significantly lower effective tax rate for all periods
reported prior to December 1996.
In December 1996, the Company performed a detailed analysis of the future
taxable income levels required for the Company to fully realize the benefit of
its net deferred tax assets. This analysis considered several factors,
including the historical taxable income trends since fiscal 1993, exclusive of
a taxable loss generated in fiscal 1996 by the Company's discontinued Carroll
Reed segment, management's demonstrated ability to increase the Company's
active customer database and the implementation of the Company's new strategic
business initiatives. Based on this analysis, the Company determined that it
was more likely than not that the Company would earn sufficient book and
taxable income to fully realize the benefit of its deferred tax assets. This
determination required the Company to remove the valuation allowance and
recognize the deferred tax benefit of $10.6 million at December 28, 1996 in
its entirety. No assurance can be given, however, that the Company will
achieve taxable income sufficient to realize the full benefit of its deferred
tax assets.
Because, for financial statement purposes, the benefit associated with the
Company's deferred tax assets has been fully realized, the Company's effective
tax rate can no longer be reduced by the recognition of this tax benefit over
future periods of income generation. As a result, the Company's tax provision
is substantially larger in fiscal 1997 than in the prior year. Cash payments
for income taxes continue to be reduced by available NOLs, which results in
cash payments which are significantly less than the income tax provision
recorded for financial statement purposes during fiscal 1997. See Note H to
the accompanying consolidated financial statements.
19
<PAGE>
Discontinued Operations
On May 20, 1996, the Company announced its plan to divest its Carroll Reed
segment due to the incompatibility of the customer base and product line of
this segment with those of its other segment. Accordingly, the Carroll Reed
segment has been accounted for as a discontinued operation, and all assets,
liabilities, results of operations and cash flows associated with the Carroll
Reed segment have been segregated from those associated with continuing
operations. In connection with this divestiture, the Company recorded a charge
of $8.5 million in fiscal 1996 for the loss on disposal of discontinued
operations, consisting of $5.3 million related to the write-off of the
remaining unamortized intangible assets and $3.2 million for expected losses
during the phase-out period. The results of the Carroll Reed operations
through May 20, 1996 have been classified as income (loss) from discontinued
operations. Since May 20, 1996, the results of this discontinued operation
have been charged to the liability for expected losses established in
connection with the divestiture and have had no impact on the Company's
operating results. As of June 28, 1997, the Company had completed the phase-
out of its Carroll Reed segment and had utilized its reserve for expected
losses.
QUARTERLY RESULTS
The following table presents unaudited quarterly financial information for
calendar 1995, calendar 1996 and the first six months of calendar 1997. This
information has been prepared by the Company on a basis consistent with the
Company's audited financial statements and includes all adjustments
(consisting only of normal recurring adjustments) which management considers
necessary for a fair presentation of the results for such periods.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
MARCH 25, JUNE 24, SEPT. 30, DEC. 30,
1995 1995 1995 1995
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $19,704 $19,561 $22,312 $16,955
Income (loss) from continuing operations. 180 89 (274) (286)
Net income (loss)........................ 120 157 (667) (491)
Income (loss) from continuing operations
per share............................... $ 0.04 $ 0.02 $ (0.06) $ (0.07)
Net income (loss) per share.............. $ 0.03 $ 0.03 $ (0.15) $ (0.12)
<CAPTION>
QUARTER ENDED
--------------------------------------
MARCH 30, JUNE 29, SEPT. 28, DEC. 28,
1996 1996 1996 1996
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $19,736 $21,582 $20,541 $22,783
Income from continuing operations........ 250 545 250 11,313
Net income (loss)........................ 264 (8,456) 250 11,313
Income from continuing operations per
share................................... $ 0.06 $ 0.11 $ 0.05 $ 2.38
Net income (loss) per share.............. $ 0.06 $ (1.79) $ 0.05 $ 2.38
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------
JUNE
MARCH 29, 28,
1997 1997
--------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net sales.................................................... $24,543 $32,885
Income from continuing operations ........................... 541 1,205
Net income................................................... 541 1,205
Income from continuing operations per share.................. $ 0.11 $ 0.23
Net income per share......................................... $ 0.11 $ 0.23
</TABLE>
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 28, 1997, the Company funded its working
capital needs through cash generated from operations and through use of its
credit facilities. The Company used working capital to support costs incurred
in advance of revenue generation, primarily inventory acquisition and catalog
development, production and mailing costs incurred prior to the beginning of
each selling season. The Company has two selling seasons which correspond to
the fashion seasons. The Fall season begins in July and ends in December, and
the Spring season begins in January and ends in early July.
During the second quarter of fiscal 1997, the Company refinanced its
existing debt by entering into a loan agreement with a new bank. The aggregate
principal availability under the new loan agreement totals $13.8 million. At
June 28, 1997, the credit facilities provided for in the new loan agreement
consisted of (i) a $1.7 million interim loan (the "Interim Loan"); (ii) a $3.6
million term loan (the "Term Loan"); (iii) a $6.0 million revolving line of
credit (the "Revolver"); and (iv) a $2.5 million line for the issuance of
commercial letters of credit (the "Letter of Credit Line"). All of the credit
facilities under the new loan agreement are collateralized by a first lien
mortgage on the Company's operations and fulfillment center in Meredith, New
Hampshire and a security interest in substantially all assets of the Company
other than its marketable securities. The Term Loan is also collateralized by
the Company's marketable securities. The terms of the new loan agreement
contain various lending conditions and covenants, including restrictions on
permitted liens and required compliance with certain financial coverage
ratios.
The Interim Loan was replaced by a $1.7 million real estate loan (the "Real
Estate Loan") on July 30, 1997. The Real Estate Loan is collateralized by a
first lien mortgage on the Company's operations and fulfillment center in
Meredith, New Hampshire and a security interest in substantially all assets of
the Company other than its marketable securities. Payments on the Real Estate
Loan are due monthly, based on a 15-year amortization, with the remaining
balance payable on July 30, 2002. Interest on the Real Estate Loan is fixed at
6.81% per annum until August 31, 1999, at which time the Company may select
from several interest rate options. Payments on the Term Loan are due
quarterly commencing on September 2, 1997 through its maturity on June 1,
2002. The Term Loan provides for several interest rate options. At June 28,
1997 the Term Loan bore interest at 7.28% per annum. Both the Revolver and the
Letter of Credit Line expire on June 1, 1999. The Revolver also provides for
several interest rate options. There were no outstanding Revolver borrowings
at June 28, 1997. Outstanding letters of credit at June 28, 1997 totaled
approximately $1.7 million. For additional information regarding the Company's
credit facilities and the amounts outstanding thereunder, see Note D to the
accompanying consolidated financial statements.
The Company 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 purchased approximately 360 acres
of land in Tilton, New Hampshire for approximately $4.2 million. The site is
intended to house a new fulfillment center expected to be operational by early
1999. The estimated cost of this new facility, including land, construction
and equipment, ranges from $33.0 to $37.0 million. The Company intends to
finance the cost of the fulfillment center with a
21
<PAGE>
portion of the net proceeds of this offering and by other financing
arrangements, which may include, without limitation, bank financing, a sale-
leaseback transaction or government sponsored financing. The Company is also
in the process of upgrading its information systems, including implementing
new order management and warehouse management systems. Total expenditures for
this purpose are estimated at approximately $3.0 million, of which
approximately $0.4 million had been spent as of June 28, 1997.
The net proceeds of this offering, the Company's existing credit facilities
and cash flows from operations are expected to be sufficient to provide the
capital resources necessary to support the Company's capital and operating
needs (not including the new fulfillment center) for at least the next twelve
months.
RECENT ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share" which modifies the way in which
earnings per share ("EPS") is calculated and disclosed. Currently, the Company
discloses primary and fully diluted EPS. SFAS 128 requires the disclosure of
basic and diluted EPS for financial statements issued for periods ending after
December 15, 1997. The restatement of all prior period EPS data presented is
also required upon adoption. Basic EPS excludes potentially dilutive
securities and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS, similar to fully diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted to common stock that then shared in the
earnings of the entity. Early application of SFAS 128 is not permitted. See
Note A to the accompanying consolidated financial statements.
22
<PAGE>
BUSINESS
DM Management is a leading specialty direct marketer of high quality women's
apparel, accessories, shoes and gifts. The Company currently markets its
products through two discrete catalog concepts, J. Jill and Nicole Summers.
These concepts are designed to appeal to active, affluent women age 35 and
older, with each concept aimed at a distinct lifestyle segment within this
demographic group. DM Management's objective is to be a fashion authority for
its target market. The Company seeks to distinguish its catalogs and reinforce
the brand identity of the J. Jill and Nicole Summers names through exclusive
private label merchandise offerings, a broad assortment of extended sizes,
"total look" wardrobing and editorial lifestyle photography.
Since December 1995, the Company has assembled a new management team with
significant experience in the catalog industry and has made important changes
to its creative, merchandising and marketing strategies. In addition to the
recruitment of Gordon R. Cooke to be its new President and Chief Executive
Officer, the broadening and strengthening of the Company's management team has
included the addition of an Executive Vice President of Marketing and a Vice
President--Creative Director and the appointment of a Senior Vice President
for the Nicole Summers concept and a Vice President for the J. Jill concept.
The new management team has implemented a business strategy in which creative
presentation and differentiation in merchandise execution, in addition to
circulation management, are primary elements of growth and profitability.
Distinctive creative elements have been introduced for both the Nicole Summers
and J. Jill catalog concepts, including the use of artwork for covers and
editorial lifestyle photography throughout the catalogs. In addition, the
Company has continued to focus on certain core competencies that it has
developed over the past ten years, including the ongoing expansion of its
private label and extended size merchandise offerings. The Company has
combined these creative and merchandising strategic initiatives with a shift
in circulation strategy designed to curtail unproductive cross-catalog
mailings to existing customers and has reinvested the resulting circulation
cost savings in increased prospect mailings. The Company believes that these
changes in management and strategy have strengthened the competitive position
of its two catalog concepts and positioned the Company for continued growth.
Since beginning to implement these strategic initiatives, the Company has
experienced five consecutive quarters of dramatic profit improvement as
compared to the comparable quarter of the prior year. Most recently, in the
quarter ended September 27, 1997 net sales increased 54.1% to $31.6 million
from $20.5 million during the corresponding quarter of the prior year and net
income rose 176.4% to $0.7 million from $0.3 million during the corresponding
quarter of the prior year.
INDUSTRY BACKGROUND
The direct marketing industry in general has experienced significant growth
during the past five years. The Company estimates, based on industry data,
that consumer catalog sales reached approximately $46 billion in 1996, up from
approximately $32 billion in 1991, and could reach approximately $63 billion
by 2001. The Company believes that growth in catalog sales is being driven
primarily by continued consumer response to the ease and convenience of
shopping at home. It is estimated that approximately 59% of adults in the
United States made a purchase from a catalog in 1995. Based on industry data,
the Company estimates that catalog sales of women's apparel totaled over $7.9
billion in 1996, and that total sales of women's apparel in 1996 were
approximately $84 billion.
The Company's target market is one of the largest and fastest growing
population segments in the United States. U.S. Census bureau estimates
indicate that the number of women age 35 and older will increase by
approximately 11% by the year 2005 as compared to an increase of approximately
7% for the general population. This age group currently accounts for
approximately 26% of the total United States population. The Company believes
that the large proportion of working women in its target customer group, and
their generally active lifestyles, make the group particularly responsive to
the convenience of catalog shopping.
23
<PAGE>
BUSINESS STRATEGY
DM Management's objective is to be a fashion authority for its target
market. The Company seeks to combine the personal experience of shopping at an
upscale specialty retailer with the ease and convenience of shopping at home
by offering an edited assortment of high quality products in vibrant, easy-to-
read catalogs. The key elements of the Company's business strategy are set
forth below:
Brand building. The Company believes that it has a significant opportunity
to build the brand identity of each of its catalog concepts within its target
market. The Company seeks to enhance brand identity by developing strong
relationships with its customers that foster loyalty and increase repeat
purchases. The consistent application of unique creative and merchandising
techniques tailored to create a signature style for each catalog concept is a
central element of this effort, as is an emphasis on superior customer
service.
Large target market. The Company focuses on a target market of active,
affluent women age 35 and older. The median household income of repeat
customers participating in a recent Company survey was in excess of $70,000.
Each of the Company's catalog concepts is designed to appeal to the lifestyle
needs of a distinct demographic group within the Company's larger target
market. The Company believes that the active lifestyles of its target
customers make the convenience of catalog shopping particularly appealing to
them.
Well differentiated merchandise offerings. The Company believes that its
distinctive approach to merchandising enhances its position as a fashion
authority to its target customers. Key components of the Company's
merchandising strategy include:
. Private label program. The Company offers private label merchandise,
principally apparel, through each of its catalog concepts. In the spring
1997 season, private label merchandise represented approximately three-
quarters and one-third of the apparel styles offered in the J. Jill and
Nicole Summers catalogs, respectively. Most private label merchandise is
exclusive to DM Management, which the Company believes reinforces each
catalog concept's role as a fashion authority to its target customers
and enhances the brand identity of the J. Jill and Nicole Summers names.
. Extended sizes. In addition to offering regular sizes from 4 to 20, the
Company offers a broad assortment of apparel in petite and large sizes
in the same styles as its regular size offerings. Management believes
that the Company has particular expertise in scaling fashionable regular
size merchandise to be attractively worn by extended size customers, and
that these hard to fit customers currently have few attractive catalog
or retail shopping alternatives. In the spring 1997 season, extended
size apparel offerings accounted for 37% of total merchandise offerings.
. "Total look" wardrobing. The Company's "total look" wardrobing approach
seeks to satisfy the lifestyle needs of its target customers by offering
a coordinated selection of apparel, accessories and shoes to outfit them
from head to toe. Management believes that this approach builds brand
identity while increasing the Company's potential share of household
spending dollars.
Distinctive creative presentation. The Company's catalogs are its primary
vehicles for communicating with its customers. The creative presentation of
each catalog is a crucial factor in attracting customer attention, stimulating
purchases, projecting differentiation in the marketplace and building brand
identity. The signature style of each catalog is enhanced by the use of
editorial lifestyle photography that presents merchandise in settings in which
the Company's target customers might find or imagine themselves and by other
distinctive catalog design elements such as thematic merchandise spreads
highlighting particular colors or fabrics.
Investment in management and infrastructure. The Company is committed to
investments in management and in physical and systems infrastructure in order
to support its anticipated future growth, serve its customers, improve
operating efficiencies and respond to strategic opportunities. Since December
1995, the Company has made significant investments in management, and it
intends to make additional significant investments in systems and facilities.
The Company has recently purchased approximately 360 acres of land in Tilton,
New Hampshire, which is intended to house a new fulfillment center. This
facility is expected to be operational by
24
<PAGE>
early 1999. The Company is also currently in the process of upgrading its
information systems. See "--Fulfillment," "--Information Systems and
Technology," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
GROWTH STRATEGY
The Company's growth strategy is focused on building productive long-term
relationships with its current and prospective customers. DM Management
believes that it has significant opportunities to increase sales and
profitability by offering a portfolio of brands catering to the upscale
lifestyle needs of the Company's target customers. The key elements of the
Company's growth strategy are set forth below:
Continue to expand customer base at profitable levels. The Company seeks to
strike a balance between prospecting for new customers and efficiently
generating revenue from existing customers. In planning its circulation
strategy for each season, the Company uses sophisticated statistical modeling
techniques to analyze existing and prospective customer databases and develop
targeted marketing programs designed to optimize response rates while
increasing the active customer list. The Company plans to significantly
increase prospecting for its J. Jill catalog concept over the near term.
Introduce new merchandise categories. The Company believes that it can
further develop the lifestyle themes and maintain "freshness" within the J.
Jill and Nicole Summers concepts by expanding offerings in existing
merchandise categories or by adding new merchandise categories. For example,
in the 1996 Nicole Summers Holiday catalog, the Company introduced gift items,
including products from such high end brands as Baccarat and Waterford. The
Company believes that the addition of new merchandise categories has enhanced
the lifestyle messages of its catalogs and thereby contributed to recent
improvements in sales and profitability.
Develop or acquire complementary catalog concepts. The Company believes that
it has the potential to capitalize on its expertise in serving active,
affluent women by acquiring or internally developing new catalog concepts that
cater to its target customers. The Company currently has no commitments or
agreements with regard to any acquisition.
Expand into other distribution channels. While the Company currently has no
plans to expand beyond its current distribution channels, management
recognizes that it may be appropriate to do so in the future. For example, the
Company might selectively open retail stores to support its brand building
efforts. In addition, the Company tests national advertising from time to time
and monitors developments in electronic shopping. The Company believes its
operational infrastructure will position it to take advantage of on-line
ordering of merchandise, if and when it becomes commercially viable to do so.
THE COMPANY'S CATALOGS
The Company currently markets its products through two discrete catalog
concepts, J. Jill and Nicole Summers.
J. Jill. The J. Jill concept is characterized by the simple, comfortable
style of its apparel offerings, which range from relaxed career wear to
weekend wear. These apparel offerings are predominantly private label, with
emphasis on natural fibers and creative details. The J. Jill concept's target
customers are active, affluent women age 35 to 55. The median household income
of repeat J. Jill customers who participated in a recent Company survey was
approximately $78,000. Results of the survey also suggest that the J. Jill
concept appeals in particular to working women with families at home, who have
hectic lifestyles involving many and varied daily activities. In the spring
1997 season, approximately three-quarters of the apparel styles offered
through J. Jill catalogs were private label. Most private label merchandise is
designed specifically for sale under the J. Jill label. The use of editorial
lifestyle photography that presents merchandise in settings in which the
Company's target customers might find or imagine themselves is an important
element of the creative and merchandising strategy for the J. Jill concept.
25
<PAGE>
The Company acquired the J. Jill concept in 1987. Since January 1996 J. Jill
has undergone a repositioning of its merchandising, marketing and creative
strategies which has resulted in substantial sales and profit growth. During
the six months ended June 28, 1997, J. Jill net sales accounted for
approximately 42% of the Company's total net sales, up from approximately 24%
for the comparable period of the prior year. The Company believes that this
growth is being driven by the emerging market for more casual apparel,
particularly for the workplace, and the need active, working women have for
comfortable, versatile clothing. The Company also believes that this market
has not been well served by other direct marketers or retailers.
Nicole Summers. The Nicole Summers concept is characterized by its edited
assortment of updated classic apparel. Its target customers are affluent women
age 45 and older who have an active but formal lifestyle and, most
importantly, are younger in their outlook than their peers in previous
generations. The median household income of repeat Nicole Summers customers
who participated in a recent Company survey was approximately $70,000. Nicole
Summers catalogs feature an assortment of suits and sportswear from well
respected resources such as Ruth Norman, Castleberry Knits, Adrianna Papell,
Adrienne Vittadini, Bleyle and Leo Narducci, complemented by private label
merchandise designed expressly for more mature women. The creative approach
for the Nicole Summers concept includes the use of editorial lifestyle
photography and cover pages with distinctive artwork.
The Company acquired the Nicole Summers concept in 1988. In March 1996 the
Company began the process of merging its The Very Thing! concept, also
acquired in 1988, into the Nicole Summers concept as part of a strategic
repositioning of its catalogs. Since January 1996, the merchandise assortment
and creative presentation in the Nicole Summers catalogs have been updated in
a continuing effort to align the concept with the changing tastes and evolving
lifestyle needs of its target customer group. The Company believes that the
"modern 50 year old" customer is not well served by the direct marketers and
department stores that have traditionally served older women and that the
design and creative presentation of the Nicole Summers catalogs differentiate
the concept in its target market. Management believes that the updating of the
Nicole Summers catalogs since the beginning of 1996 has contributed
significantly to the concept's improved growth and profitability.
CREATIVE PRESENTATION AND CATALOG PRODUCTION
The Company's catalogs are its primary vehicles for communicating with its
customers. The creative presentation of each catalog is a crucial factor in
attracting customer attention, stimulating purchases, projecting
differentiation in the marketplace and building brand identity.
The objective of the Company's creative approach for each of its catalogs is
to present merchandise in a vibrant, easy-to-read format with a visual style
appropriate for the sophistication of the merchandise and the expectations of
the target customers. Management believes that the use of distinctive catalog
design techniques such as editorial lifestyle photography and thematic
merchandise spreads highlighting particular colors or fabrics helps to create
the signature style of its catalog concepts and establish their position as
fashion authorities for their target customers. The Company's catalogs
showcase merchandise in settings in which their customers might find or
imagine themselves, in order to heighten the customers' identification with
the concept and affinity for its merchandise offerings. The Company's catalogs
are also designed to enhance customer convenience through easy-to-read
layouts, coordinated merchandise placement and the Company's "total look"
wardrobing approach. Management believes that the Company's strategy of
presenting merchandise in real life settings also helps to differentiate it
from store-front retailers.
The Company devotes substantial resources to the design and production of
each edition of its catalogs. After an initial conceptualization meeting, the
creative and merchandising teams work closely together on catalog design,
merchandise selection and presentation and catalog print production. The
materials and direction necessary to produce each catalog are then delivered
to the Company's production team approximately eight weeks before the initial
mailing date of the catalog. The production team creates the electronic files
used to print the catalog and plans and manages the printing and catalog
distribution processes. The production team ensures
26
<PAGE>
that photographs appearing in the Company's catalogs accurately depict
merchandise characteristics such as color and texture. Catalog production
takes place in-house using desktop publishing systems. As a result, the
Company can adjust catalog layout until approximately two weeks before the
planned initial mailing date, allowing the Company to react to current market
and sales trends by adjusting content and presentation of catalogs while they
are in production. All of the Company's catalogs are printed commercially
under the Company's supervision.
MARKETING AND CUSTOMER DATABASE MANAGEMENT
The Company's marketing and customer database management strategy is
designed to attract new customers and generate additional sales from existing
customers. In the Company's experience, concentrating mailings on existing
customers generally results in higher response rates and more profitable
operations than mailings to prospective customers. However, prospecting for
new customers is necessary to support future growth. In developing a
circulation strategy for each catalog, the Company seeks to strike a balance
between these two objectives.
At June 28, 1997, the Company's customer database contained approximately
2.2 million individual customer names, including approximately 724,000
individuals who had made a purchase within the previous 24 months. The Company
estimates that approximately two-thirds of these active customers have made
multiple purchases from the Company. DM Management stores detailed information
on each of its customers, including demographic data and purchase history. The
database is updated on a weekly basis. To determine which of its customers
will receive a particular catalog mailing, the Company analyzes this
information using sophisticated statistical modeling techniques. The Company's
customer database is maintained off-site by a service bureau which sorts and
processes the information in accordance with instructions from the Company.
The Company's agreement with the service bureau requires the service bureau to
safeguard the confidentiality of the Company's database. Additionally, the
Company uses customer research techniques such as focus groups and
quantitative surveys to assess customer perceptions of its catalog concepts
and their competitors, in order to help set distinctive marketing,
merchandising and creative strategies appropriate for each catalog concept.
The Company acquires lists of prospective customers by rental or exchange
and from a database cooperative and other sources. The Company also
occasionally purchases lists of prospective customers. The most productive
prospects tend to come from the customer lists of other women's apparel
catalogs, including direct competitors. The Company rents its list of
customers to and exchanges it with others, including direct competitors. To
determine which prospective customers will receive a particular catalog
mailing, the Company analyzes available information concerning such prospects
using the same types of sophisticated statistical modeling techniques used to
target mailings to the Company's own customers.
As part of its customer retention program and brand building strategy, DM
Management introduced its own private label credit card in September 1995. The
Company believes that this credit card reinforces the Company's relationship
with existing customers and promotes additional purchases by these customers.
During the first half of 1997, approximately 9% of net sales were attributable
to purchases made using the Company's private label credit card. At June 28,
1997 there were approximately 54,000 holders of the Company's private label
credit card. The credit card program is currently administered by SPS Payment
Systems, Inc., a fee-based outside vendor who bears the credit risk associated
with the credit card without recourse to the Company.
MERCHANDISING
The Company provides an edited assortment of high quality merchandise
designed to meet the tastes and serve the lifestyle needs of its target
customers. Each of the Company's catalog concepts has its own merchandise
selection staff. In addition to apparel, which accounted for approximately 90%
of gross sales in the spring 1997 season, the Company's catalogs also offer a
selection of seasonal items, gifts and other products selected with the
specific lifestyle profiles of J. Jill and Nicole Summers target customers in
mind.
27
<PAGE>
The Company's catalogs offer both brand name and private label merchandise.
In the spring 1997 season, approximately three-quarters of the apparel styles
offered through J. Jill catalogs were private label, and this percentage is
expected to increase. During the same period, approximately one-third of the
apparel styles offered through Nicole Summers catalogs were private label. No
significant change is expected in the percentage of private label apparel
included in the Nicole Summers catalog concept. Private label merchandise is
manufactured to the Company's detailed specifications by foreign vendors,
primarily located in Hong Kong, Singapore and Israel, in addition to domestic
vendors. Brand name products are selected from the regular offerings of the
Company's vendors. See "Risk Factors--Risks Associated with Private Label
Merchandise Strategy," "--Risks Arising from Use of Foreign Suppliers" and "--
Dependence on Third Parties."
Both the J. Jill and Nicole Summers catalogs offer a wide assortment of
merchandise in petite and large sizes, in the same styles as their regular
sized offerings. In the spring 1997 season, extended size apparel offerings
accounted for 37% of total merchandise offerings.
DM Management's catalogs feature a "total look" wardrobing approach which
presents a coordinated selection of apparel and related items including
sportswear, dresses, suits, coats, swimwear, shoes and accessories intended to
outfit the customer from head to toe. Management believes that this approach
builds brand identity while increasing the Company's potential share of
household spending dollars.
INVENTORY MANAGEMENT AND PURCHASING
The Company's inventory management systems are designed to maintain
inventory levels that provide optimum in-stock positions and maximum inventory
turnover rates while minimizing the amount of unsold merchandise at the end of
each selling season. To achieve this goal, the Company seeks to schedule
merchandise deliveries and inventory amounts to conform to expected sales
levels.
The Company follows an interdepartmental approach to the inventory planning
process. Conceptual planning for each principal catalog edition begins
approximately nine months in advance of its initial mailing. Early in the
process the Company's inventory control, marketing, creative and merchandising
teams meet to present key strategies and opportunities for specific catalog
editions and merchandise items. The inventory control group then applies
inventory coverage models to plan opening inventory levels for each stock
keeping unit ("sku"), taking into account projected sales, the cost of being
out of stock and ease of reordering. Preliminary commitments with the
Company's private label merchandise vendors typically are made five to seven
months in advance of each principal catalog edition's initial mailing date. To
the extent feasible, the Company seeks to retain flexibility in these
commitments in order to be able to react to market and sales trends. Initial
merchandise commitments for branded merchandise typically are made three to
five months before the edition's initial mailing date. Initial deliveries
generally are scheduled to be received one to three weeks before the edition's
initial mailing date.
The inventory control group utilizes a forecasting system which analyzes
sales and returns by sku throughout the selling season to permit purchasing
adjustments based on forecasted sales and returns. The Company attempts to
minimize overstocks through a variety of promotional efforts, including
telemarketing to customers at the time they place orders for other merchandise
and circulation of seasonal clearance catalogs. The Company also sells excess
inventory through its three outlet stores and to "jobbers." The Company's
outlet stores are run solely for the purpose of liquidating overstocks.
The Company sells both domestically produced and imported merchandise, which
it purchases in the open market. During the six months ended June 28, 1997,
the Company purchased merchandise from approximately 400 vendors, no one of
which supplied goods which represented more than 10% of the Company's
inventory purchases during that period. During the six months ended June 28,
1997, the Company purchased approximately 8% of its merchandise directly from
foreign vendors, and the Company expects that it will continue to purchase
merchandise from foreign suppliers in the future. In addition, goods purchased
by the Company from domestic vendors may be sourced abroad by such vendors.
The Company seeks to establish long-term relationships with its merchandise
vendors and works closely with them to ensure high standards of merchandise
quality. The Company does not have any long-term contracts with any of its
vendors.
28
<PAGE>
CUSTOMER SERVICE AND OPERATIONS
DM Management believes that an emphasis on superior customer service is
important to its ability to expand its customer base and build customer
loyalty. At June 28, 1997, the Company employed approximately 120
telemarketing representatives. Customer orders are taken 24 hours a day, 365
days a year, primarily by the Company's telemarketing representatives at its
operations center in Meredith, New Hampshire. The Company also accepts orders
by mail or facsimile. All orders are input directly into the Company's on-line
data processing system, which provides, among other things, customer
historical information, merchandise availability, product specifications,
available substitutes and accessories and expected shipment date. The Company
trains its telemarketing representatives to be knowledgeable in merchandise
specifications and features. These representatives have ready access to
samples of the current season's merchandise assortment, which enables them to
answer detailed merchandise inquiries from customers on-line.
DM Management offers an unconditional merchandise guarantee. If a customer
is not completely satisfied with any item for any reason, the customer may
return it for an exchange or a full refund. To simplify the return process,
the Company includes a self-addressed return label with every shipment, which
customers can use to return any item to the Company through the United States
Postal Service without paying postage fees in advance. Management believes
that the Company's return rates are consistent with industry standards for
comparable merchandise. Returns experience is closely monitored to identify
any product quality or fit issues. Returned merchandise is inspected carefully
and, unless damaged, is cleaned, pressed and returned to inventory.
Approximately 95% of returned merchandise is recycled into inventory.
FULFILLMENT
DM Management believes that the prompt delivery of merchandise promotes
customer loyalty and repeat buying. To achieve this goal, the Company uses an
integrated picking, packing and shipping system. The system monitors the in-
stock status of each item ordered, processes the order and generates all
related packing and shipping materials, taking into account the location of
items within the fulfillment center. Currently all merchandise is shipped from
the Company's facilities in New Hampshire. The Company's customers normally
receive their orders within three to five business days after shipping,
although customers may request overnight delivery for an extra charge.
The Company's approximately 93,000 square foot facility in Meredith, New
Hampshire houses its primary fulfillment operation. The Company is approaching
this facility's fulfillment capacity. The Company's recent rapid growth has
accelerated the need to increase its fulfillment capacity. In September 1997
the Company purchased approximately 360 acres of land in Tilton, New
Hampshire. The site is intended to house an approximately 400,000 square foot
state-of-the-art facility, of which approximately 370,000 square feet will be
devoted to fulfillment operations. The facility is expected to be operational
by early 1999.
The Company has developed and begun to implement a plan to increase its
fulfillment capacity while it is awaiting the completion of its planned new
fulfillment center in Tilton. The Company has moved return processing,
disbursement to outlet stores and storage of less active merchandise to
approximately 38,000 square feet of leased space in Laconia, New Hampshire.
The Company has also leased an additional approximately 113,000 square feet of
space in Laconia and plans to begin operating an interim fulfillment center in
this space starting in December 1997. Nicole Summers orders will be picked and
processed in the interim fulfillment center in Laconia and J. Jill orders will
continue to be picked and processed in the Meredith facility. The Company
plans to cease using the interim facilities in Laconia after the new
fulfillment center in Tilton is operational.
The Company has been working with outside consultants to develop plans for
the Tilton fulfillment center and to manage the process of setting up and
moving to the interim fulfillment center in Laconia and then the new Tilton
facility while maintaining high levels of customer service. The Company
anticipates that the fees for these consulting and related services will total
approximately $1.7 million. This amount is included in the total estimated
cost of the Tilton fulfillment center. The Company anticipates that it will
experience some operating
29
<PAGE>
inefficiencies and incur additional expenses as a result of commencing
operations at the interim fulfillment center in Laconia and concurrently
operating multiple fulfillment centers. In addition, upon completion of the
new Tilton fulfillment center, the Company expects to incur additional costs
relating to the commencement of operations at the Tilton facility, the
termination of operations at the temporary Laconia sites and the continued
operation of the Company's facility in Meredith.
INFORMATION SYSTEMS AND TECHNOLOGY
The Company is committed to making ongoing investments in its information
systems to increase operating efficiency, provide superior customer service
and support its anticipated growth. The Company believes that the ability to
capture and analyze operational and financial data and relevant information
about its customers and their purchasing history is critical to its success.
The Company has made, and continues to make, significant investments in
systems to support order taking and customer service, fulfillment, marketing,
merchandising, inventory control, financial control and reporting and
forecasting. DM Management plans to implement a new automated warehouse
management system which will more efficiently support current warehouse
processes and provide additional flexibility to support the Company's growth
plans. The Company has also recently acquired a new order management system
which will provide significant processing enhancements to the Company's
current system. The Company expects to be utilizing these new systems by the
second half of 1998.
In addition to its in-house data processing and information systems
resources, the Company also uses several outside vendors for key services such
as list processing and credit card administration and approval.
COMPETITION
The market for the Company's merchandise is highly competitive. The Company
competes with other direct marketers, specialty apparel and accessory
retailers and traditional department store retailers. There are few barriers
to entry in the women's specialty apparel and accessory market. Moreover, the
Company believes that its recent success, as well as the sales growth in the
direct marketing industry, has or will encourage many new competitors. In
particular, the Company believes that its J. Jill catalog concept serves an
emerging market niche in which competition is limited currently but is likely
to increase in the future. Many of the Company's competitors are larger and
have substantially greater financial, marketing and other resources than the
Company. DM Management believes that it competes principally on the basis of
its "total look" wardrobing approach, extended size offerings, creatively
distinctive catalogs and superior customer service.
EMPLOYEES
As of September 1, 1997, the Company employed 484 individuals, of whom 407
were full-time (those employees scheduled to work 30 hours or more per week).
None of the Company's employees is represented by a union. The Company
considers its employee relations to be good.
TRADEMARKS AND SERVICE MARKS
The Company has registered the names of its principal catalogs, J. Jill Ltd.
and Nicole Summers, as trademarks and service marks with the United States
Patent and Trademark Office.
GOVERNMENT REGULATION
The catalog sales business conducted by the Company is subject to the Mail
or Telephone Order Merchandise Rule and related regulations promulgated by the
Federal Trade Commission, which prohibit unfair methods of competition and
unfair or deceptive acts or practices in connection with mail and telephone
order sales and require sellers of mail and telephone order merchandise to
conform to certain rules of conduct with respect to shipping dates and
shipping delays. The Company believes it is in compliance with the Rule and
such regulations.
30
<PAGE>
The Company currently collects sales taxes only on sales to its
Massachusetts customers. Many states have attempted to require that out-of-
state direct marketers collect use taxes on sales of products shipped to their
residents. In 1992, the United States Supreme Court held unconstitutional a
state's imposition of use tax collection obligations on an out-of-state mail
order company whose only significant contacts with the state were the
distribution of catalogs and other advertising materials through the mail and
subsequent delivery of purchased goods by mail or common carriers, but stated
that Congress could enact legislation authorizing the states to impose such
obligations. In 1995, however, the United States Supreme Court let stand a
decision of New York's highest state court requiring an out-of-state catalog
company to collect use tax (including a retroactive assessment and penalties)
on its mail order sales in the state, where the catalog company's reported
contact with New York included a limited number of visits by sales force
employees. If Congress enacts legislation permitting states to impose use tax
collection obligations on out-of-state mail order businesses, or if the
Company otherwise is required to collect additional sales or use taxes, such
tax collection obligations would make it more expensive to purchase the
Company's products and increase the Company's administrative costs, and
therefore could have a material adverse effect on the Company's financial
condition and results of operations.
FACILITIES
The following table sets forth certain information relating to the Company's
facilities:
<TABLE>
<CAPTION>
SQUARE TYPE OF LEASE
LOCATION FOOTAGE FUNCTION INTEREST TERMINATION
- ------------------------ ------- --------------------------------- -------- -----------
<S> <C> <C> <C> <C>
Meredith, NH (approx. 25
acres)................. 93,120 Operations and Fulfillment Center Owned --
Laconia, NH............. 112,900 Interim Fulfillment Center Leased 09/14/99
Laconia, NH............. 37,800 Interim Returns Processing and Leased 04/01/99
Storage Facility
Hingham, MA............. 19,642 Corporate Offices Leased 03/31/00
Bedford, MA............. 5,255 Outlet Store Leased 04/30/00
Meredith, NH............ 3,600 Outlet Store Leased 07/01/99
North Conway, NH........ 2,567 Outlet Store Leased 02/28/02
</TABLE>
In September 1997 the Company purchased approximately 360 acres of land in
Tilton, New Hampshire. The site is intended to house a new fulfillment center
expected to be operational by early 1999. The estimated cost of this new
facility, including land, construction and equipment, ranges from $33.0 to
$37.0 million. See "--Fulfillment."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings of a material nature.
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each director
and executive officer of the Company as of September 1, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gordon R. Cooke......... 52 President and Chief Executive Officer; Chairman of
the Board of Directors
Samuel L. Shanaman...... 56 Executive Vice President and Chief Operating
Officer; Director
David E. Brown.......... 48 Vice President--Creative Director
Olga L. Conley.......... 39 Vice President--Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
John J. Hayes........... 42 Executive Vice President of Marketing
Patricia C. Lee......... 33 Vice President--J. Jill
Carol A. Maher.......... 56 Vice President of Human Resources
Stephanie B. Noble...... 42 Senior Vice President--Nicole Summers
Patricia C. Selander.... 40 Vice President of Inventory Management
William E. Engbers (1)
(2).................... 54 Director
Walter J. Levison (1)
(2).................... 79 Director
Thomas J. Litle (2)..... 57 Director
Ruth M. Owades (1)...... 48 Director
</TABLE>
- --------
(1)Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Cooke has been President and Chief Executive Officer of the Company and
a director since joining the Company in December 1995 and Chairman of the
Board of Directors since August 1997. Mr. Cooke served as President of Time-
Warner Interactive Merchandising, an interactive marketing division of Time
Warner Inc., from November 1993 until December 1995, and as President of
Bloomingdale's By Mail, a division of Federated Department Stores, Inc., from
April 1991 until October 1993. Mr. Cooke is also a director of Geerlings &
Wade, Inc.
Mr. Shanaman has been Executive Vice President and Chief Operating Officer
of the Company since December 1995 and a director since July 1990. He served
as Chief Financial Officer of the Company from June 1990 until August 1997.
Mr. Shanaman also served as President and Chief Executive Officer of the
Company from June 1994 until December 1995 and as Vice President--Finance of
the Company from June 1990 until June 1994.
Mr. Brown joined the Company in March 1997 as Vice President--Creative
Director. From April 1996 to March 1997, Mr. Brown was a freelance art
director for Farrar & Farrar, a retail advertising agency. From September 1992
until April 1996 he was employed by Structure, a men's apparel division of The
Limited, Inc., first as Art Director and later as Creative Director. From
September 1990 until September 1992 he was employed by Hanover Direct, Inc., a
direct marketing company, first as Vice President, Advertising and later as
Vice President, Creative Director, Home Group.
Ms. Conley has been Chief Financial Officer since August 1997, Vice
President--Finance since June 1996 and Treasurer since August 1993. She joined
the Company in October 1991 as Director of Financial Services, a position she
held until August 1993.
Mr. Hayes has served as Executive Vice President of Marketing since joining
the Company in May 1996. From September 1990 until May 1996, Mr. Hayes served
as Vice President, Marketing and Catalog Production, of Bloomingdale's By
Mail, a division of Federated Department Stores, Inc.
32
<PAGE>
Ms. Lee has been Vice President--J. Jill since December 1996. She joined the
Company in December 1991 as a buyer, and served as Director of Merchandising
from November 1994 until December 1996.
Ms. Maher has been Vice President of Human Resources since June 1996. She
joined the Company in December 1992 and served as Director of Human Resources
until June 1996. From January 1987 until December 1992 she was Director of
Human Resources for Child World, Inc., a subsidiary of Cole National
Corporation.
Ms. Noble has been Senior Vice President--Nicole Summers since December
1996. She joined the Company in April 1988 as Director of Merchandising and
served as Vice President of Merchandising from April 1989 until December 1996.
Ms. Selander joined the Company in January 1993 as Director of Inventory
Control and became Vice President of Inventory Management in October 1995.
From September 1977 to January 1993, Ms. Selander was employed by The Talbots,
Inc., an apparel retailer, where she held several positions, including Retail
Planner, Sportswear Division and Manager of Catalog Merchandise Systems.
Mr. Engbers has been a director of the Company since July 1990. Mr. Engbers
currently serves as Director, Venture Capital of Allstate Insurance Company,
which he joined in June 1989. He is also a director of Applied Biometrics,
Inc. and La Jolla Pharmaceutical Company.
Mr. Levison has been a director of the Company since March 1992. Since
October 1982, Mr. Levison has been a general partner of the Aegis Venture
Funds, a group of venture capital funds based in the Boston, Massachusetts
area. He is also a director of Davox Corporation.
Mr. Litle has been a director of the Company since May 1997. Since 1995, Mr.
Litle has been the Chairman of LitleNet LLC, a company which he founded and
which provides direct commerce connection and information sharing services to
the direct marketing industry. From 1985 to 1995, he was Chairman and Chief
Executive Officer of Litle & Company, which provided information sharing,
payment processing and electronic network services for the direct marketing
industry. Mr. Litle is also a director of SkyMall, Inc. and the Direct
Marketing Association.
Ms. Owades has been a director of the Company since May 1997. Since 1988,
Ms. Owades has been President and Chief Executive Officer of Calyx & Corolla,
Inc., a catalog business which she founded and which offers consumers fresh-
cut flowers and plants.
The Company's Certificate of Incorporation provides for the division of the
Company's Board of Directors into three classes, with members of each class
serving for staggered three-year terms. The terms of Mr. Levison and Ms.
Owades expire at the 1998 annual meeting of stockholders; the terms of Mr.
Cooke and Mr. Litle expire at the 1999 annual meeting; and the terms of Mr.
Engbers and Mr. Shanaman expire at the 2000 annual meeting.
The Company's executive officers are elected by the Board of Directors and
hold office until the first directors' meeting after the next annual meeting
of stockholders or special meeting in lieu thereof, and thereafter until their
successors are chosen and qualified, unless a shorter term is specified in the
vote electing them.
33
<PAGE>
EXECUTIVE STOCK OPTIONS
The following table sets forth certain information as of September 1, 1997
concerning all stock options held by the Company's Chief Executive Officer and
other five most highly compensated executive officers.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS
-------------------------
EXERCISE
DATE OF PRICE PER
NAME AND PRINCIPAL POSITION GRANT SHARE EXERCISABLE UNEXERCISABLE
- --------------------------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Gordon R. Cooke.................. 12/26/95 $ 2.25 41,666 58,334
President and Chief Executive Of- 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
NationsBanc Montgomery Securities, Inc. (the "Representatives"), have
severally agreed to purchase 2,752,404 shares of Common Stock from the Company
and the Selling Stockholders in the amounts set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Wessels, Arnold & Henderson, L.L.C...................................
NationsBanc Montgomery Securities, Inc. .............................
---------
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 purchased approximately 360 acres of
land in Tilton, New Hampshire for $4,152,000. The site is intended to house a
new fulfillment center expected to be operational by early 1999. The estimated
cost of this new facility, including land, construction and equipment, ranges
from $33.0 to $37.0 million.
J. RELATED PARTY:
During fiscal 1996, the Company terminated its relationship with Shannon
North America, Limited ("Shannon"), a joint venture between the Company and
Aer Rianta cpt. The Company's investment in Shannon was immaterial. During the
six months ended December 28, 1996 and June 28, 1997, the Company continued to
provide various operational services to Shannon. Amounts charged to Shannon
are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TRANSITION PERIOD ENDED SIX MONTHS ENDED
---------------------------------- ------------------------ -----------------------
JUNE 25, JUNE 24, JUNE 29, DEC. 30, DEC. 28, JUNE 29, JUNE 28,
1994 1995 1996 1995 1996 1996 1997
(52 WEEKS) (52 WEEKS) (53 WEEKS) (27 WEEKS) (26 WEEKS) (26 WEEKS) (26 WEEKS)
---------- --------- --------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
$487 $555 $690 $406 $180 $328 $92
</TABLE>
F-20
<PAGE>
DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 28, 1997, FOR THE SIX
MONTHS ENDED
JUNE 29, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 IS
UNAUDITED)
K. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
SEPT. 24, DEC. 24, MARCH 25, JUNE 24,
1994 1994 1995 1995
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $18,536 $14,890 $19,704 $19,561
Income (loss) from continuing operations. 1,078 (582) 180 89
Net income (loss)........................ 1,078 (582) 120 157
Income (loss) from continuing operations
per share............................... 0.23 (0.13) 0.04 0.02
Net income (loss) per share.............. $ 0.23 $ (0.13) $ 0.03 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
SEPT. 30, DEC. 30, MARCH 30, JUNE 29,
1995 1995 1996 1996
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $22,312 $16,955 $19,736 $21,582
Income (loss) from continuing operations. (274) (286) 250 545
Net income (loss)........................ (667) (491) 264 (8,456)
Income (loss) from continuing operations
per share............................... (0.06) (0.07) 0.06 0.11
Net income (loss) per share.............. $ (0.15) $ (0.12) $ 0.06 $ (1.79)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------
SEPT. 28, DEC. 28, MARCH 29, JUNE 28,
1996 1996 1997 1997
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $20,541 $22,783 $24,543 $32,885
Income from continuing operations........ 250 11,313 541 1,205
Net income............................... 250 11,313 541 1,205
Income from continuing operations per
share................................... 0.05 2.38 0.11 0.23
Net income per share..................... $ 0.05 $ 2.38 $ 0.11 $ 0.23
</TABLE>
During the six months ending December 28, 1996, the Company recorded a
deferred tax benefit of $10,598,000 (see Note H).
On May 20, 1996, the Company announced its plan to discontinue the operations
of its Carroll Reed segment and recorded a charge of $8,511,000 for the loss on
disposal of discontinued operations (see Note B).
The sum of the quarterly EPS amounts may not equal the full year amount since
the computations of the weighted average number of common and common equivalent
shares outstanding for each quarter and the full year are made independently.
F-21
<PAGE>
[IMAGE OF WOMAN]
<PAGE>
[Image of woman appears behind text on this page]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,752,404 Shares
LOGO
Common Stock
---------------
PROSPECTUS
---------------
Wessels, Arnold & Henderson
NationsBanc Montgomery Securities, Inc.
, 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
UNDERWRITING
<TABLE>
<C> <S>
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 October 17, 1997
*23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
POWER OF ATTORNEY
*24.1 Power of Attorney
FINANCIAL DATA SCHEDULE
*27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
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
October 17, 1997.
DM Management Company
/s/ Samuel L. Shanaman
By: ________________________________
Samuel L. Shanaman
Executive Vice President and
Chief Operating Officer
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
*
__________________________________ President, Chief
GORDON R. COOKE Executive Officer and October 17,
Chairman of the Board 1997
of Directors
(Principal Executive
Officer)
/s/ Samuel L. Shanaman
__________________________________ Executive Vice
SAMUEL L. SHANAMAN President, Chief October 17,
Operating Officer and 1997
Director
*
__________________________________
OLGA L. CONLEY Vice President -- October 17,
Finance, Chief 1997
Financial Officer and
Treasurer (Principal
Financial and
Accounting Officer)
*
__________________________________ Director
WILLIAM E. ENGBERS October 17,
1997
*
__________________________________ Director
WALTER J. LEVISON October 17,
1997
*
__________________________________ Director
THOMAS J. LITLE October 17,
1997
*
__________________________________ Director
RUTH M. OWADES October 17,
1997
/s/ Samuel L. Shanaman
*By: ________________________
Samuel L. Shanaman
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
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 October 17, 1997
*23.2 Consent of Foley, Hoag & Eliot LLP
POWER OF ATTORNEY
*24.1 Power of Attorney
FINANCIAL DATA SCHEDULE
*27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 1.1
2,752,404 Shares
DM MANAGEMENT COMPANY
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1997
WESSELS, ARNOLD & HENDERSON, L.L.C.
MONTGOMERY SECURITIES
As Representatives of the several Underwriters
c/o Wessels, Arnold & Henderson, L.L.C.
601 Second Avenue
Minneapolis, Minnesota 55402-4314
Dear Sirs:
SECTION 1. Introduction. DM Management Company, a Delaware corporation
------------
(the "Company"), proposes to issue and sell 1,000,000 shares of its authorized
but unissued Common Stock (the "Common Stock") and the stockholders of the
Company named in Schedule B annexed hereto (the "Selling Stockholders") propose
to sell 1,752,404 shares of the Company's issued and outstanding Common Stock to
the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as Representatives. Said aggregate of
2,752,404 shares of Common Stock are herein called the "Firm Common Shares."
In addition, the Company proposes to grant to the Underwriters an option to
purchase up to 412,861 additional shares of Common Stock (the "Optional Common
Shares"), as provided in Section 4 hereof. The Firm Common Shares and, to the
extent such option is exercised, the Optional Common Shares are hereinafter
collectively referred to as the "Common Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
<PAGE>
The Company and the Selling Stockholders hereby confirm their respective
agreements with respect to the purchase of the Common Shares by the Underwriters
as follows:
SECTION 2. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-2 (File No. 333-35267) with
respect to the Common Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission under the Act. The Company has prepared and has filed, or proposes
to file prior to the effective date of such registration statement, an amendment
or amendments to such registration statement, which amendment or amendments have
been or will be similarly prepared. There have been delivered to you two
manually signed copies of such registration statement and amendments, together
with two copies of each exhibit filed therewith. Conformed copies of such
registration statement and amendments (but without exhibits) and of the related
preliminary prospectus (meeting the requirements of Rule 430 of the Rules and
Regulations) contained therein have been delivered to you in such reasonable
quantities as you have requested for each of the Underwriters. Copies of such
registration statement, including any amendments thereto, the preliminary
prospectuses contained therein, the exhibits, financial statements and
schedules, and the documents incorporated by reference therein, as finally
amended and revised, have heretofore been delivered by the Company to you and,
to the extent applicable, were identical to the electronically transmitted
copies thereof filed with the Commission pursuant to the Commission's Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent
permitted by Regulation S-T. The Company will next file with the Commission one
of the following: (i) prior to the effectiveness of such registration
statement, a further amendment thereto, including the form of final prospectus,
or (ii) a final prospectus in accordance with Rules 430A and 424(b) of the Rules
and Regulations. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information (as hereinafter
defined) and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to you
prior to the date and time that this Agreement was executed and delivered by the
parties hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company shall have
previously advised you in writing would be included or made therein. If such
registration statement has been declared effective by the Commission under the
Act, no post-effective amendment to such registration statement has been filed
as of the date of this Agreement.
-2-
<PAGE>
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes
effective, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, and, in the event any post-effective
amendment thereto becomes effective prior to the First Closing Date (as
hereinafter defined), shall also mean such registration statement as so amended;
provided, however, that such term shall also include all Rule 430A Information
deemed to be included in such registration statement at the time such
registration statement becomes effective as provided by Rule 430A of the Rules
and Regulations. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at any time prior to the time it becomes
effective. The term "Prospectus" as used in this Agreement shall mean (a) the
prospectus relating to the Common Shares in the form in which it is first filed
with the Commission pursuant to Rule 424(b) and Rule 430A of the Rules and
Regulations, (b) the term sheet or abbreviated term sheet filed by the Company
with the Commission pursuant to Rule 424(b)(7) together with the last
preliminary prospectus included in the Registration Statement filed prior to the
time it becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Common Shares, or, (c) if no filing pursuant to Rule 430A and Rule 424(b) of the
Rules and Regulations is required, shall mean the form of final prospectus
included in the Registration Statement at the time such registration statement
becomes effective. The term "Rule 430A Information" means information with
respect to the Common Shares and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to Rule 430A
of the Rules and Regulations. Any reference herein to the Registration
Statement, a Preliminary Prospectus or the Prospectus shall be deemed to refer
to and include any documents incorporated by reference therein; and any
reference herein to financial statements and schedules and other information
which is "contained," "included" or "stated" in the Registration Statement, a
Preliminary Prospectus or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is incorporated by reference therein. Any
reference herein to any Prospectus shall be deemed to refer to and include any
supplements thereto filed with the Commission after the date of filing of the
Prospectus under Rules 424(b) and 430A, and prior to the termination of the
offering of the Common Shares by the Underwriters. Additionally, all references
to the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement to any of the foregoing, shall be deemed to include
the respective copies thereof filed with the Commission pursuant to EDGAR.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, nor has the Commission instituted
proceedings for that purpose. Each Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and,
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as of its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. At
the time the Registration Statement becomes effective, and at all times
subsequent thereto up to and including each Closing Date hereinafter mentioned,
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, as the case may be, will contain all statements and information
required to be included therein by the Act and the Rules and Regulations and in
all material respects conform or will conform, as the case may be, to the
requirements of the Act and the Rules and Regulations. Neither the Registration
Statement nor any amendment thereto will include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and neither the
Prospectus nor any supplement thereto will include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, no representation or warranty contained in
this subsection 2(b) shall be applicable to information contained in or omitted
from any Preliminary Prospectus, the Registration Statement, the Prospectus or
any such amendment or supplement in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any Underwriter,
directly or through the Representatives, or by or on behalf of any Selling
Stockholder, specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity, other than DM Management Security
Corporation, a Massachusetts securities corporation (the "Subsidiary"). The
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware, with full power and
authority (corporate and other) to own and lease its properties and conduct its
business as described in the Prospectus; the Company is in possession of and
operating in compliance in all material respects with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect; the Company
is duly qualified to do business and in good standing as a foreign corporation
in each jurisdiction in which the ownership or leasing of properties or the
conduct of its business requires such qualification, except for jurisdictions in
which the failure to so qualify would not have a material adverse effect upon
the Company; and no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(d) The Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the Commonwealth of
Massachusetts. The Company owns all of the outstanding capital stock of the
Subsidiary, free and clear of all claims, liens, charges and encumbrances. All
issued
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and outstanding shares of capital stock of the Subsidiary have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
outstanding options or rights to purchase or acquire any capital stock, or
securities or obligations convertible into capital stock of the Subsidiary. The
Subsidiary conducts no business and engages in no activities, other than the
investment of funds made available to it by the Company. Any references herein
(or in any certificate delivered hereunder) to the condition (financial or
otherwise), properties, business, results of operations, prospects, liabilities
or indebtedness of the Company shall be deemed to refer to that of the Company
and the Subsidiary on a consolidated basis.
(e) The Company has an authorized and outstanding capital stock as set
forth in the Prospectus; the issued and outstanding shares of Common Stock,
including all issued and outstanding shares to be sold by the Underwriters, have
been duly authorized and validly issued, are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform in all material respects to
the description thereof contained in the Prospectus. Except as disclosed in or
contemplated by the Prospectus and the consolidated financial statements of the
Company, and the related notes thereto, included in the Prospectus, the Company
does not have outstanding any options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations, except for shares issuable under the 1993 Employee Stock Purchase
Plan of the Company. The description of the Company's stock option, stock bonus
and other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and fairly
presents in all material respects the information shown with respect to such
plans, arrangements, options and rights.
(f) The Common Shares to be issued and sold by the Company have been
duly authorized and, when issued, delivered and paid for in the manner set forth
in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement, other than with respect to the Common Shares of the Selling
Stockholders to be included in such offering. No further approval or authority
of the stockholders or the Board of Directors of the Company will be required
for the transfer and sale of the Common Shares to be sold by the Selling
Stockholders or the
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issuance and sale of the Common Shares to be sold by the Company as contemplated
herein.
(g) The Company has the corporate power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company enforceable in accordance with its
terms. The making and performance of this Agreement by the Company and the
consummation of the transactions herein contemplated will not violate any
provisions of the charter or Bylaws of the Company or the Subsidiary and will
not conflict with, result in the breach or violation of, or constitute, either
by itself or upon notice or the passage of time or both, a default under any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or the Subsidiary is a party or by
which the Company or the Subsidiary or any of their properties may be bound or
affected, any statute (not including the Blue Sky or state securities laws
applicable to the public offering of the Common Shares contemplated hereby) or
any authorization, judgment, decree, order, rule or regulation of any court or
any regulatory body, administrative agency or other governmental body applicable
to the Company or the Subsidiary or any of their properties (not including the
Blue Sky or state securities laws applicable to the public offering of the
Common Shares contemplated hereby or the by-laws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") applicable to such
offering). No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required
for the execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance with the Act,
the Blue Sky or state securities laws applicable to the public offering of the
Common Shares by the several Underwriters and the clearance of such offering
with the NASD.
(h) To the knowledge of the Company, Coopers & Lybrand LLP, who have
expressed their opinion with respect to the consolidated financial statements
and schedules filed with the Commission as a part of the Registration Statement
and included in the Prospectus and in the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(i) The consolidated financial statements of the Company, together
with the related notes and schedules included in the Registration Statement and
the Prospectus, present fairly the consolidated financial position of the
Company as of the respective dates of such consolidated financial statements,
and the results of operations, changes in stockholders' equity and cash flows of
the Company for the respective periods covered thereby. Such consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved, and all adjustments necessary for a
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fair presentation of results for such periods have been made. No other
consolidated financial statements or schedules are required to be included in
the Registration Statement. The selected consolidated financial data set forth
in the Prospectus under the captions "Prospectus Summary - Summary Consolidated
Financial Data," "Capitalization" and "Selected Consolidated Financial Data"
fairly present the information set forth therein on the basis stated in the
Registration Statement.
(j) Except as to violations, breaches and defaults which individually
or in the aggregate would not have a material adverse effect on the Company,
neither the Company nor the Subsidiary is in violation or default of any
provision of its charter or Bylaws or in breach of or default with respect to
any provision of any agreement, judgment, decree, order, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to which
it is a party or by which it or any of its properties are bound; and there does
not exist any state of facts which constitutes a default on the part of the
Company or the Subsidiary under such documents or which, with notice or lapse of
time or both, would constitute such a default.
(k) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required.
(l) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company or the Subsidiary is or may be a party or of which property owned or
leased by the Company or the Subsidiary is or may be the subject, which actions,
suits or proceedings might, individually or in the aggregate, prevent or
adversely affect the transactions contemplated by this Agreement or result in a
material adverse change in the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company. Neither the
Company nor the Subsidiary is a party to any injunction, judgment, decree or
order of any court, regulatory body, administrative agency or other governmental
body.
(m) The Company has good and marketable title to all the properties
and assets reflected as owned in the consolidated financial statements
hereinabove described (or elsewhere described in the Prospectus), subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such consolidated financial statements (or elsewhere described
in the Prospectus), or (ii) those which are not material in amount and do not
materially adversely affect the use made and proposed to be made of such
property by the Company. The Company holds its leased properties under valid
and binding leases, with such exceptions as are not material in relation to the
business of the Company. Except as disclosed in the Prospectus, the Company
owns or leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted.
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<PAGE>
(n) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended, (i) the Company has not incurred
any material liabilities or obligations, direct or contingent, or entered into
any material verbal or written agreement or other transaction which is not in
the ordinary course of business or which could result in a material reduction in
the future earnings of the Company; (ii) the Company has not sustained any
material loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other distributions
with respect to its capital stock and the Company is not in default in the
payment of principal or interest on any outstanding debt obligations; (iv) there
has not been any material change in the capital stock (other than upon the sale
of the Common Shares hereunder and upon the exercise of options described in the
Registration Statement) or any change in indebtedness that has a material
adverse effect on the Company; and (v) there has not been any material adverse
change in or affecting the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company, whether or not
occurring in the ordinary course of business. The Company has no material
contingent obligations that are not disclosed in the Registration Statement, as
it may be amended.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, the Company has sufficient trademarks, trade names, trade secrets,
servicemarks, inventions, licenses, approvals and governmental authorizations to
conduct its business as now conducted; the expiration of any trademarks, trade
names, trade secrets, servicemarks, inventions, licenses, approvals or
governmental authorizations would not have a material adverse effect on the
condition (financial or otherwise), business, properties, results of operations
or prospects of the Company; and the Company has no knowledge of any
infringement by it of trademarks, trade name rights, patent rights, copyrights,
licenses, trade secret, servicemarks or other similar rights of others, and
there is no claim being made against the Company regarding trademark, trade
name, patent, copyright, license, trade secret or other infringement which could
have a material adverse effect on the condition (financial or otherwise),
business, properties, results of operations or prospects of the Company.
(p) The Company has not been advised, nor does it have any reason to
believe, that it is not conducting business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state, federal
and foreign environmental laws and regulations, except where failure to be so in
compliance would not materially adversely affect the condition (financial or
otherwise), business, results of operations or prospects of the Company.
(q) Each of the Company and the Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid all
taxes
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shown as due thereon; and the Company has no knowledge of any tax deficiency
which has been or might successfully be asserted or threatened against the
Company or the Subsidiary which could materially and adversely affect the
condition (financial or otherwise), business, properties, results of operations
or prospects of the Company.
(r) Neither the Company nor the Subsidiary has, directly or
indirectly, at any time during the past five years (i) made any unlawful
contributions to any candidate for political office, or failed to disclose fully
any contribution in violation of law, or (ii) made any payment to a federal,
state or foreign governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
(s) All material transactions during the Company's current or last
three fiscal years between the Company and the officers, directors and 5%
shareholders of the Company have been accurately disclosed in the Prospectus to
the extent required; and the terms of each such transaction are in all material
respects fair to the Company and no less favorable to the Company than the terms
that could have been obtained from unrelated parties.
(t) The Company maintains insurance of the types and in the amounts
which it deems adequate for its business, including, but not limited to, general
liability insurance and insurance covering all real and personal property owned
or leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and other risks customarily insured against, all
of which insurance is in full force and effect.
(u) The Company does not maintain any employee benefit plan subject to
Title IV of the Employee Retirement Income Security Act of 1974, as amended.
(v) The Company is not an "investment company" as defined in the
Investment Company Act of 1940 (the "1940 Act").
(w) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the offering and
sale of the Common Shares, other than the Preliminary Prospectuses, the
Registration Statement, the Prospectus and other materials permitted by the Act.
(x) The Company has not taken and will not take, directly or
indirectly, any action designed to or that has constituted or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Common Shares.
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<PAGE>
(y) The Company's Common Stock is registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); all
outstanding shares of Common Stock are listed on the Nasdaq National Market, and
the Common Shares to be issued and sold by the Company hereunder have been
approved for quotation on the Nasdaq National Market, subject to official notice
of issuance; and the Company has taken no action designed to, or likely to have
the effect of, terminating the registration of the Common Shares under the
Exchange Act, nor has the Company received any notification that the Commission
is contemplating terminating such registration. The Company has filed all
documents required to be filed with the Commission pursuant to Section 13, 14 or
15 of the Exchange Act in the manner and within the time periods required by the
Exchange Act. The documents incorporated by reference in the Prospectus, at the
time they were filed with the Commission, complied in all material respects with
the requirements of the Exchange Act, and, when read together with the other
information in the Prospectus, at the time the Registration Statement and any
amendments thereto become effective and at the First Closing Date and the Second
Closing Date, as the case may be, will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 3. Representations, Warranties and Covenants of the Selling
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Stockholders.
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(a) Each of the Selling Stockholders, severally and not jointly,
represents and warrants to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing Date
hereinafter mentioned will have, good and valid title to the Common Shares
proposed to be sold by such Selling Stockholder hereunder, free and clear of all
voting trust arrangements, liens, encumbrances, equities, security interests,
restrictions and claims whatsoever, and the corporate or trust power and
authority to execute and deliver this Agreement and the Power of Attorney (the
"Power of Attorney") and the Custody Agreement (the "Custody Agreement")
hereinafter referred to and to sell, assign, transfer and deliver such Common
Shares hereunder; and upon delivery of and payment for such Common Shares
hereunder, the several Underwriters will acquire good and valid title thereto,
free and clear of all liens, encumbrances, equities, claims, restrictions,
security interests, voting trusts or other defects of title whatsoever.
(ii) Such Selling Stockholder has executed and delivered a Power
of Attorney appointing Gordon R. Cooke, Samuel L. Shanaman and Olga L. Conley,
and each of them, as such Selling Stockholder's Attorneys-in-Fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement on
behalf of such Selling Stockholder, to determine the purchase price to be paid
by the
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Underwriters to such Selling Stockholder for the Common Shares as provided in
Section 4 hereof and to authorize the delivery of the Common Shares to be sold
by such Selling Stockholder in connection with this Agreement, and caused to be
executed and delivered on its behalf a Power of Attorney and a Custody Agreement
(the Power of Attorney and Custody Agreement hereinafter collectively referred
to as the "Stockholders Agreement") and in connection therewith such Selling
Stockholder further represents, warrants and agrees that such Selling
Stockholder has deposited in custody, under the Stockholders Agreement, with the
agent named therein (the "Agent") as custodian, certificates in negotiable form
for the Common Shares to be sold hereunder by such Selling Stockholder, for the
purpose of further delivery pursuant to this Agreement. Such Selling Stockholder
agrees that the Common Shares to be sold by such Selling Stockholder on deposit
with the Agent are subject to the interests of the Underwriters, that the
arrangements made for such custody and the appointment by such Selling
Stockholder of the Attorneys-in-Fact under the Power of Attorney are to that
extent irrevocable, and that the obligations of such Selling Stockholder
hereunder shall not be terminated, except as provided in this Agreement or in
the Stockholders Agreement, by any act of such Selling Stockholder, by operation
of law, by the liquidation, dissolution, merger or consolidation of such Selling
Stockholder or by the occurrence of any other event. If such Selling Stockholder
shall be liquidated, dissolved, merged or consolidated, or if any other event
should occur, before the delivery of the Common Shares hereunder, the documents
evidencing the Common Shares then on deposit with the Agent shall be delivered
by the Agent in accordance with the terms and conditions of this Agreement as if
such dissolution, liquidation, merger or consolidation, or other event had not
occurred, regardless of whether or not the Agent shall have received notice
thereof.
(iii) The execution, delivery and performance of this
Agreement and the Stockholders Agreement and the consummation of the
transactions contemplated hereby and by the Stockholders Agreement will not
conflict with or result in a breach or violation by such Selling Stockholder of
any of the terms or provisions of, or constitute a default by such Selling
Stockholder under, any indenture, mortgage, deed of trust, trust (constructive
or other), loan agreement, lease, franchise, license or other agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder or any of its properties is bound, any statute (not including the
Blue Sky or state securities laws applicable to the public offering of the
Common Shares contemplated hereby), or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Stockholder or any of its properties (not including the Blue Sky or
state securities laws applicable to the public offering of the Common Shares
contemplated hereby or the by-laws and rules of the NASD applicable to such
offering) or the Certificate of Incorporation or By-laws (or comparable
organizational or governing documents) of such Selling Stockholder.
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(iv) All consents, approvals, authorizations and orders (other
than such as may be required under Blue Sky or state securities laws and the by-
laws and rules of the NASD in connection with the public offering of the Common
Shares) necessary for the execution and delivery by such Selling Stockholder of
this Agreement and the Stockholders Agreement, and for the sale and delivery of
the Common Shares to be sold by such Selling Stockholder hereunder, have been
obtained.
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action that is designed to or that has constituted
or that might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Shares.
(b) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 with respect to the transactions herein contemplated, such Selling
Stockholder agrees to deliver to you prior to or at the First Closing Date (as
hereinafter defined) a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
(c) Such Selling Stockholder agrees with the Company and the
Underwriters that it will not, directly or indirectly, sell, offer to sell,
contract to sell, grant an option to purchase, grant a security interest in, or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for any shares of Common Stock, or any interest in such
shares or securities, for a period of 90 days from the date of the Prospectus,
without the prior written consent of the Representatives.
SECTION 4. Purchase, Sale and Delivery of Common Shares. On the basis of
--------------------------------------------
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, (i) the Company agrees to issue and
sell to the Underwriters 1,000,000 of the Firm Common Shares, and (ii) the
Selling Stockholders agree, severally and not jointly, to sell to the
Underwriters, in the respective amounts set forth in Schedule B hereto, an
aggregate of 1,752,404 of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholders, respectively, the number of Firm Common Shares described below
with respect to each Underwriter. The purchase price per share to be paid by
the several Underwriters to the Company and to the Selling Stockholders,
respectively, shall be $_____ per share.
The obligation of each Underwriter to the Company shall be to purchase from
the Company that number of full shares which (as nearly as practicable, as
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determined by you) bears to the number of Firm Common Shares being sold by the
Company the same proportion as the number of shares set forth opposite the name
of such Underwriter in Schedule A hereto bears to the total number of Firm
Common Shares. The obligation of each Underwriter to each Selling Stockholder
shall be to purchase from such Selling Stockholder that number of full shares
which (as nearly as practicable, as determined by you) bears to the number of
Firm Common Shares being sold by such Selling Stockholder the same proportion as
the number of shares set forth opposite the name of such Underwriter in Schedule
A hereto bears to the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Wessels,
Arnold & Henderson, L.L.C., 601 Second Avenue, Minneapolis, Minnesota (or such
other place as may be agreed upon by the Company and the Representatives) at
8:00 a.m. (Minneapolis time) on __________, 1997, or such other time and date,
not later than the third full business day following the date of this Agreement,
unless otherwise required or permitted pursuant to Rule 15c6-1 of the Exchange
Act (the "First Closing Date"). (As used herein, "business day" means a day on
which the New York Stock Exchange is open for trading and on which banks in New
York are open for business and not permitted by law or executive order to be
closed.)
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Stockholders to you, for the respective
accounts of the Underwriters with respect to the Firm Common Shares to be sold
by the Company and by the Selling Stockholders against payment by you, for the
accounts of the several Underwriters, of the purchase price therefor by
certified or official bank check or checks payable in next day funds to the
order of the Company and of the Agent in proportion to the number of Firm Common
Shares to be sold by the Company and the Selling Stockholders, respectively.
The certificates for the Firm Common Shares shall be registered in such names
and denominations as you shall have requested upon at least 48 hours' prior
written notice, and shall be made available for checking and packaging on the
business day preceding the First Closing Date at a location in Boston,
Massachusetts or New York, New York as may be designated by you. Time shall be
of the essence, and delivery at the time and place specified in this Agreement
is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 412,861 Optional Common Shares
at the purchase price per share to be paid for the Firm Common Shares, for use
solely in covering any over-allotments made by you for the account of the
Underwriters in the sale and distribution of the Firm Common Shares. The option
granted hereunder
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may be exercised in whole or in part at any time (but not more than once) upon
prior written notice by you to the Company, given within 30 days after the date
of the Prospectus, setting forth the aggregate number of Optional Common Shares
as to which the Underwriters are exercising the option, the names and
denominations in which the certificates for such shares are to be registered and
the time and place at which such certificates will be delivered. Such time of
delivery (which may not be earlier than the First Closing Date), being herein
referred to as the "Second Closing Date," shall be determined by you, but if at
any time other than the First Closing Date shall not be earlier than three nor
later than five full business days after delivery of such notice of exercise.
The number of Optional Common Shares to be purchased by each Underwriter shall
be determined by multiplying the number of Optional Common Shares to be sold by
the Company pursuant to such notice of exercise by a fraction, the numerator of
which is the number of Firm Common Shares to be purchased by such Underwriter as
set forth opposite its name in Schedule A and the denominator of which is the
total number of Firm Common Shares to be purchased by all Underwriters (subject
to such adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in Boston, Massachusetts or New York, New York as may
be designated by you. The manner of payment for and delivery of the Optional
Common Shares shall be the same as for the Firm Common Shares purchased from the
Company as specified in the two preceding paragraphs. At any time before lapse
of the option, you may cancel such option by giving written notice of such
cancellation to the Company. If the option is cancelled or expires unexercised
in whole or in part, the Company will deregister under the Act the number of
Optional Common Shares as to which the option has not been exercised.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to furnish receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the initial public offering price set forth
on the cover page of and on the terms set forth in the Prospectus.
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SECTION 5. Covenants of the Company. The Company covenants and agrees
------------------------
that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed in a form approved by
you, pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
reasonably satisfactory to you of such timely filing. The Company will promptly
advise you in writing (i) of the receipt of any comments of the Commission, (ii)
of any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information, (iii)
when the Registration Statement shall have become effective and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus, or the institution or
threatening of any proceedings for that purpose. The Company will use its best
efforts to prevent the issuance of any such stop order and, if the Commission
shall enter any such stop order at any time, the Company will use its best
efforts to obtain the lifting of such order at the earliest possible moment.
The Company will not file any amendment to the Registration Statement (either
before or after it becomes effective), or any supplement to any Preliminary
Prospectus or the Prospectus, of which you have not been furnished with a copy a
reasonable time prior to such filing or to which you reasonably object or which
is not in compliance with the Act and the Rules and Regulations. To the extent
applicable, the copies of the Registration Statement and each amendment thereto
(including all exhibits filed therewith), any Preliminary Prospectus or the
Prospectus (in each case, as amended or supplemented) furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments to the Registration Statement or supplements
to the Prospectus which in your reasonable judgment may be necessary or
advisable to enable the several Underwriters to continue the distribution of the
Common Shares and will use its best efforts to cause the same to become
effective as promptly as possible. The Company will comply with the provisions
of Rule 430A of the Rules and Regulations with respect to any information
omitted from the Registration Statement in reliance upon such Rule.
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(c) If at any time a prospectus relating to the Common Shares is
required to be delivered under the Act any event occurs, as a result of which
the Prospectus, as then supplemented, would include an untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or if for any other
reason it is necessary at any time to supplement the Prospectus, as then
supplemented, to comply with the Act or the Rules and Regulations, the Company
will promptly advise you thereof and will promptly prepare and file with the
Commission, at its own expense, an appropriate amendment to the Registration
Statement or supplement to the Prospectus which will correct such statement or
omission or an amendment to the Registration Statement or supplement to the
Prospectus which will effect such compliance and will use its best efforts to
cause the same to become effective as soon as possible.
(d) As soon as practicable, but not later than 45 days after the end
of the first quarter ending after one year following the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of Section
11(a) of the Act and the relevant Rules and Regulations (including, at the
option of the Company, Rule 158).
(e) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives, at any time when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter supplemented, as the Representatives may reasonably
request. The Company will deliver to the Representatives on or before the First
Closing Date such number of copies of the Registration Statement, including
documents incorporated by reference therein, but without exhibits, and of all
amendments thereto, as the Representatives may reasonably request.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate,
will comply with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the distribution of
the Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would not be
subject to taxation as a foreign corporation. The Company will advise you
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common
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Shares for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption, the
Company, with your cooperation, will use its best efforts to obtain the
withdrawal thereof. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Common Shares.
(g) During the period of five years after the First Closing Date (but
only for so long as the Common Stock is registered under the Exchange Act), the
Company will continue to file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the manner
and within the time periods required by the Exchange Act. During the period of
five years after the First Closing Date (but only for so long as the Common
Stock is registered under the Exchange Act), the Company will furnish to the
Representatives and, upon request of the Representatives, to each of the other
Underwriters: (i) as soon as practicable after the end of each fiscal year,
copies of the Annual Report of the Company containing the consolidated balance
sheet of the Company as of the close of such fiscal year and consolidated
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form l0-Q, Current
Report on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its Common
Stock. To the extent applicable, such reports or documents shall be identical
to the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(h) During the period beginning on the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, without the
prior written consent of the Representatives, the Company will not 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 with its Common Stock or other equity security; provided
that the Company may (i) issue shares of its Common Stock under the employee
stock purchase plan described in the Prospectus or upon the exercise of options
granted under its employee stock options plans described in the Prospectus, and
(ii) grant options under its employee stock option plans and employee stock
purchase plan described in the Prospectus upon terms and in amounts consistent
with past practice.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
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caption "Use of Proceeds" in the Prospectus. The Company will invest such
proceeds pending their use in such a manner that, upon completion of such
investment, the Company will not be an "investment company" as defined in the
1940 Act.
(j) The Company will list the Common Shares to be issued and sold by
the Company on the Nasdaq National Market.
(k) The Company will use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by the
Company prior to the First Closing Date or the Second Closing Date, as the case
may be, and to satisfy all conditions precedent to the delivery of the Common
Shares.
Wessels, Arnold & Henderson, L.L.C., on behalf of the Underwriters, may, in
its sole discretion, waive in writing the performance by the Company of any one
or more of the foregoing covenants or extend the time for their performance.
SECTION 6. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the Selling
Stockholders agree to pay (in such proportions as they may agree upon among
themselves) all costs, fees and expenses incurred by them in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses of preparing certificates for the Common Shares
(including all printing and engraving costs), (ii) all fees and expenses of the
registrar and transfer agent of the Common Stock, (iii) all necessary issue,
transfer and other stamp taxes in connection with the issuance and sale of the
Common Shares to the Underwriters, (iv) all fees and expenses of the Company's
counsel and the Company's independent accountants, (v) all costs and expenses
incurred in connection with the preparation, printing, copying, filing, shipping
and distribution of the Registration Statement, each Preliminary Prospectus and
the Prospectus (including all exhibits and financial statements) and all
amendments and supplements provided for herein, and all costs and expenses
incurred in connection with the printing, copying, shipping and distribution of
this Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreement, the Underwriters' Questionnaire, The Underwriters' Selling
Memorandum, the Invitation Letter, the Underwriters' Power of Attorney and the
Blue Sky memoranda, and any amendments or supplements thereto, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws, (vii) the filing fee of, and all fees and
expenses incurred by the Company or the Underwriters and their counsel incident
to securing any required approval from, the NASD and (viii) all other fees,
costs and expenses referred to in Item 13 of the Registration Statement. The
Underwriters may deem the
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Company to be the primary obligor with respect to all costs, fees and expenses
to be paid by the Company and by the Selling Stockholders. Except as provided in
this Section 6, Section 8 and Section 10 hereof, the Underwriters shall pay all
of their own expenses, including the fees and disbursements of their counsel
(excluding those relating to qualification, registration or exemption under the
Blue Sky laws and the Blue Sky memoranda referred to above and in securing any
approval of the NASD). This Section 6 shall not affect any agreements relating
to the payment of expenses among the Company and the Selling Stockholders.
To the extent not paid by the Company, the Selling Stockholders will pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) any fees and expenses of
counsel for the Selling Stockholders; (ii) any fees and expenses of the Agent;
and (iii) all expenses and taxes incident to the sale and delivery of the Common
Shares to be sold by the Selling Stockholders to the Underwriters hereunder.
SECTION 7. Conditions to the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements by Company
officers on behalf of the Company and by the Selling Stockholders made in
instruments delivered to you pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., Washington, D.C. time, on the date of this Agreement, or at such
later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Stockholders or you, shall be contemplated by the
Commission; and any request of the Commission for changes to, or inclusion of
additional information in, the Registration Statement, shall have been complied
with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and Prospectus, (i)
there shall not have been any change in the capital stock of the Company, other
than upon the sale
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of the Common Shares hereunder and as contemplated by subsection 5(h) above, or
any change in the indebtedness (other than in the ordinary course of business)
of the Company, (ii) except as set forth in or contemplated by the Registration
Statement or the Prospectus, no verbal or written agreement or other transaction
shall have been entered into by the Company, which is not in the ordinary course
of business or which could result in a material reduction in the future earnings
of the Company, (iii) no loss or damage (whether or not insured) to the property
of the Company shall have been sustained which materially and adversely affects
the condition (financial or otherwise), business, results of operations or
prospects of the Company, (iv) no legal or governmental action, suit or
proceeding against the Company which if adversely determined would have a
material adverse effect on the Company or which materially affects or may affect
the transactions contemplated by this Agreement shall have been instituted or
threatened and (v) there shall not have been any change in or affecting the
condition (financial or otherwise), business, management, properties, results of
operations or prospects of the Company which, in the judgment of the
Representatives, is so material and adverse as to make it impractical or
inadvisable to proceed with the public offering or the delivery of the Common
Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to you,
except as otherwise expressly provided below:
(i) An opinion of Foley, Hoag & Eliot LLP, counsel for the
Company, addressed to the Underwriters and dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:
(1) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Delaware, is duly
qualified to do business as a foreign corporation and is in good standing in the
Commonwealth of Massachusetts, and has full corporate power and authority to own
its properties and conduct its business as described in the Prospectus; the
Subsidiary has been duly incorporated and is validly existing as a corporation
in good standing under the laws of Massachusetts;
(2) The authorized capital stock of the Company is as set
forth in the Prospectus; all necessary corporate proceedings have been taken in
order to validly authorize such capital stock; all outstanding shares of Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of or subject to any preemptive
rights or other similar rights to subscribe for or purchase any securities and
conform in all material respects to the description thereof contained in the
Prospectus; and the shares of Common Stock outstanding immediately prior to the
closing of this offering were issued pursuant to valid exemptions from the
registration requirements of the Act;
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<PAGE>
(3) The form of certificate evidencing the Common Shares to
be delivered hereunder is in due and proper form under Delaware law; the Firm
Common Shares to be sold by the Selling Stockholders have been duly authorized
and are validly issued, fully paid and nonassessable, were not issued in
violation of or subject to any preemptive rights or other similar rights to
subscribe for or purchase securities and conform in all material respects to the
description thereof contained in the Prospectus; the Common Shares to be sold by
the Company have been duly authorized and when issued and paid for as
contemplated by this Agreement will be validly issued, fully paid and
nonassessable, will not have been issued in violation of or subject to any
preemptive rights or other similar rights to subscribe for or purchase
securities and will conform in all material respects to the description thereof
contained in the Prospectus;
(4) Except as disclosed in or specifically contemplated by
the Prospectus, to such counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments or
arrangements to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable for capital stock of the Company,
except for shares issuable under the 1993 Employee Stock Purchase Plan of the
Company;
(5) (A) The Registration Statement has become effective
under the Act, and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are pending or threatened by the Commission; any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) of the
Rules and Regulations has been made in the manner and within the time period
required by such Rule 424(b);
(B) The Registration Statement and each amendment
thereto and the Prospectus and each supplement thereto (except for the
consolidated financial statements and notes thereto and financial schedules
included therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act and the Rules and
Regulations (other than Regulation S-X); each document filed by the Company
pursuant to the Exchange Act (except for the consolidated financial statements
and notes thereto and financial schedules included therein, as to which such
counsel need express no opinion) and incorporated by reference in the Prospectus
complied when so filed as to form in all material respects with the requirements
of the Exchange Act;
(C) To such counsel's knowledge, there are no
franchises, leases, contracts, agreements or documents of a character required
to be disclosed in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not disclosed or filed, as
required; and
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(D) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened against the
Company or any of its properties which are required to be described in the
Prospectus and which are not described as required.
(6) The statements under the captions "Description of
Capital Stock" in the Prospectus, insofar as such statements constitute a
summary of the documents referred to therein or of matters of law, are accurate
in all material respects and fairly describe, in all material respects, the
information required to be disclosed with respect thereto.
(7) The Company has the corporate power and authority to
enter into this Agreement and to sell and deliver the Common Shares to be sold
by it to the several Underwriters; and this Agreement has been duly and validly
authorized by all necessary corporate action by the Company and has been duly
and validly executed and delivered by and on behalf of the Company. No approval,
authorization, order, consent, registration, filing, qualification, license or
permit of or with any court, regulatory, administrative or other governmental
body is required for the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated by this Agreement, except
such as have been obtained under the Act and such as may be required under
applicable Blue Sky or state securities laws and the by-laws and rules of the
NASD in connection with the purchase and distribution of the Common Shares by
the Underwriters and the clearance of such offering with the NASD;
(8) The execution and performance of this Agreement by the
Company and the consummation by the Company of the transactions herein
contemplated will not conflict with, result in the breach of, or constitute,
either by itself or upon notice or the passage of time or both, a default under,
any material agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument known to such counsel to which the Company
is a party or by which the Company or any of its property may be bound or
violate any of the provisions of the Certificate of Incorporation or Bylaws of
the Company or, so far as is known to such counsel, violate any statute,
judgment, decree, order, rule or regulation of any court or governmental body
having jurisdiction over the Company or any of its property (except that no
opinion need be expressed in this paragraph as to compliance with state
securities laws or the anti-fraud provisions of the federal securities laws or
the by-laws and rules of the NASD); and
(9) To such counsel's knowledge, no holders of securities
of the Company have rights which have not been waived to the registration under
the Act of shares of Common Stock or other securities, because of the filing of
the Registration Statement by the Company or the offering contemplated hereby,
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other than with respect to the Common Shares of the Selling Stockholders to be
included in such offering.
In rendering such opinion, such counsel may rely (i) as to matters of local
law, on opinions of local counsel, and (ii) as to matters of fact, on
certificates of officers of the Company and of governmental officials, provided
that in each such case their opinion states that they are so doing and that they
believe that the Underwriters are justified in relying on such opinions or
certificates and copies of said opinions or certificates are attached to the
opinion or furnished in advance to counsel for the Underwriters. Counsel may
state that its opinion is qualified to the extent that (i) the enforceability of
any provision of any instrument or document or any rights granted thereunder may
be subject to or affected by any bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar law relating to or affecting the
rights of creditors generally, (ii) the remedy of specific performance or any
other equitable remedy may be unavailable in any jurisdiction or may be withheld
as a matter of judicial discretion, or (iii) equitable principles may be applied
in construing or enforcing the provisions of any instrument or document
(regardless of whether enforcement is sought in a proceeding in equity or at
law). Counsel may further state that, in rendering its opinion, it expresses no
opinion other than as to (i) the laws of the United States and The Commonwealth
of Massachusetts and (ii) the General Corporation Law of the State of Delaware.
Counsel need express no opinion as to the validity or enforceability of the
indemnity or contribution provisions of any agreement.
Such counsel shall also include a statement to the effect that such counsel
has participated in conferences with officers and other representatives of the
Company, counsel for the Underwriters, representatives of the independent
certified public accountants for the Company, and representatives of the
Underwriters, at which conferences the contents of the Registration Statement
and Prospectus and related matters were discussed and, although (except as
specifically covered by this opinion) such counsel is not passing upon, and does
not assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus and has not
made any independent check or verification thereof, on the basis of the
foregoing (relying as to materiality to a large extent upon the statements of
officers and other representatives of the Company), no facts or information have
come to such counsel's attention that would lead such counsel to believe that
the Registration Statement (excluding the consolidated financial statements and
notes thereto, financial statement schedules and other financial and accounting
data included therein), as of its effective date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
that the Prospectus (excluding the consolidated financial statements and notes
thereto and other financial and accounting data included therein), either as of
its date or as of the applicable Closing Date (as the Prospectus may be amended
or supplemented as of
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such date), contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading;
(ii) An opinion of Mary McGinn, Esq., counsel for the Selling
Stockholders, addressed to the Underwriters and dated the First Closing Date, to
the effect that:
(1) A Power of Attorney and a Custody Agreement have been duly
executed and delivered by each Selling Stockholder and constitute valid and
binding agreements of such Selling Stockholder in accordance with their terms;
(2) This Agreement has been duly executed and delivered by or on
behalf of each Selling Stockholder and constitutes the valid and binding
agreement of such Selling Stockholder in accordance with its terms; and the sale
of the Common Shares to be sold by each Selling Stockholder hereunder and the
compliance by such Selling Stockholder with all of the provisions of this
Agreement, the Power of Attorney and the Custody Agreement and the consummation
by such Selling Stockholder of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any terms or
provisions of, or constitute a default under, any material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known to such
counsel to which such Selling Stockholder is a party or by which such Selling
Stockholder or any of its property is bound, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or By-laws (or
comparable organizational or governing documents) of such Selling Stockholder,
or any statute, judgment, decree, order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction over
such Selling Stockholder or the property of such Selling Stockholder (except
that no opinion need be expressed in this paragraph as to compliance with state
securities laws or the anti-fraud provisions of the federal securities laws or
the by-laws and rules of the NASD);
(3) No approval, authorization, order, consent, registration,
filing, qualification, license or permit of or with any court, regulatory,
administrative or other governmental body is required for the execution and
delivery of this Agreement by the Selling Stockholders or the consummation by
the Selling Stockholders of the transactions contemplated by this Agreement,
except such as have been obtained under the Act and such as may be required
under applicable Blue Sky or state securities laws and the by-laws and rules of
the NASD in connection with the purchase and distribution of the Common Shares
by the Underwriters and the clearance of such offering with the NASD;
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(4) Each Selling Stockholder has the corporate or trust power
and authority to sell, assign, transfer and deliver the Common Shares to be sold
by such Selling Stockholder hereunder; and
(5) The sale and delivery in accordance with the terms of this
Agreement of the Common Shares to be sold by the Selling Stockholders will pass
good and valid title to such Common Shares, free and clear of all liens,
encumbrances, equities or claims, to each of the several Underwriters who
purchases such Common Shares in good faith and without notice of any such lien,
encumbrance, equity or claim or any other adverse claim within the meaning of
the Uniform Commercial Code.
In rendering such opinion, such counsel may rely as to matters of fact, on
certificates of the Selling Stockholders and of governmental officials, provided
that in each such case their opinion states that they are so doing and that they
believe that the Underwriters are justified in relying on such opinions or
certificates and copies of said opinions or certificates are attached to the
opinion or furnished in advance to counsel for the Underwriters. Counsel may
state that its opinion is qualified to the extent that (i) the enforceability of
any provision of any instrument or document or any rights granted thereunder may
be subject to or affected by any bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar law relating to or affecting the
rights of creditors generally, (ii) the remedy of specific performance or any
other equitable remedy may be unavailable in any jurisdiction or may be withheld
as a matter of judicial discretion, or (iii) equitable principles may be applied
in construing or enforcing the provisions of any instrument or document
(regardless of whether enforcement is sought in a proceeding in equity or at
law). Counsel may further state that, in rendering its opinion, it expresses no
opinion other than as to (i) the laws of the United States and the state of
Illinois and (ii) the General Corporation Law of the State of Delaware. Counsel
need express no opinion as to the validity or enforceability of the indemnity or
contribution provisions of any agreement.
(iii) Such opinion or opinions of Hale and Dorr LLP, counsel
for the Underwriters, dated the First Closing Date or the Second Closing Date,
as the case may be, with respect to the incorporation of the Company, the
sufficiency of all corporate proceedings and other legal matters relating to
this Agreement, the validity of the Common Shares, the Registration Statement
and the Prospectus and other related matters as you may reasonably require, and
the Company and the Selling Stockholder shall have furnished to such counsel
such documents and shall have exhibited to them such papers and records as they
may reasonably request for the purpose of enabling them to pass upon such
matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and governmental
officials.
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(iv) A certificate of the Company executed by the chief executive
officer and the chief financial or accounting officer of the Company, dated the
First Closing Date or the Second Closing Date, as the case may be, to the effect
that (it being agreed that all such statements are made on behalf of the Company
and not in such officer's individual capacity):
(1) The representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of the First
Closing Date or the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on its part to
be performed or satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus filed as a
part of the Registration Statement or any amendment thereto; no stop order
suspending the effectiveness of the Registration Statement has been issued; and
no proceedings for that purpose have been instituted or are pending or, to the
best of the knowledge of the respective signers, are contemplated by the
Commission;
(3) Each such officer has carefully examined the
Registration Statement and the Prospectus; in his opinion and to the best of his
knowledge, neither the Registration Statement or any amendment thereto nor the
Prospectus or any supplement thereto includes any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction or event has
occurred which should have been set forth in an amendment to the Registration
Statement or in a supplement to or amendment of any prospectus which has not
been disclosed in such a supplement or amendment;
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, there has not been any material adverse
change in or affecting the condition (financial or otherwise), business,
management, properties, results of operations, or prospects of the Company; and
no legal or governmental action, suit or proceeding is pending or, to the
knowledge of such officers, threatened against the Company which if adversely
determined would have a material adverse effect on the Company, whether or not
arising from transactions in the ordinary course of business, or which may
materially adversely affect the transactions contemplated by this Agreement;
since such dates and except as so disclosed, the Company has not entered into
any verbal or written agreement or other transaction which is not in the
ordinary course of business or which could result in a material
-26-
<PAGE>
reduction in the future earnings of the Company or incurred any material
liability or obligation, direct or contingent (except in the ordinary course of
business), or made any change in its capital stock, made any change in its debt
that has a material adverse effect on the Company or repurchased or otherwise
acquired any of the Company's capital stock; and the Company has not declared or
paid any dividend, or made any other distribution, upon its outstanding capital
stock payable to stockholders of record on a date prior to the First Closing
Date or Second Closing Date, as the case may be; and
(6) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and except as disclosed in or
contemplated by the Prospectus, the Company has not sustained a material loss or
damage by strike, fire, flood, windstorm, accident or other calamity (whether or
not insured).
(v) On the First Closing Date a certificate, dated such First Closing
Date and addressed to you, signed by or on behalf of each Selling Stockholder to
the effect that the representations and warranties of such Selling Stockholder
in this Agreement are true and correct, as if made at and as of the First
Closing Date, and such Selling Stockholder has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied prior
to the First Closing Date.
(vi) On the date this Agreement is executed and also on the First
Closing Date and the Second Closing Date, a letter addressed to you, as
Representatives of the Underwriters, from Coopers & Lybrand LLP, independent
accountants, the first one to be dated the date of this Agreement, the second
one to be dated the First Closing Date and the third one (in the event of a
Second Closing) to be dated the Second Closing Date, in form and substance
reasonably satisfactory to you.
(vii) On or before the First Closing Date, letters from each
director and executive officer of the Company, in form and substance reasonably
satisfactory to you, confirming that for a period of 90 days from the date of
the Prospectus, such person will not, directly or indirectly, sell, offer to
sell, contract to sell, grant an option to purchase, grant a security interest
in, or otherwise dispose of any shares of Common Stock, or any securities
convertible into or exchangeable for any shares of Common Stock, without your
prior written consent.
(viii) The Common Shares to be issued and sold by the Company
shall have been duly approved for quotation, subject to notice of issuance, on
the Nasdaq National Market.
-27-
<PAGE>
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Hale and Dorr LLP, counsel for the Underwriters. The Company
shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you reasonably request. Any
certificate signed by any officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the
statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives to the
Company and the Selling Stockholders without liability on the part of any
Underwriter, the Company or the Selling Stockholders except for the expenses to
be paid or reimbursed by the Company and by the Selling Stockholders pursuant to
Sections 6 and 8 hereof and except to the extent provided in Section 10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. Notwithstanding any
---------------------------------------
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 7 or Section 13, or if the sale to the Underwriters of the Common
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the Selling Stockholders to
perform any agreement herein or to comply with any provision hereof (other than
as a result of a breach of the terms of this Agreement by any Underwriter), the
Company agrees to reimburse you and the other Underwriters upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by you and them
in connection with the proposed purchase and the sale of the Common Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, telegraph charges and telephone charges
relating directly to the offering contemplated by the Prospectus. Any such
termination shall be without liability of any party to any other party except
that the provisions of this Section, Section 6 and Section 10 shall at all times
be effective and shall apply.
SECTION 9. Effectiveness of Registration Statement. You, the Company and
---------------------------------------
the Selling Stockholders will use your, its and their respective best efforts to
cause the Registration Statement to become effective, to prevent the issuance of
any stop order suspending the effectiveness of the Registration Statement and,
if such stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification.
---------------
(a) The Company and the Selling Stockholders, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act against any losses,
claims,
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<PAGE>
damages, liabilities or expenses, joint or several, to which such
Underwriter or such controlling person may become subject, under the Act, the
Exchange Act or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state in any of them a material fact required to be stated therein or necessary
to make the statements in any of them not misleading, and, subject to Section
10(c), will reimburse each Underwriter and each such controlling person for any
legal and other expenses as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that (i) neither the Company
--------
nor any Selling Stockholder shall be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by an Underwriter
through you expressly for use therein; (ii) neither the Company nor any Selling
Stockholder shall be liable under the indemnity agreement in this paragraph (a)
with respect to any Preliminary Prospectus to the extent that any such loss,
claim, damage, liability or expense results from the fact that an Underwriter
sold Common Shares to a person to whom there was not sent or given, at or prior
to the written confirmation of such sale, a copy of the Prospectus or of the
Prospectus as then amended or supplemented in any case where such delivery is
required by the Act and the loss, claim, damage, liability or expenses results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus which was corrected in the Prospectus or in the
Prospectus as amended or supplemented; and (iii) no Selling Stockholder shall be
liable under the indemnity agreement in this paragraph (a) for an amount in
excess of the proceeds, net of the applicable underwriting discount, received by
such Selling Stockholder from the sale of the Common Shares sold by such Selling
Stockholder to the Underwriters pursuant to this Agreement. The Company and the
Selling Stockholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to their respective amounts
of such liability for which they each shall be responsible. This indemnity
agreement will be in addition to any liability which the Company or the Selling
Stockholders may otherwise have.
(b) Each Underwriter, severally, but not jointly, agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, each Selling Stockholder and each person, if
any, who
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<PAGE>
controls the Company or any Selling Stockholder within the meaning of
the Act, against any losses, claims, damages, liabilities or expenses to which
the Company, or any such director, officer, Selling Stockholder or controlling
person may become subject, under the Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof as
contemplated below) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with the written information furnished to the Company by
such Underwriter through you expressly for use therein; and will reimburse the
Company, and any such director, officer, Selling Stockholder or controlling
person for any legal and other expenses as such expenses are reasonably incurred
by the Company, or any such director, officer, Selling Stockholder or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. This indemnity agreement will be in addition to any liability which any
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select
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<PAGE>
one separate counsel (plus any local counsel as may reasonably be
required) to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in accordance with the
proviso to the next preceding sentence or (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after receipt of the
indemnified party's notice of commencement of the action, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
party.
(d) If the indemnification provided for in this Section 10 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to herein (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company, the Selling Stockholders and the Underwriters from the offering
of the Common Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions described in such paragraphs (a) or
(b) which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The respective relative
benefits received by the Company, the Selling Stockholders and the Underwriters
shall be deemed to be in the same proportion, in the case of the Company and the
Selling Stockholders, as the total price paid to the Company and to the Selling
Stockholders, respectively, for the Common Shares sold by them to the
Underwriters (net of underwriting discounts and commissions but before deducting
expenses), and in the case of the Underwriters, as the underwriting discounts
and commissions received by them bear to the total of such amounts paid to the
Company and to the Selling Stockholders and received by the Underwriters as
underwriting discounts and commissions. The relative fault of the Company, the
Selling Stockholders and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
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<PAGE>
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in subsection (c) of this Section 10, any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
subsection (c) of this Section 10 with respect to notice of commencement of any
action shall apply if a claim for contribution is to be made under this
subsection (d); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under subsection (c)
for purposes of indemnification. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 10 were determined solely by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph.
Notwithstanding the provisions of this Section 10, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public, and no Selling
Stockholder shall be required to contribute an amount in excess of the proceeds,
net of the applicable underwriting discount, received by such Selling
Stockholder from the sale of the Common Shares sold by such Selling Stockholder
to the Underwriters pursuant to this Agreement. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 10 are several in proportion to their respective underwriting
commitments and not joint.
SECTION 11. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representatives of all such shares in accordance with the terms
hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
one-eleventh of the total number of Common Shares which the Underwriters are
obligated to purchase on such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Common Shares which such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of Common Shares with respect
to which such default occurs is more than
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<PAGE>
the above fraction and arrangements satisfactory to the Representatives and the
Company for the purchase of such Common Shares by other persons are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company or the
Selling Stockholders except for the expenses to be paid by the Company and the
Selling Stockholders pursuant to Section 6 hereof and except to the extent
provided in Section 10 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 12. Termination. This Agreement may be terminated by you by
-----------
notice to the Company and the Selling Stockholders as follows:
(a) At any time prior to the earlier of (i) the time the Common
Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30
a.m., Minneapolis time, on the first business day following the date of this
Agreement (or, if at the time of execution of this agreement the Registration
Statement has not become effective, 11:30 a.m., Minneapolis time, on the first
business day following the effectiveness of the Registration Statement);
(b) At any time prior to the First Closing Date or the Second Closing
Date, as the case may be, if any of the following has occurred: (i) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any material adverse change in or affecting the condition
(financial or otherwise), business, management, results of operations or
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency after the date hereof or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make the offering or delivery of the Shares impracticable or
inadvisable, (iii) suspension of trading in securities on the New York Stock
Exchange or the American Stock Exchange or on the Nasdaq National Market or
over-the-counter market or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange or on the
Nasdaq National Market or over-the-counter market, (iv) the enactment,
publication, decree
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<PAGE>
or other promulgation of any federal or state statute, regulation, rule or order
of any court or other governmental authority which in your reasonable opinion
materially and adversely affects or will materially or adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by either federal or New York State authorities, or (vi) the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States.
Any termination pursuant to subsection (a) or (b) of this Section 12 shall
be without liability on the part of any Underwriter to the Company or the
Selling Stockholders or on the part of the Company or the Selling Stockholders
to any Underwriter (except for expenses to be paid or reimbursed by the Company
and the Selling Stockholders pursuant to Sections 6 and 8 hereof (provided that
Section 8 shall not apply in the case of a termination pursuant to subsection
(a)) and except to the extent provided in Section 10 hereof).
(c) As otherwise provided in this Agreement.
SECTION 13. Failure of the Selling Stockholders to Sell and Deliver. If
-------------------------------------------------------
one or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholder at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 6, 8
and 10 hereof, the Company or the Selling Stockholders, or (ii) purchase the
shares which the Company and the other Selling Stockholders have agreed to sell
and deliver in accordance with the terms hereof. In the event of a failure by
one or more of the Selling Stockholders to sell and deliver as referred to in
this Section, either you or the Company shall have the right to postpone the
First Closing Date for a period not exceeding seven business days in order that
the necessary changes in the Registration Statement, Prospectus and any other
documents, as well as any other arrangements, may be effected.
SECTION 14. Survival. The respective indemnities, agreements,
--------
representations, warranties and other statements of the Company, of its
officers, of the Selling Stockholders and of the several Underwriters set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or the
Company or any of its or their partners, officers or directors or any
controlling person, or the Selling Stockholders, as the case may be, and will
survive delivery of and payment for the Common Shares sold hereunder and any
termination of this Agreement.
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<PAGE>
SECTION 15. Notices. All communications hereunder shall be in writing
-------
and, if sent to the Representatives shall be mailed, delivered or telegraphed
and confirmed to you care of Wessels, Arnold & Henderson, L.L.C. at 601 Second
Avenue, Minneapolis, Minnesota 55402-4314, Attention: Syndicate Department,
with a copy to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109,
Attention: Patrick J. Rondeau, Esq., and if sent to the Company or the Selling
Stockholders shall be mailed, delivered or telegraphed and confirmed to the
Company at 25 Recreation Park Drive, Suite 2000, Hingham, Massachusetts 02043,
Attention: Chief Financial Officer, with a copy to Foley, Hoag & Eliot LLP, One
Post Office Square, Boston, Massachusetts 02109, Attention: Peter M. Rosenblum,
Esq. and David R. Pierson, Esq. The Company, the Selling Stockholders or you
may change the address for receipt of communications hereunder by giving notice
to the others.
SECTION 16. Successors. This Agreement will inure to the benefit of and
----------
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 11 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 10, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 17. Representation of Underwriters. You will act as
------------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly as Representatives or by Wessels, Arnold & Henderson, L.L.C. on behalf
of the Representatives, will be binding upon all the Underwriters.
SECTION 18. Partial Unenforceability. The invalidity or unenforceability
------------------------
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 19. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of Minnesota.
SECTION 20. General. This Agreement constitutes the entire agreement of
-------
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts,
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<PAGE>
each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any action taken under this Agreement by the Attorneys-in-Fact will be
binding on the Selling Stockholders.
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<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
DM MANAGEMENT COMPANY
By:___________________________
President
ALLSTATE INSURANCE COMPANY
By:___________________________
(Attorney-in-fact)
CTC ILLINOIS TRUST COMPANY,
AS TRUSTEE FOR ALLSTATE
RETIREMENT PLAN
By:___________________________
(Attorney-in-fact)
CTC ILLINOIS TRUST COMPANY,
AS TRUSTEE FOR AGENTS
PENSION PLAN
By:___________________________
(Attorney-in-fact)
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<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in Minneapolis, Minnesota as of
the date first above written.
WESSELS, ARNOLD & HENDERSON, L.L.C.
MONTGOMERY SECURITIES
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: WESSELS, ARNOLD & HENDERSON, L.L.C.
By:______________________________
Managing Director
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<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Wessels, Arnold & Henderson, L.L.C. ....................
Montgomery Securities...................................
_________
TOTAL......................................... 2,752,404
</TABLE>
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<PAGE>
SCHEDULE B
----------
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Selling Stockholder to be Sold
- --------------------------- --------------
<S> <C>
Allstate Insurance Company.................... 1,744,920
CTC Illinois Trust Company, as trustee for
Allstate Retirement Plan..................... 3,742
CTC Illinois Trust Company, as trustee for
Agents Pension Plan.......................... 3,742
_________
Total: 1,752,404
</TABLE>
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<PAGE>
Ex. 10.24
[LOGO OF REALTOR APPEARS HERE] [LOGO OF EQUAL HOUSING
OPPORTUNITY APPEARS HERE]
STANDARD FORM FOR MEMBERS OF THE NEW HAMPSHIRE ASSOCIATION OF REALTORS(R)
SALES AGREEMENT AND DEPOSIT RECEIPT
THIS AGREEMENT made this 25th day of July , 1997
---- ---- ----
Between
The SELLER Kathryn M. DeLong, a single woman
---------------------------------------------------------------------
of Rte. 132, Sanborn Rd. City Tilton County of Belknap State NH Zip 03276
--------------------- ------ --------- --- -------
and
The BUYER DM Management Company
----------------------------------------------------------------------
of One Winterbrook Way City Meredith County of Belknap State NH Zip 03253
--------------------- -------- --------- --- -----
WITNESSETH: That the SELLER agrees to sell and convey, and the BUYER agrees to
buy certain real estate located in Tilton, New Hampshire known as or
-------------------------
described as Route 132, Sanborn Rd. - Tax Map R1
-------------------------------------------------------------------
Lot 11. Described on survey by Central Land Surveying, Inc. certified on 1/7/97.
- --------------------------------------------------------------------------------
County Belknap Book Page Date
--------------------- ----- ----------- ---------
The SELLING PRICE is Two hundred twenty thousand and no/100
-----------------------------------------------------------
Dollars $220,000.00
------------
Deposit, receipt of which is hereby acknowledged, in form
of Option deposit (Seller) 500.00
-----------------------
Is to be held in an escrow account by at execution of in the sum of $ 4,500.00**
--------------- ------------
Additional deposit will be paid on or before agreement $ --------
------------------ -----------
CASH, CERTIFIED CHECK or BANK DRAFT on date of transfer of
title in sum of $215,000.00
----------------------------------- -----------
** Escrow deposit to be held by ERA C&E Real Estate
DEED: Marketable title shall be conveyed by a warranty deed, and shall be free
---------
and clear of all encumbrances except usual public utilities serving the
property; any restrictive covenants of record to be acceptable to the Buyer.
TRANSFER OF TITLE: On or before September 30, 1997* at Attorney's office,
-------------------
Registry of Deeds, Lending Institution, or place of mutual consent.
*See additional provisions
POSSESSION: Free of all tenants, personal property, and encumbrances except as
herein stated is to be given on transfer of title or as otherwise mutually
---------------------------
agreed thereto.
- --------------------------------------------------------------------------------
AGENT: The undersigned SELLERS and BUYERS understand that ERA C&E Real Estate,
-------------------
Agency represents the SELLER, Mrs. DeLong in this transaction and DeWolfe
---------------- --------
Keewaydin Agency represents the Buyer.
- ---------- ------
INSURANCE: The buildings on said premises shall, until full performance of this
agreement, be kept insured against fire with extended coverage by the SELLER. In
case of loss, all sums recoverable from said insurance shall be paid or
assigned, on delivery of deed, to the BUYER, unless the premises shall
previously have been restored to their former condition by the SELLER; or, at
the option of the BUYER, this agreement may be rescinded and the deposit
refunded if any such loss exceeds $ 10,000.00.
------------
TITLE: If, upon examination of title, it is found that the title is not
marketable, the SELLER shall have a reasonable time, not to exceed 30 days from
the date of notification of defect (unless otherwise agreed to in writing), to
remedy such defect. Should the SELLER be unable to provide marketable title
within said 30 days, the BUYER may rescind this agreement at the BUYER's sole
option, with full deposit being refunded to the BUYER and all parties being
released from any further obligations hereunder. The SELLER hereby agrees to
make a good faith effort to correct the title defect within the 30 day period
above prescribed once notification of such defect is received. The cost of
examination of the title shall be borne by the BUYER.
TAXES, special assessments, rents, water, and sewage bills and fuel in storage
shall be prorated as of transfer of title or as mutually agreed thereto.
----------------------------
PROPERTY INCLUDED: All fixtures The land and buildings and any survey or
------------------------------------------------
engineering data available.
- --------------------------------------------------------------------------------
LIQUIDATED DAMAGES: If the BUYER shall default in the performance of his
obligation under this agreement, the amount of the deposit may, at the option of
the SELLER, become the property of the SELLER as reasonable liquidated damages.
In the event of any dispute relative to the deposit monies held in escrow, the
Escrow Agent may, in its sole discretion, pay said deposit monies into the Clerk
of Court of proper jurisdiction in an Action of Interpleader, providing each
party with notice thereof at the address recited herein, and thereupon the
Escrow Agent shall be discharged from its obligations as recited therein, and
each party to this Agreement shall thereafter hold the Escrow Agent harmless in
such capacity. Both parties hereto agree that the Escrow Agent may deduct the
cost of bringing such Interpleader action from the deposit monies held in escrow
prior to the forwarding of same to the Clerk of such court.
PRIOR STATEMENTS: Any verbal representation, statements and agreements are not
valid unless contained herein. This agreement completely expresses the
obligations of the parties.
FINANCING: This agreement ([_]is)([X] is not) contingent upon the BUYER
obtaining financing under the following terms:
AMOUNT N/A TERMS/YEARS N/A RATE N/A TYPE OF MORTGAGE N/A
--------- --------- ------ --------
The BUYER agrees to act diligently and in good faith to obtain such financing
and shall, within N/A working days after the SELLER's acceptance, submit a
------
complete and accurate application for mortgage financing to at least one
financial institution currently providing such loans, requesting financing in
the amount and on the terms provided in this contract. If the BUYER fails to
timely submit such an application, this financing contingency is waived by the
BUYER. If, despite best efforts, the BUYER is unable to obtain the financing
specified in this contract by N/A, 19___, the BUYER shall have the right to
-----
terminate this contract, provided, however, the BUYER gives written notice
directly to the SELLER, or the SELLER'S AGENT, of the BUYER'S termination of the
contract, and any escrow monies shall be returned to the BUYER. The
responsibility to notify SELLER of BUYER'S termination of this contract based on
the inability to obtain financing shall be solely the BUYER'S.
Seller(s) Initial K.N.D. Buyer(s) Initial S.L.S.
------- ----------------------
Page 1 of 2
<PAGE>
[LOGO OF REALTOR(R) [LOGO OF EQUAL HOUSING
APPEARS HERE] OPPORTUNITY APPEARS HERE]
STANDARD FORM FOR MEMBERS OF THE NEW HAMPSHIRE ASSOCIATION OF REALTORS(R)
SALES AGREEMENT and DEPOSIT RECEIPT - Page 2
In Compliance with the requirements of RSA 477:4-a, the following is provided to
the BUYER on Radon Gas and Lead Paint:
RADON GAS: Radon gas, the product of decay of radioactive materials in rock may
be found in some areas of New Hampshire. This gas may pass into a structure
through the ground or through water from a deep well. Testing can establish its
presence and equipment is available to remove it from the air or water.
LEAD PAINT: Before 1977, paint containing lead may have been used in structures.
The presence of flaking lead paint can present a serious health hazard,
especially to young children and pregnant women. Tests are available to
determine whether lead is present.
INSPECTIONS: The BUYER is encouraged to seek information from professionals
normally engaged in the business regarding any specific issue of concern. The
BUYER acknowledges receipt of the disclosure form attached hereto. The Agent
makes no warranties or representations regarding the condition, permitted use or
value of the SELLER's real or personal property. This contract is subject to the
following inspections, with results being satisfactory to the BUYER.
BUYER hereby elects to waive the right to all inspections, and signifies by
initialing here *
___________________________________.
*except for h.
<TABLE>
<CAPTION>
TYPE OF INSPECTION: YES NO RESULTS REPORTED TO THE SELLER TYPE OF INSPECTIONS: YES NO RESULTS REPORTED TO THE SELLER
<S> <C> <C> <C> <C> <C> <C> <C>
a. General Building within days f. Lead paint within days
--- --- ------------------- --- --- -------------------
b. Sewage Disposal within days g. Pests within days
--- --- ------------------- --- --- -------------------
c. Water Quality within days h. Hazardous Waste X within 30 days
--- --- ------------------- --- --- -------------------
d. Radon Air Quality within days i. within days
--- --- ------------------- ----------------- --- --- -------------------
e. Radon Water Quality within days j. within days
--- --- ------------------- ----------------- --- --- -------------------
</TABLE>
The use of days is intended to mean from the effective date of the contract. All
inspections will be done by professionals normally engaged in the business, to
be chosen and paid for by the BUYER. If the results of any inspection or other
condition specified herein are unsatisfactory to the BUYER, the SELLER shall
have the option of repairing the unsatisfactory condition(s) prior to transfer
of title if the BUYER and SELLER both agree, failing which the BUYER may
terminate the contract and all deposits shall be returned to the BUYER.
Notification in writing of intent to so repair should be delivered to the BUYER
or BUYER's Agent within five (5) days of receipt by the SELLER of notification
of unsatisfactory condition(s). Should the SELLER elect not to repair such
unsatisfactory conditions, the BUYER may declare the contract null and void by
notifying the SELLER in writing within the specified number of days, and any
earnest money shall be returned to the BUYER. If the BUYER does not notify the
SELLER that an inspection is unsatisfactory within the time period set forth
above, this contingency is waived by the BUYER. In the absence of inspection
mentioned above, the BUYER is relying completely upon the BUYER's own opinion as
to the condition of the property.
EFFECTIVE DATE: This is a binding contract and the effective date is when signed
and dated, and all changes initialed and dated, by the SELLER and the BUYER.
ADDITIONAL PROVISIONS: 1. This agreement is subject to the Buyer acquiring the
-------------------------------------------------------
355+/- acre parcel (so-called Tilcon Site). 2. This agreement is subject to a
- --------------------------------------------------------------------------------
satisfactory Level I environmental report on subject site.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A copy of this contract is to be received by all parties and, by signature,
receipt of a copy is hereby acknowledged. If not fully understood parties are
advised to contact an attorney.
This agreement shall be binding upon the heirs, executors, administrators and
assigns of both parties.
/s/ DM Management 7/24/97
- ------------------------------ ---------------- -----------------------------
BUYER DATE SOCIAL SECURITY #
/s/ Samuel L. Shanaman
- ------------------------------ ---------------- -----------------------------
BUYER DATE SOCIAL SECURITY #
The SELLER accepts the offer and agrees to deliver the above-described property
at the price and upon the terms and conditions set forth.
/s/ Kathryn M. De Long 7-29-97 001169729
- ------------------------------ ---------------- -----------------------------
SELLER DATE SOCIAL SECURITY #
- ------------------------------ ---------------- -----------------------------
SELLER DATE SOCIAL SECURITY #
New Hampshire Association of REALTORS(R) / 1996,
All Rights Reserved - (Rev. 9/95, 3/96)
Page 2 of 2
<PAGE>
Ex. 10.25
[LOGO OF REALTOR APPEARS HERE] [LOGO OF EQUAL HOUSING
OPPORTUNITY APPEARS HERE]
STANDARD FORM FOR MEMBERS OF THE NEW HAMPSHIRE ASSOCIATION OF REALTORS(R)
SALES AGREEMENT AND DEPOSIT RECEIPT
THIS AGREEMENT made this 25th day of July , 1997
---- ---- ----
Between
The SELLER Alice E. Fabian, a single woman
---------------------------------------------------------------------
of 88 Sanborn Road City Tilton County of Belknap State NH Zip 03253
--------------- ------ --------- ---- --------
and
The BUYER DM Management Company
----------------------------------------------------------------------
of One Winterbrook Way City Meredith County of Belknap State NH Zip 03253
--------------------- -------- --------- --- -----
WITNESSETH: That the SELLER agrees to sell and convey, and the BUYER agrees to
buy certain real estate located in Tilton, New Hampshire known as or
-------------------------
described as 88 Sanborn Road-Tax Map OR 19,
-------------------------------------------------------------------
Lot 0013
- --------------------------------------------------------------------------------
County Belknap Book Page Date
--------------------- ----- ----------- ---------
the SELLING PRICE is One hundred thirty-five thousand dollars
-----------------------------------------------------------
Dollars $ 135,000.00
--------------
Deposit, receipt of which is hereby acknowledged in form of
Option deposit (Seller) 400.00
- ------------------------------
Is to be held in an escrow account by
DeWolfe Keewaydin at execution of agreement in the sum of $ 3,600.00
- ------------------------------------------- --------------
Additional deposit will be paid on or before $ --------
------------------ --------------
CASH, CERTIFIED CHECK or BANK DRAFT on date of transfer of
title in sum of $ 131,000.00
----------------------------------- --------------
DEED: Marketable title shall be conveyed by a warranty deed, and shall be free
--------
and clear of all encumbrances except usual public utilities serving the
property; any restrictive covenants of record to be acceptable to the Buyer.
TRANSFER OF TITLE: On or before September 30, 1997* at Attorney's office,
-------------------
Registry of Deeds, Lending Institution, or place of mutual consent.
*See additional provisions
POSSESSION: Free of all tenants, personal property, and encumbrances except as
herein stated is to be given on transfer of title or as otherwise mutually
---------------------------
agreed thereto.
- --------------------------------------------------------------------------------
AGENT: The undersigned SELLERS and BUYERS understand that No Real Estate Office.
---------------------
Agency represents the SELLER, Alice E. Fabian in this transaction and
---------------
DeWolfe Keewaydin (Rent Locke) Agency represents the Buyer.
- ------------------------------ ------
INSURANCE: The buildings on said premises shall, until full performance of this
agreement, be kept insured against fire with extended coverage by the SELLER. In
case of loss, all sums recoverable from said insurance shall be paid or
assigned, on delivery of deed, to the BUYER, unless the premises shall
previously have been restored to their former condition by the SELLER; or, at
the option of the BUYER, this agreement may be rescinded and the deposit
refunded if any such loss exceeds $ 10,000.00.
------------
TITLE: If, upon examination of title, it is found that the title is not
marketable, the SELLER shall have a reasonable time, not to exceed 30 days from
the date of notification of defect (unless otherwise agreed to in writing), to
remedy such defect. Should the SELLER be unable to provide marketable title
within said 30 days, the BUYER may rescind this agreement at the BUYER's sole
option, with full deposit being refunded to the BUYER and all parties being
released from any further obligations hereunder. The SELLER hereby agrees to
make a good faith effort to correct the title defect within the 30 day period
above prescribed once notification of such defect is received. The cost of
examination of the title shall be borne by the BUYER.
TAXES, special assessments, rents, water, and sewage bills and fuel in storage
shall be prorated as of transfer of title or as mutually agreed thereto.
----------------------------
PROPERTY INCLUDED: All fixtures The land and buildings and any survey or
------------------------------------------------
engineering data available.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIQUIDATED DAMAGES: If the BUYER shall default in the performance of his
obligation under this agreement, the amount of the deposit may, at the option of
the SELLER, become the property of the SELLER as reasonable liquidated damages.
In the event of any dispute relative to the deposit monies held in escrow, the
Escrow Agent may, in its sole discretion, pay said deposit monies into the Clerk
of Court of proper jurisdiction in an Action of Interpleader, providing each
party with notice thereof at the address recited herein, and thereupon the
Escrow Agent shall be discharged from its obligations as recited therein, and
each party to this Agreement shall thereafter hold the Escrow Agent harmless in
such capacity. Both parties hereto agree that the Escrow Agent may deduct the
cost of bringing such Interpleader action from the deposit monies held in escrow
prior to the forwarding of same to the Clerk of such court.
PRIOR STATEMENTS: Any verbal representation, statements and agreements are not
valid unless contained herein. This agreement completely expresses the
obligations of the parties.
FINANCING: This agreement ([_]is)([X] is not) contingent upon the BUYER
obtaining financing under the following terms:
AMOUNT N/A TERMS/YEARS N/A RATE N/A TYPE OF MORTGAGE N/A
--------- --------- ------ --------
The BUYER agrees to act diligently and in good faith to obtain such financing
and shall, within N/A working days after the SELLER's acceptance, submit a
------
complete and accurate application for mortgage financing to at least one
financial institution currently providing such loans, requesting financing in
the amount and on the terms provided in this contract. If the BUYER fails to
timely submit such an application, this financing contingency is waived by the
BUYER. If, despite best efforts, the BUYER is unable to obtain the financing
specified in this contract by N/A, 19 , the BUYER shall have the right to
---- ---
terminate this contract, provided, however, the BUYER gives written notice
directly to the SELLER, or the SELLER'S AGENT, of the BUYER'S termination of the
contract, and any escrow monies shall be returned to the BUYER. The
responsibility to notify SELLER of BUYER'S termination of this contract based on
the inability to obtain financing shall be solely the BUYER'S.
Seller(s) Initial A.E.L. Buyer(s) Initial S.L.S.
---------------------- ----------------------
Page 1 of 2
<PAGE>
[LOGO OF REALTOR(R) [LOGO OF EQUAL HOUSING
APPEARS HERE] OPPORTUNITY APPEARS HERE]
STANDARD FORM FOR MEMBERS OF THE NEW HAMPSHIRE ASSOCIATION OF REALTORS(R)
SALES AGREEMENT and DEPOSIT RECEIPT - Page 2
In Compliance with the requirements of RSA 477:4-a, the following is provided to
the BUYER on Radon Gas and Lead Paint:
RADON GAS: Radon gas, the product of decay of radioactive materials in rock may
be found in some areas of New Hampshire. This gas may pass into a structure
through the ground or through water from a deep well. Testing can establish its
presence and equipment is available to remove it from the air or water.
LEAD PAINT: Before 1977, paint containing lead may have been used in structures.
The presence of flaking lead paint can present a serious health hazard,
especially to young children and pregnant women. Tests are available to
determine whether lead is present.
INSPECTIONS: The BUYER is encouraged to seek information from professionals
normally engaged in the business regarding any specific issue of concern. The
BUYER acknowledges receipt of the disclosure form attached hereto. The Agent
makes no warranties or representations regarding the condition, permitted use or
value of the SELLER's real or personal property. This contract is subject to the
following inspections, with results being satisfactory to the BUYER.
BUYER hereby elects to waive the right to all inspections, and signifies by
initialing here ___________________________________ S.L.S.
A.E.L. Except item h. below Hazardous Waste
<TABLE>
<CAPTION>
TYPE OF INSPECTION: YES NO RESULTS REPORTED TO THE SELLER TYPE OF INSPECTIONS: YES NO RESULTS REPORTED TO THE SELLER
<S> <C> <C> <C> <C> <C> <C> <C>
a. General Building within days f. Lead paint within days
--- --- ------------------- --- --- -------------------
b. Sewage Disposal within days g. Pests within days
--- --- ------------------- --- --- -------------------
c. Water Quality within days h. Hazardous Waste X within 30 days
--- --- ------------------- --- --- -------------------
d. Radon Air Quality within days i. within days
--- --- ------------------- ----------------- --- --- -------------------
e. Radon Water Quality within days j. within days
--- --- ------------------- ----------------- --- --- -------------------
</TABLE>
The use of days is intended to mean from the effective date of the contract. All
inspections will be done by professionals normally engaged in the business, to
be chosen and paid for by the BUYER. If the results of any inspection or other
condition specified herein are unsatisfactory to the BUYER, the SELLER shall
have the option of repairing the unsatisfactory condition(s) prior to transfer
of title if the BUYER and SELLER both agree, failing which the BUYER may
terminate the contract and all deposits shall be returned to the BUYER.
Notification in writing of intent to so repair should be delivered to the BUYER
or BUYER's Agent within five (5) days of receipt by the SELLER of notification
of unsatisfactory condition(s). Should the SELLER elect not to repair such
unsatisfactory conditions, the BUYER may declare the contract null and void by
notifying the SELLER in writing within the specified number of days, and any
earnest money shall be returned to the BUYER. If the BUYER does not notify the
SELLER that an inspection is unsatisfactory within the time period set forth
above, this contingency is waived by the BUYER. In the absence of inspection
mentioned above, the BUYER is relying completely upon the BUYER's own opinion as
to the condition of the property.
EFFECTIVE DATE: This is a binding contract and the effective date is when signed
and dated, and all changes initialed and dated, by the SELLER and the BUYER.
A.E.L.
ADDITIONAL PROVISIONS: 1. This agreement is subject to the Buyer acquiring the
-------------------------------------------------------
355+/- acre parcel (so-called Tilcon Site). 2. This agreement is subject to a
- --------------------------------------------------------------------------------
satisfactory Level I environmental report on subject site. 3. This agreement is
- --------------------------------------------------------------------------------
subject to review and modification as to form and content by Sellers Attorney
- --------------------------------------------------------------------------------
Joe Vittek of Franklin, NH within Five (5) Business Days of this agreement. 4.
- --------------------------------------------------------------------------------
See attached Addendum
- --------------------------------------------------------------------------------
A copy of this contract is to be received by all parties and, by signature,
receipt of a copy is hereby acknowledged. If not fully understood parties are
advised to contact an attorney.
This agreement shall be binding upon the heirs, executors, administrators and
assigns of both parties.
/s/ DM Management 7/24/97
- ------------------------------ ---------------- -----------------------------
BUYER DATE SOCIAL SECURITY #
/s/ Samuel L. Shanaman 04-2973769
- ------------------------------ ---------------- -----------------------------
BUYER DATE FR. I.D.# S.L.S.
The SELLER accepts the offer and agrees to deliver the above-described property
at the price and upon the terms and conditions set forth.
/s/ Alice E. Fabian 8-4-97 ###-##-####
- ------------------------------ ---------------- -----------------------------
SELLER DATE SOCIAL SECURITY #
- ------------------------------ ---------------- -----------------------------
SELLER DATE SOCIAL SECURITY #
New Hampshire Association of REALTORS(R) / 1996,
All Rights Reserved - (Rev. 9/95, 3/96)
Page 2 of 2
<PAGE>
ADDENDUM TO SALES AGREEMENT AND DEPOSIT RECEIPT
-----------------------------------------------
Alice E. Fabian (Seller) and DM Management Company (Buyer) are about to execute
a Sales Agreement and Deposit Receipt (Agreement) originally dated July 25,
1997. The following items are additions to that agreement and are an essential
part of that agreement.
1. The Seller will not be responsible for any broker fees associated with the
transaction.
2. The Buyer will pay all closing costs including, but not limited to, deed
preparation, transfer taxes, recording fees and attorney fees not to exceed
$900.00.
3. The $4,000.00 deposit made this date is non-refundable unless either 1 or 2
of the Additional Provisions on Page 2 of the Agreement cannot be satisfied.
4. Seller may reside in the property until November 15, 1997, unless that date
is otherwise extended in writing by the parties.
5. Taxes, fuel and similar items will be prorated as of the date of closing.
August 4, 1997
DM Management Company
/s/ Alice E. Fabian
- ---------------------------- ------------------------------------
Alice E. Fabian By Stephen W. Lord
----------------------------------
Its Div. Dist. Dir., duly authorized
---------------
<PAGE>
Ex. 10.26
[LOGO OF REALTOR APPEARS HERE] [LOGO OF EQUAL HOUSING
OPPORTUNITY APPEARS HERE]
STANDARD FORM FOR MEMBERS OF THE NEW HAMPSHIRE ASSOCIATION OF REALTORS(R)
SALES AGREEMENT AND DEPOSIT RECEIPT
THIS AGREEMENT made this 25th day of July , 1997
---- ---- ----
Between
The SELLER Ralph S. And Kelly F. Jesseman, husband and wife
---------------------------------------------------------------------
of 84 Sanborn Road City Tilton County of Belknap State NH Zip 03276
--------------- ------ --------- ---- --------
and
The BUYER DM Management Company
----------------------------------------------------------------------
of One Winterbrook Way City Meredith County of Belknap State NH Zip 03253
--------------------- -------- --------- --- -----
WITNESSETH: That the SELLER agrees to sell and convey, and the BUYER agrees to
buy certain real estate located in Tilton, New Hampshire known as or
-------------------------
described as Land and buildings located at 84 Sanborn Road - Tax Map OR 19,
-------------------------------------------------------------------
Lot 0012
- --------------------------------------------------------------------------------
County Belknap Book 21 Page 1602 Date
--------------------- ----- ----------- ---------
the SELLING PRICE is One hundred forty-seven thousand and no/100 Dollars
-----------------------------------------------------------
$ 147,000.00
--------------
Deposit, receipt of which is hereby acknowledged in form
of Option deposit (Seller) 500.00
Is to be held in an account by Sellers in the sum of $ 4,500.00
[INITIALS APPEAR HERE] --------------
Additional deposit will be paid on or before 7/28/97 $ --------
------------------ --------------
CASH, CERTIFIED CHECK or BANK DRAFT on date of transfer of
title in sum of $ 142,000.00
----------------------------------- --------------
DEED: Marketable title shall be conveyed by a warranty deed, and shall be free
---------
and clear of all encumbrances except usual public utilities service the
property; any restrictive covenants of record to be acceptable to the Buyer.
TRANSFER OF TITLE: On or before September 30, 1997* at Attorney's office,
-------------------
Registry of Deeds, Lending Institution, or place of mutual consent.
*See additional provisions
POSSESSION: Free of all tenants, personal property, and encumbrances except as
herein stated is to be given on transfer of title or as otherwise mutually
---------------------------
agreed thereto.
- --------------------------------------------------------------------------------
AGENT: The undersigned SELLERS and BUYERS understand that ______________________
Agency represents the SELLER, ________________________, in this transaction and
DeWolfe Keewaydin Agency represents the Buyer.
- ----------------- ------
INSURANCE: The buildings on said premises shall, until full performance of this
agreement, be kept insured against fire with extended coverage by the SELLER. In
case of loss, all sums recoverable from said insurance shall be paid or
assigned, on delivery of deed, to the BUYER, unless the premises shall
previously have been restored to their former condition by the SELLER; or, at
the option of the BUYER, this agreement may be rescinded and the deposit
refunded if any such loss exceeds $ 10,000.00.
------------
TITLE: If, upon examination of title, it is found that the title is not
marketable, the SELLER shall have a reasonable time, not to exceed 30 days from
the date of notification of defect (unless otherwise agreed to in writing), to
remedy such defect. Should the SELLER be unable to provide marketable title
within said 30 days, the BUYER may rescind this agreement at the BUYER's sole
option, with full deposit being refunded to the BUYER and all parties being
released from any further obligations hereunder. The SELLER hereby agrees to
make a good faith effort to correct the title defect within the 30 day period
above prescribed once notification of such defect is received. The cost of
examination of the title shall be borne by the BUYER.
TAXES, special assessments, rents, water, and sewage bills and fuel in storage
shall be prorated as of transfer of title or as mutually agreed thereto.
----------------------------
PROPERTY INCLUDED: All fixtures the land and buildings and any survey or
------------------------------------------------
engineering data available.
- --------------------------------------------------------------------------------
LIQUIDATED DAMAGES: If the BUYER shall default in the performance of his
obligation under this agreement, the amount of the deposit may, at the option of
the SELLER, become the property of the SELLER as reasonable liquidated damages.
In the event of any dispute relative to the deposit monies held in escrow, the
Escrow Agent may, in its sole discretion, pay said deposit monies into the Clerk
of Court of proper jurisdiction in an Action of Interpleader, providing each
party with notice thereof at the address recited herein, and thereupon the
Escrow Agent shall be discharged from its obligations as recited therein, and
each party to this Agreement shall thereafter hold the Escrow Agent harmless in
such capacity. Both parties hereto agree that the Escrow Agent may deduct the
cost of bringing such Interpleader action from the deposit monies held in escrow
prior to the forwarding of same to the Clerk of such court.
PRIOR STATEMENTS: Any verbal representation, statements and agreements are not
valid unless contained herein. This agreement completely expresses the
obligations of the parties.
FINANCING: This agreement ([_]is)([X] is not) contingent upon the BUYER
obtaining financing under the following terms:
AMOUNT N/A TERMS/YEARS N/A RATE N/A TYPE OF MORTGAGE N/A
--------- --------- ------ --------
The BUYER agrees to act diligently and in good faith to obtain such financing
and shall, within N/A working days after the SELLER's acceptance, submit a
------
complete and accurate application for mortgage financing to at least one
financial institution currently providing such loans, requesting financing in
the amount and on the terms provided in this contract. If the BUYER fails to
timely submit such an application, this financing contingency is waived by the
BUYER. If, despite best efforts, the BUYER is unable to obtain the financing
specified in this contract by N/A, 19___, the BUYER shall have the right to
-----
terminate this contract, provided, however, the BUYER gives written notice
directly to the SELLER, or the SELLER'S AGENT, of the BUYER'S termination of the
contract, and any escrow monies shall be returned to the BUYER. The
responsibility to notify SELLER of BUYER'S termination of this contract based on
the inability to obtain financing shall be solely the BUYER'S.
Seller(s) Initial R.S.J. Buyer(s) Initial S.L.S.
---------------------- ----------------------
Page 1 of 2
<PAGE>
[LOGO OF REALTOR(R) [LOGO OF EQUAL HOUSING
APPEARS HERE] OPPORTUNITY APPEARS HERE]
STANDARD FORM FOR MEMBERS OF THE NEW HAMPSHIRE ASSOCIATION OF REALTORS(R)
SALES AGREEMENT and DEPOSIT RECEIPT - Page 2
In Compliance with the requirements of RSA 477:4-a, the following is provided to
the BUYER on Radon Gas and Lead Paint:
RADON GAS: Radon gas, the product of decay of radioactive materials in rock may
be found in some areas of New Hampshire. This gas may pass into a structure
through the ground or through water from a deep well. Testing can establish its
presence and equipment is available to remove it from the air or water.
LEAD PAINT: Before 1977, paint containing lead may have been used in structures.
The presence of flaking lead paint can present a serious health hazard,
especially to young children and pregnant women. Tests are available to
determine whether lead is present.
INSPECTIONS: The BUYER is encouraged to seek information from professionals
normally engaged in the business regarding any specific issue of concern. The
BUYER acknowledges receipt of the disclosure form attached hereto. The Agent
makes no warranties or representations regarding the condition, permitted use or
value of the SELLER's real or personal property. This contract is subject to the
following inspections, with results being satisfactory to the BUYER.
BUYER hereby elects to waive the right to all inspections, and signifies by
initialing here ___________________________________.
<TABLE>
<CAPTION>
TYPE OF INSPECTION: YES NO RESULTS REPORTED TO THE SELLER TYPE OF INSPECTIONS: YES NO RESULTS REPORTED TO THE SELLER
<S> <C> <C> <C> <C> <C> <C> <C>
a. General Building within days f. Lead paint within days
--- --- ------------------- --- --- -------------------
b. Sewage Disposal within days g. Pests within days
--- --- ------------------- --- --- -------------------
c. Water Quality within days h. Hazardous Waste within days
--- --- ------------------- --- --- -------------------
d. Radon Air Quality within days i. within days
--- --- ------------------- ----------------- --- --- -------------------
e. Radon Water Quality within days j. within days
--- --- ------------------- ----------------- --- --- -------------------
</TABLE>
The use of days is intended to mean from the effective date of the contract. All
inspections will be done by professionals normally engaged in the business, to
be chosen and paid for by the BUYER. If the results of any inspection or other
condition specified herein are unsatisfactory to the BUYER, the SELLER shall
have the option of repairing the unsatisfactory condition(s) prior to transfer
of title if the BUYER and SELLER both agree, failing which the BUYER may
terminate the contract and all deposits shall be returned to the BUYER.
Notification in writing of intent to so repair should be delivered to the BUYER
or BUYER's Agent within five (5) days of receipt by the SELLER of notification
of unsatisfactory condition(s). Should the SELLER elect not to repair such
unsatisfactory conditions, the BUYER may declare the contract null and void by
notifying the SELLER in writing within the specified number of days, and any
earnest money shall be returned to the BUYER. If the BUYER does not notify the
SELLER that an inspection is unsatisfactory within the time period set forth
above, this contingency is waived by the BUYER. In the absence of inspection
mentioned above, the BUYER is relying completely upon the BUYER's own opinion as
to the condition of the property.
EFFECTIVE DATE: This is a binding contract and the effective date is when signed
and dated, and all changes initialed and dated, by the SELLER and the BUYER.
ADDITIONAL PROVISIONS: 1. This agreement is subject to the Buyer acquiring the
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355+/- acre parcel (so-called Tilcon Site). 2. This agreement is subject to a
- --------------------------------------------------------------------------------
satisfactory Level I environmental report on subject site. Attached is
- --------------------------------------------------------------------------------
Appendix I which is a list of items that the Seller will be taking from the
- --------------------------------------------------------------------------------
subject property prior to closing.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A copy of this contract is to be received by all parties and, by signature,
receipt of a copy is hereby acknowledged. If not fully understood parties are
advised to contact an attorney.
This agreement shall be binding upon the heirs, executors, administrators and
assigns of both parties.
/s/ DM Management 7/24/97
- ------------------------------ ---------------- -----------------------------
BUYER DATE SOCIAL SECURITY #
/s/ Samuel L. Shanaman
- ------------------------------ ---------------- -----------------------------
BUYER DATE SOCIAL SECURITY #
The SELLER accepts the offer and agrees to deliver the above-described property
at the price and upon the terms and conditions set forth.
/s/ Ralph S. Jesseman 7/25/97 ###-##-####
- ------------------------------ ---------------- -----------------------------
SELLER DATE SOCIAL SECURITY #
/s/ Kelley F. Jesseman 7/25/97 ###-##-####
- ------------------------------ ---------------- -----------------------------
SELLER DATE SOCIAL SECURITY #
New Hampshire Association of REALTORS(R) / 1996,
All Rights Reserved - (Rev. 9/95, 3/96)
Page 2 of 2
<PAGE>
APPENDIX I
----------
To the Purchase and Sale Agreement
Between Ralph S. and Kelly F. Jesseman (Seller)
and DM Management Company (Buyer)
Dated July 25, 1997
The following is a list of items that the Seller will be removing from the
subject property prior to closing:
1. Kitchen cabinets
2. Kitchen light
3. Furnace and fuel storage tank
4. Garage door opener
5. Water softener system
6. Well pump
7. All kitchen appliances to include dishwasher
8. Light fixtures in master bedroom
9. Option to retain 12x12 shed
10. Front entrance exterior storm door
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 (File No.
333-35267) 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
October 17, 1997
