SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)

FILED BY REGISTRANT [X]
Filed by a Party other than Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

Specialty Catalog Corp.
-----------------------
(Name of Registrant as Specified In Its Charter)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):

[ ] No Fee required

[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies: Common Stock

2) Aggregate number of securities to which transaction applies: 2,820,577

3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): The proposed maximum aggregate
value of the transaction for purposes of calculating the filing fee is
$12,207,772. The filing fee was determined by adding (a) the product of (i) the
2,820,577 shares of Common Stock that are proposed to be retired in the merger
and (ii) the merger consideration of $3.75 per share of Common Stock, plus (b)
$1,630,609 expected to be paid upon cancellation of all outstanding options (the
"Total Consideration"). The filing fee equals one-fiftieth of one percent of the
Total Consideration.

4) Proposed maximum aggregate value of transaction: $12,207,772 (includes
amounts being paid with respect to the termination of stock options).

5) Total fee paid: $2,445.00

[X] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of the filing.

1) Amount Previously Paid: $2,445.00

2) Form, Schedule or Registration Statement No.: Schedule 14A

3) Filing Party: Specialty Catalog Corp.

4) Date Filed: May 21, 2001

SPECIALTY CATALOG CORP.

21 Bristol Drive, South Easton, Massachusetts 02375
(508) 238-0199

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001

To Specialty Catalog Corp. stockholders:

We will hold a special meeting of the stockholders of Specialty Catalog
Corp., a Delaware corporation, at , at a.m. on , 2001. At this
special meeting, or any adjournment thereof, we will ask you to consider and
vote upon the following proposals as further described in the accompanying
proxy statement:

1. Approval and adoption of the Agreement and Plan of Recapitalization and
Merger, dated as of May 4, 2001, as amended by Amendment No. 1 dated
August 31, 2001, between Specialty Catalog Corp., a Delaware corporation,
and Specialty Acquisition Corp. ("Acquisition Corp."), a Delaware
corporation which was organized to effect the merger and related
transactions, pursuant to which the stockholders of Specialty Catalog
Corp., other than Acquisition Corp. and dissenting stockholders who
perfect their dissenters' rights, will receive $3.75 in cash for each
share of Specialty Catalog Corp. common stock that they own and Specialty
Acquisition Corp. will be merged with and into Specialty Catalog Corp.,
with Specialty Catalog Corp. continuing as the surviving corporation.

2. To grant to the proxies the discretionary authority to adjourn the
special meeting to satisfy conditions to the closing of the Agreement and
Plan of Recapitalization and Merger.

The board of directors has fixed September 25, 2001 as the record date for
the determination of stockholders entitled to notice of and to vote at the
special meeting, or any adjournment thereof. Accordingly, only stockholders of
record at the close of business on September 25, 2001 will be entitled to
notice of and to vote at such meeting. A list of our stockholders entitled to
vote will be kept by us at 21 Bristol Drive, South Easton, Massachusetts 02375,
for a period of ten days before the special meeting.

If the merger is completed, each share (other than shares owned by
Acquisition Corp. and shares owned by stockholders who have perfected their
appraisal rights) of Specialty Catalog common stock outstanding at the closing
of the merger will be canceled and converted into the right to receive $3.75 in
cash, without interest. The accompanying proxy statement contains detailed
information about the merger and the actions to be taken in connection with the
merger. The terms of the merger are more fully described in the merger
agreement which is attached as Annex A to the accompanying proxy statement.

Stockholders who properly demand appraisal rights prior to the stockholder
vote at the special meeting, who do not vote in favor of approval and adoption
of the merger and the merger agreement and who otherwise comply with the
provisions of Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL") will be entitled, if the merger is completed, to
statutory appraisal of the fair value of their shares of common stock. See the
section entitled "Dissenters' Rights" in the accompanying proxy statement and
the full text of Section 262 of the DGCL, which is attached as Annex C to the
accompanying proxy statement, for a description of the procedures that you must
follow in order to exercise your appraisal rights.

In order to evaluate the advisability of the merger, your board of
directors formed a special committee of the Specialty Catalog board of
directors, consisting of one independent director. The special committee has
recommended to your board of directors that the board of directors approve and
declare advisable the merger and the merger agreement. In its evaluation of the
merger, the special committee

and the board of directors considered, among other things, the written opinion
of Burnham Securities Inc., the financial advisor of the special committee,
which states that, as of the date of the opinion, the merger consideration of
$3.75 per share to be received by the stockholders of Specialty Catalog is fair
to the unaffiliated stockholders of Specialty Catalog (which stockholders
include all of Specialty Catalog's stockholders other than Acquisition Corp.
and its current and future stockholders) from a financial point of view.
Burnham Securities Inc.'s opinion is subject to the assumptions and
qualifications set forth in its written opinion, which is attached as Annex B
to the enclosed proxy statement.

EACH OF THE MEMBERS OF THE BOARD OF DIRECTORS OF SPECIALTY CATALOG, UPON
THE RECOMMENDATION OF THE SPECIAL COMMITTEE, AND THE SPECIAL COMMITTEE
DETERMINED THAT THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO, ADVISABLE AND
IN THE BEST INTERESTS OF THE UNAFFILIATED STOCKHOLDERS OF SPECIALTY CATALOG
(WHICH STOCKHOLDERS INCLUDE ALL OF SPECIALTY CATALOG'S STOCKHOLDERS OTHER THAN
ACQUISITION CORP. AND ITS CURRENT AND FUTURE STOCKHOLDERS) AND RECOMMENDS THAT
YOU APPROVE AND ADOPT THE MERGER AND THE MERGER AGREEMENT.

The attached proxy statement provides you with detailed information about
the proposed merger and merger agreement. We urge you to read the entire
document carefully. The affirmative vote of holders of a majority of the
outstanding shares of Specialty Catalog common stock is required to approve and
adopt the merger and the merger agreement.

REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS VERY IMPORTANT.
Therefore, whether or not you plan to attend the meeting, please complete your
proxy and return it in the enclosed envelope, which requires no postage if
mailed in the United States. If you attend the meeting and wish to vote in
person, your proxy will not be used.

Please do not send any certificates for your shares at this time.
Instructions for the purpose of exchanging your shares for the consideration to
be received upon consummation of the merger will be sent to you following the
consummation of the merger.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, OR DETERMINED IF
THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

Dated: , 2001 By order of the Board of Directors,

-----------------------------------
Thomas McCain, Senior Vice President,
Chief Financial Officer and Secretary

SPECIALTY CATALOG CORP.

21 Bristol Drive, South Easton, Massachusetts 02375
(508) 238-0199

---------------------
PROXY STATEMENT
---------------------

GENERAL INFORMATION

The enclosed proxy is solicited on behalf of the board of directors of
Specialty Catalog Corp. for use at the special meeting of our stockholders to
be held on , , 2001, and at any adjournments thereof (the "Special
Meeting"). This proxy statement is first being mailed to our stockholders on or
about , 2001.

Our principal executive office is located at 21 Bristol Drive, South
Easton, Massachusetts 02375.

You may revoke your proxy at any time prior to its use by giving written
notice to our Secretary, by executing a revised proxy at a later date or by
attending the special meeting and voting in person. Proxies in the form
enclosed, unless previously revoked, will be voted at the Special Meeting in
accordance with the specifications made by you thereon or, in the absence of
such specifications, in favor of the proposal to approve and adopt the
Agreement and Plan of Recapitalization and Merger, as amended (the "merger
agreement") between Specialty Catalog and Specialty Acquisition Corp. in order
to effect the merger and the related transactions contemplated therein, but not
in favor of the proposal to grant the proxies the discretionary authority to
adjourn the special meeting to satisfy conditions to the closing of the merger
agreement. If, in a proxy submitted on your behalf by a person acting solely in
a representative capacity, the proxy is marked clearly to indicate that the
shares represented thereby are not being voted with respect to a proposal, then
your proxy will not be counted as present at the special meeting with respect
to the proposal. Proxies submitted with abstentions as to a proposal will be
counted as present for purposes of establishing a quorum for the proposal.

Only stockholders of record at the close of business on September 25, 2001
are entitled to notice of, and to vote at, the special meeting, or any
adjournment thereof. We had 4,337,886 shares of common stock, par value $0.01
per share, outstanding on September 25, 2001, each of which is entitled to one
vote upon the matters to be presented at the special meeting. The presence, in
person or by proxy, of one third of the issued and outstanding shares of common
stock will constitute a quorum for the transaction of business at the special
meeting.

SUMMARY TERM SHEET

The following summary briefly describes the material terms of the proposed
merger. This summary does not contain all the information that may be important
for you to consider when evaluating the merger. We encourage you to read this
proxy statement and the documents we have incorporated by reference before
voting. We have included section references to direct you to a more complete
description of the topics described in this summary.

o The Companies. Specialty Catalog Corp. is a Delaware corporation that
targets niche consumer product categories, primarily via direct
marketing. SC Direct, our principal operating subsidiary in the United
States, is the U.S.'s leading retailer of women's wigs and hairpieces.
Daxbourne International Limited, a subsidiary of SC Direct, is a leading
United Kingdom retailer and wholesaler of women's wigs and hairpieces. SC
Publishing, another subsidiary of SC Direct, provides continuing
education courses, seminars, and conferences to nurses and other health
care professionals.

Specialty Acquisition Corp. is a Delaware corporation newly formed at the
direction of Mr. Guy Naggar for the sole purpose of effecting the merger.
Without taking into effect the consummation of the subscription
agreements, Mr. Naggar is currently the owner of 22% of the outstanding
shares of Acquisition Corp. common stock. At the closing of the merger,
Acquisition Corp. will be merged with and into Specialty Catalog. Please
read "SUMMARY -- The Participants" and "INFORMATION ABOUT THE TRANSACTION
PARTICIPANTS -- The Continuing Stockholders."

o The Continuing Stockholders. Certain members of Specialty Catalog's
board of directors and significant stockholders of Specialty Catalog, who
hold approximately 71% of the outstanding shares of Specialty Catalog
common stock, will continue to be stockholders of Specialty Catalog after
the merger. The Continuing Stockholders are Joseph Grabowski, Specialty
Catalog's President and Chief Executive Officer, Thomas McCain, Specialty
Catalog's Senior Vice President and Chief Financial Officer, Acquisition
Corp. and the stockholders of Acquisition Corp., which currently includes
Mr. Naggar, who is a memnber of Specialty Catalog's board of directors,
First Global Holdings Limited, Oracle Investments and Holdings Limited,
Ionic Holdings LDC, Three Greens Holdings Limited, and Alexander
Enterprise Holding Corp. and, upon consummation of the transactions
contemplated by the subscription agreements which shall occur prior to
the merger, will include Martin Franklin, who is a member of Specialty
Catalog's board of directors, The David Cicurel Settlement, LEG Partners
III SBIC, L.P., LEG Partners Debenture SBIC, L.P., Wynnefield Partners
Small Cap Value, L.P., Wynnefield Partners Small Cap Value, L.P.I, and
Wynnefield Small Cap Value Offshore Fund, Ltd. The Continuing
Stockholders, other than Acquisition Corp., will continue to hold shares
of Specialty Catalog after the merger. Pursuant to the terms of the
merger, all of the shares of common stock of Acquisition Corp. will, upon
completion of the merger, automatically be converted into shares of
common stock of Specialty Catalog, which will be the surviving
corporation in the merger. For a more detailed description of these
arrangements and the Continuing Stockholders, please read "SPECIAL
FACTORS -- Interests of Certain Persons in the Merger" and "INFORMATION
ABOUT THE TRANSACTION PARTICIPANTS -- The Continuing Stockholders."

o Required Vote. The merger and the merger agreement must be approved and
adopted by the affirmative vote of the holders of at least a majority of
the outstanding shares of Specialty Catalog common stock. The Continuing
Stockholders other than LEG Partners III, LEG Partners Debenture SBIC,
L.P., and Messrs. Grabowski and McCain, who as of September 25, 2001,
beneficially owned (excluding options), in the aggregate, approximately
2.5 million shares of common stock of Specialty Catalog, or approximately
57% of the outstanding shares of common stock, have agreed, pursuant to
the terms of subscription agreements, to vote their shares for the
approval and adoption of the merger and the merger agreement. See
"SPECIAL FACTORS -- Related Agreements -- Subscription Agreements".
Messrs. Grabowski and McCain, who as of September 25, 2001, beneficially
owned (excluding options), in the aggregate, approximately 0.5% of the
outstanding shares of common stock of Specialty Catalog, intend to vote
their shares for the approval and adoption of the merger and the merger
agreement. In addition, we understand that LEG Partners III, who as of
Septembert 25, 2001, beneficially owned approximately 13.9%

of the outstanding shares of common stock of Specialty Catalog, will vote
its shares for the approval and adoption of the merger and the merger
agreement. While it is expected that LEG Partners III will vote in favor
of the merger and the merger agreement, LEG Partners III's commitment
remains subject to the consummation of the transactions contemplated by a
note and warrant purchase agreement to be entered into among Specialty
Catalog, Acquisition Corp., LEG Partners III, LEG Partners Debenture SBIC,
L.P., SC Corporation (d\b\a SC Direct), SC Publishing, Inc., Royal
Advertising & Marketing, Inc., and Daxbourne International Limited.
See "SPECIAL FACTORS -- Amount and Source of Funds and Financing of the
Merger". The merger agreement does not provide that approval of at least a
majority of our stockholders not affiliated with Acquisition Corp. or any
of the Continuing Stockholders is required to consummate the merger.
Accordingly, since the Continuing Stockholders who have executed
subscription agreements will vote for the approval and adoption of the
merger and the merger agreement, the affirmative vote of no other
stockholder will be required to approve and adopt the merger and the
merger agreement. Please read "THE SPECIAL MEETING -- Record date and
Voting; Quorum; and Required Vote" and "SPECIAL FACTORS -- Related
Agreements -- Subscription Agreements."

o Merger Consideration. If the merger is completed, you as a stockholder
(other than Acquisition Corp.) will receive $3.75 per share in cash for
each of your shares of Specialty Catalog common stock unless you are a
dissenting stockholder and you perfect your dissenters' rights. In
connection with the merger, the Continuing Stockholders will exchange all
of their shares of common stock of Acquisition Corp. for shares of common
stock of Specialty Catalog. Please read "QUESTIONS AND ANSWERS ABOUT THE
MERGER," and "SPECIAL FACTORS -- Interests of Certain Persons in the
Merger" and "SPECIAL FACTORS -- Appraisal Rights".

o Effects of the Merger. As a result of the merger:

o Specialty Catalog's stockholders, other than the Continuing
Stockholders, will no longer have any equity interest in
Specialty Catalog; and

o Specialty Catalog's common stock will no longer be quoted on The
Nasdaq National Market and the registration of Specialty Catalog
common stock under the Securities Exchange Act of 1934 will be
terminated. Please read "SPECIAL FACTORS -- Structure of the
Transaction; Participants."

o Tax Consequences. The receipt of cash in the merger by you will be a
taxable transaction to you. Please read "SPECIAL FACTORS -- Material
Federal Income Tax Consequences of the Merger".

o Recommendation. Because certain directors of Specialty Catalog have
actual or potential conflicts of interest in evaluating the merger, the
Specialty Catalog board of directors appointed a special committee,
consisting of one independent director, that was authorized to evaluate
the merger. The board of directors, upon the recommendation of the
special committee, and the special committee determined that the merger
and the merger agreement are fair to, advisable and in the best interests
of the unaffiliated stockholders of Specialty Catalog (which stockholders
include all of Specialty Catalog's stockholders other than Acquisition
Corp. and its current and future stockholders) and recommends that you
approve and adopt the merger and the merger agreement. Please read
"SPECIAL FACTORS -- Recommendation of the Special Committee, and the
Board of Directors; Considerations in Connection with the Merger;
Fairness of the Merger". The Continuing Stockholders believe that the
merger and the merger agreement are fair to the unaffiliated stockholders
of Specialty Catalog. Please read "SPECIAL FACTORS -- Position of the
Continuing Stockholders as to the Fairness of the Merger".

o Opinion of Financial Advisor. The special committee and the board of
directors received a written opinion from Burnham Securities Inc. to the
effect that, subject to certain assumptions and qualifications set forth
in its opinion, as of the date of the opinion, the merger consideration
of $3.75 per share to be received by the stockholders of Specialty
Catalog is fair to the unaffiliated

stockholders of Specialty Catalog (which stockholders include all of
Specialty Catalog's stockholders other than Acquisition Corp. and its
current and future stockholders) from a financial point of view. Please
read "SPECIAL FACTORS -- Opinion of Burnham Securities Inc.".

o Dissenters' Rights. If you do not wish to vote in favor of the approval
and adoption of the merger and the merger agreement and you fulfill
several procedural requirements, including not voting in favor of the
approval and adoption of the merger and the merger agreement, Delaware
law entitles you to a judicial appraisal of the fair value of your
shares. Please read "SPECIAL FACTORS -- Appraisal Rights".

o Sources and Uses of Funds

The table below shows the sources of funds to be used in this transaction
and the specific use of such funds. See "SPECIAL FACTORS -- Amount and
Source of Funds and Financing of the Merger."

Sources of Funds
----------------------------------------------------
Available cash balances ............................ $ 1,001,000
Available under revolving credit agreement ......... 2,847,000
Senior loan ........................................ 7,650,000
Capital lease obligations .......................... 170,000
Mezzanine financing ................................ 7,500,000
Capital contribution (a) ........................... 1,673,000
Rollover common equity (b) ......................... 8,006,000
Outstanding letters of credit ...................... 1,753,000
-----------
Total .............................................. $30,600,000
===========

Uses of Funds
--------------------------------------------------------------------
Repurchase common equity (c) ................................ $ 8,757,000
Cash for stock option value over exercise price (d) ......... 1,147,000
Fees and expenses (e) ....................................... 1,073,000
Available under revolving credit agreement .................. 2,043,000
Rollover common equity (f) .................................. 8,006,000
Refinace existing debt and capital leases (g) ............... 7,820,000
Refinance outstanding letters of credit (g) ................. 1,753,000
-----------
Total ....................................................... $30,600,000
===========

----------
(a) Mr. Nagger and Alexander have agreed to purchase for cash additional
shares of common stock of Acquisition Corp. That cash will be
available to redeem the common stock of Specialty Catalog in the
merger. See "SPECIAL FACTORS -- Amount and Source of Funds and
Financing of the Merger -- Equity Contributions."

(b) Represents net value of certain options held by executives and
directors and shares of common stock of Specialty Catalog which will
be held by Acquisition Corp. at the time of the merger and will not
be canceled or paid for in the merger. See "SUMMARY TERM SHEET --
The Continuing Stockholders."

(c) Immediately following the merger, Specialty Catalog will pay to its
stockholders, other than Acquisition Corp., an aggregate amount of
approximately $9,904,000 to cancel the outstanding shares of
Specialty Catalog held by such stockholders (2,335,108 shares of
Specialty Catalog common stock for an aggregate of $8,757,000) and
to cancel the outstanding vested stock options of Specialty Catalog
(other than vested options issued to Messrs. Grabowski, Cicurel,
Franklin and Naggar) ($1,147,000), assuming (i) no stockholders of
Specialty Catalog exercise and perfect their dissenters' rights in
connection with the merger, and (ii) certain unvested stock options
held by members of

management are converted into restricted shares of Specialty Catalog
after the merger (see "SPECIAL FACTORS -- Related Agreements -- Stock
Option Exercise Agreements").

(d) See "SPECIAL FACTORS -- Treatment of Stock Options."

(e) See "SPECIAL FACTORS -- Estimated Fees and Expenses."

(f) The merger and the merger agreement contemplate that (i) certain
executives will rollover an aggregate value of approximately
$408,000 of Specialty Catalog option value for stock and restricted
stock value in the surviving corporation, (ii) certain directors,
including Messrs. Naggar, Franklin and Cicurel, will rollover an
aggregate of approximately $88,000 of Specialty Catalog option value
for stock value in the surviving corporation (see "SPECIAL FACTORS
-- Related Agreements-Stock Option Exercise Agreements"), and (iii)
the Continuing Stockholders will exchange approximately $7,510,000
of common stock value (2,002,778 shares of Specialty Catalog common
stock at $3.75 a share) of Specialty Catalog into common stock of
Acquisition Corp. See the table below for a summary of the rollover
values.

(g) Specialty Catalog will refinance its existing debt and letters of
credit with Fleet National Bank. See "SPECIAL FACTORS -- Amount and
Source of Funds and Financing of the Merger -- Fleet Bank Proposal."

The table below summarizes the values rolled over in the merger:

SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
ROLLED ROLLED ROLLED ROLLED ROLLED OVER ROLLED
OVER FROM OVER FROM OVER FROM OVER FROM FROM OVER FROM
OPTIONS OPTIONS OPTIONS OPTIONS SPECIALTY SPECIALTY
EXERCISED BY EXERCISED BY EXERCISED EXERCISED ACQUISITION ACQUISITION
MANAGEMENT MANAGEMENT BY DIRECTORS BY DIRECTORS CORP. CORP.
-------------- -------------- -------------- -------------- ------------- ------------

Guy Naggar ................................ $ -- $ -- 401,667 $1,508,000
Guy Naggar non-vested options ............. 3,333 12,000
First Global Holdings Limited ............. 244,655 917,000
Oracle Investments & Holdings Limited ..... 244,656 917,000
Ionic Holding LDC ......................... 244,655 917,000
Three Greens Holdings Limited ............. 98,376 369,000
Martin Franklin ........................... 109,892 412,000
Martin Franklin vested options ............ 5,556 21,000
Martin Franklin non-vested options ........ 11,111 42,000
The David Cicurel Settlement .............. 12,659 47,000
David Cicurel non-vested options .......... 3,333 13,000
Wynnefield Partners Small Cap Value,
L.P. ..................................... 65,190 244,000
Wynnefield Partners Small Cap Value,
L.P. I ................................... 78,287 294,000
Wynnefield Partners Small Cap Value
Offshore Fund, Ltd. ...................... 32,826 123,000
LEG Partners III SBIC, L.P. ............... 190,215 713,000
Alexander Enterprise Holdings ............. 279,700 1,049,000
Joseph Grabowski vested options ........... 27,777 104,000
Joseph Grabowski non-vested options ....... 55,556 208,000
Thomas McCain non-vested options .......... 4,444 17,000
Other management non-vested options ....... 20,000 75,000
Other management non-vested options ....... 1,000 4,000 -- -- -- --
------ -------- ------ ------- ------- ----------
108,777 $408,000 23,333 $88,000 2,002,778 $7,510,000
------- -------- ------ ------- --------- ----------

QUESTIONS AND ANSWERS ABOUT THE MERGER

The following questions and answers are intended to briefly address some
commonly asked questions regarding the merger. It should be read together with
the Summary that follows. These questions and answers may not address all
questions that may be important to you as a stockholder of Specialty Catalog.
Please refer to the more detailed information contained elsewhere in this proxy
statement, the appendices to this proxy statement, and the documents referred
to or incorporated by reference in this proxy statement.

Q: WHAT AM I BEING ASKED TO VOTE UPON?

A: You are being asked to vote to approve and adopt the Agreement and Plan of
Recapitalization and Merger (the "merger agreement") and the transactions
contemplated by such merger agreement, including the merger of Acquisition
Corp. with and into Specialty Catalog and to grant to the proxies the
discretionary authority to adjourn the special meeting to satisfy conditions to
the closing of the merger agreement.

Q: WHAT WILL I RECEIVE IN THE MERGER?

A: Each share of Specialty Catalog common stock will be automatically converted
into the right to receive $3.75 per share, without interest, other than the
shares owned by Acquisition Corp. and shares owned by stockholders who have
demanded appraisal rights and satisfied the procedures relating to appraisal
rights. See "SUMMARY -- The Merger".

Q: WHO ARE THE CONTINUING STOCKHOLDERS?

A: The Continuing Stockholders are Joseph Grabowski, Specialty Catalog's
President and Chief Executive Officer, Thomas McCain, Specialty Catalog's
Senior Vice President and Chief Financial Officer, Acquisition Corp. and the
stockholders of Acquisition Corp., which currently includes Mr. Naggar, who is
a member of Specialty Catalog's board of directors, First Global Holdings
Limited ("First Global"), Oracle Investments and Holdings Limited ("Oracle"),
Ionic Holdings LDC ("Ionic"), Three Greens Holdings Limited ("Three Greens"),
and Alexander Enterprise Holding Corp. ("Alexander") and, upon consummation of
the transactions contemplated by the subscription agreements which shall occur
prior to the merger, will include Martin Franklin, who is a member of Specialty
Catalog's board of directors, The David Cicurel Settlement, LEG Partners III
SBIC, L.P. ("LEG Partners III"), LEG Partners Debenture SBIC, L.P. ("Leg
Partners Debenture"), Wynnefield Partners Small Cap Value, L.P. ("Wynnefield
Partners"), Wynnefield Partners Small Cap Value, L.P. I ("Wynnefield Partners
I"), and Wynnefield Partners Small Cap Value Offshore Fund, Ltd. ("Wynnefield
Offshore"). The Continuing Stockholders, other than Acquisition Corp., will
continue to hold shares of Specialty Catalog after the merger. Pursuant to the
terms of the merger, all of the shares of common stock of Acquisition Corp.
will, upon completion of the merger, automatically be converted into shares of
common stock of Specialty Catalog, which will be the surviving corporation in
the merger. For a more detailed description of these arrangements, please read
"SPECIAL FACTORS -- Interests of Certain Persons in the Merger".

Q: CAN I CHOOSE TO BE A CONTINUING STOCKHOLDER?

A: No. The Continuing Stockholders will include only Acquisition Corp. and the
stockholders of Acquisition Corp. who are identified in this proxy statement
and described in the preceding answer.

Q: WHY WAS THE SPECIAL COMMITTEE FORMED?

A: Your board of directors formed a special committee consisting of Mr. David
Moore to protect the interests of the stockholders of Specialty Catalog, other
than Acquisition Corp. and its current and future stockholders, in evaluating
and negotiating the merger agreement. Mr. Moore, an independent director, is
not an employee of Specialty Catalog, an employee or director of Acquisition
Corp. or a Continuing Stockholder. The special committee independently selected
and retained legal and financial advisors to assist it. For further details
about the special committee see "SPECIAL FACTORS -- Special Committee."

Q: WHERE AND WHEN IS THE SPECIAL MEETING?

A: The special meeting will be held at , , at a.m.,
local time, on , 2001.

Q: WHAT IS THE SPECIAL COMMITTEE'S AND THE BOARD OF DIRECTORS' RECOMMENDATION?

A: The board of directors, upon the recommendation of the special committee,
and the special committee recommend that you vote your shares "FOR" the
approval and adoption of the merger and the merger agreement.

Q: WHAT WILL HAPPEN TO SPECIALTY CATALOG AFTER THE MERGER?

A: After the merger, our common stock will no longer be publicly traded and,
therefore, the public will no longer participate in the future earnings and
growth of Specialty Catalog, which will be privately owned. After the merger,
shares of our common stock will no longer be listed on The Nasdaq National
Market. See "SPECIAL FACTORS -- Structure of the Transaction; Participants".

Q: ARE OUR STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?

A: Yes. Under the Delaware General Corporation Law, our stockholders are
entitled to appraisal rights. The rules governing satisfaction of the
requirements for exercising appraisal rights must be strictly complied with or
a stockholder's appraisal rights may be lost. For a description of these rights
and how to satisfy the applicable requirements, see "SPECIAL FACTORS --
Appraisal Rights".

Q: WHO CAN VOTE AT THE SPECIAL MEETING?

A: Holders of our common stock at the close of business on September 25, 2001
(the "record date") may vote at the special meeting. Each share of common stock
is entitled to one vote. See "SPECIAL MEETING -- Record date and Voting;
Quorum."

Q: WHAT VOTE IS REQUIRED?

A: The merger and the merger agreement must be approved and adopted by the
holders of a majority of the shares of our common stock outstanding on the
record date.

The Continuing Stockholders other than LEG Partners III, LEG Partners
Debenture, and Messrs. Grabowski and McCain, who as of September 25, 2001,
beneficially owned (excluding options), in the aggregate, approximately 2.5
million shares of common stock of Specialty Catalog, or approximately 57% of
the outstanding shares of common stock, have agreed, pursuant to the terms of
subscription agreements, to vote their shares for the approval and adoption of
the merger and the merger agreement. See "SPECIAL FACTORS -- Related
Agreements-Subscription Agreements". Messrs. Grabowski and McCain, who as of
September 25, 2001, beneficially owned (excluding options), in the aggregate,
approximately 0.5% of the outstanding shares of common stock of Specialty
Catalog, intend to vote their shares for the approval and adoption of the
merger and the merger agreement. In addition, we understand that LEG Partners
III, who as of September 25, 2001, beneficially owned approximately 13.9% of
the outstanding shares of common stock of Specialty Catalog, will vote its
shares for the approval and adoption of the merger and the merger agreement.
While it is expected that LEG Partners III will vote in favor of the merger and
the merger agreement, LEG Partners III's commitment remains subject to the
consummation of the transactions contemplated by a note and warrant purchase
agreement to be entered into among Specialty Catalog, Acquisition Corp., LEG
Partners III, LEG Partners Debenture SBIC, L.P., SC Corporation (d\b\a SC
Direct), SC Publishing, Inc., Royal Advertising & Marketing, Inc., and
Daxbourne International Limited. See "SPECIAL FACTORS -- Amount and Source of
Funds and Financing of the Merger". The merger agreement does not provide that
approval of at least a majority of our stockholders not affiliated with
Acquisition Corp. or any of the Continuing Stockholders is required

to consummate the merger. Accordingly, since the Continuing Stockholders who
have executed subscription agreements will vote for the approval and adoption of
the merger and the merger agreement, the affirmative vote of no other
stockholder will be required to approve and adopt the merger and the merger
agreement.

Pursuant to our bylaws, any adjournment of the special meeting may be made
without notice, other than by an announcement made at the special meeting, by
approval of the holders of a majority of the shares of our common stock present
in person or represented by proxy at the special meeting, whether or not a
quorum exists. The proposal granting to the proxies the discretionary authority
to adjourn the special meeting to satisfy conditions to the closing of the
merger agreement must be approved and adopted by the holders of a majority of
the shares of our common stock present in person or represented by proxy at the
special meeting so long as a quorum exists. The Continuing Stockholders intend
to vote in favor of the proposal.

Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME REGARDING THE APPROVAL OF THE MERGER?

A: No. The law does not allow your broker to vote your shares for the approval
and adoption of the merger and the merger agreement at the special meeting
without your direction. You should have received instructions from your broker
regarding how to vote your shares. Please follow the directions your broker
provided to you. Shares that are not voted because you do not instruct your
broker are called "broker non-votes," and will have the effect of a vote
"AGAINST" the approval and adoption of the merger and the merger agreement. See
"SPECIAL MEETING -- Required Vote".

Q: IF I SEND IN MY PROXY CARD BUT FORGET TO INDICATE MY VOTE, HOW WILL MY
SHARES BE VOTED?

A: If you sign and return your proxy card but do not indicate how your shares
are to be voted at the special meeting, the shares represented by your proxy
will be voted "FOR" the approval and adoption of the merger and the merger
agreement and "AGAINST" to grant to the proxies the discretionary authority to
adjourn the special meeting to satisfy conditions to the closing of the merger
agreement.

Q: WHAT SHOULD I DO NOW TO VOTE AT THE SPECIAL MEETING?

A: Sign, mark and mail your proxy card indicating your vote on the approval and
adoption of the merger and the merger agreement and granting to the proxies the
discretionary authority to adjourn the special meeting to satisfy conditions to
the closing of the merger agreement in the enclosed return envelope as soon as
possible, so that your shares of common stock can be voted at the special
meeting.

Q: MAY I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?

A: Yes. You may change your vote at any time before your proxy is voted at the
special meeting. You can do this in three ways: First, you can send a written
statement that you would like to revoke your proxy (which to be effective must
be received by us prior to the vote at the special meeting). Second, you can
send a new proxy card prior to the vote at the special meeting (which to be
effective must be received by us prior to the vote at the special meeting). You
should send your revocation or new proxy card to the Secretary of Specialty
Catalog at the address on the cover of this proxy statement. Third, you can
attend the special meeting and vote in person. However, your attendance alone
will not revoke your proxy; you must attend and cast your vote at the special
meeting. If your shares are held by a broker, you must follow the directions
provided by your broker to have your shares voted or to change your
instructions.

Q: DO I SEND IN MY STOCK CERTIFICATES NOW?

A: No. Assuming the merger is completed, you will receive written instructions
for delivering your stock certificates in order to receive the $3.75 merger
consideration in the merger, without interest, from Continental Stock Transfer
and Trust Company, which will be appointed as the exchange agent in connection
with the merger. DO NOT SEND YOUR CERTIFICATES NOW.

Q: WHAT DOES IT MEAN TO INCORPORATE CERTAIN DOCUMENTS BY REFERENCE?

The Securities and Exchange Commission ("SEC") allows Specialty Catalog to
"incorporate by reference" information into this proxy statement. This means
that we can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is considered to be a part of this proxy statement, except for any
information that is superseded by information that is included directly in this
document. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."

In addition, for information about Specialty Catalog, we refer you to our
Annual Report to stockholders for the year ended December 30, 2000 and our
Quarterly Report on Form 10-Q for the period ended June 30, 2001, which
accompany this proxy statement.

SUMMARY

This summary may not contain all of the information that is important to
you to evaluate the terms of the merger. For a more complete understanding of
the merger and the other information contained in this document, you should
read this entire document carefully, as well as the additional documents to
which it refers. For instructions on obtaining more information, see "Where You
Can Find More Information."

THE PARTICIPANTS

Specialty Catalog Corp.
21 Bristol Drive
South Easton, Massachusetts 02375
Telephone (508) 238-0199

Specialty Catalog was incorporated in Delaware on November 30, 1994, as a
holding company for SC Direct and SC Publishing, which emerged from bankruptcy
on November 23, 1994. We target niche consumer product categories, primarily
via direct marketing. SC Direct, our principal operating subsidiary in the
United States, is the US's leading retailer of women's wigs and hairpieces.
Daxbourne International Limited, a subsidiary of SC Direct, is a leading United
Kingdom retailer and wholesaler of women's wigs and hairpieces. SC Publishing,
another subsidiary of SC Direct, provides continuing education courses,
seminars, and conferences to nurses and other health care professionals. For
further information regarding Specialty Catalog, see "INFORMATION ABOUT THE
TRANSACTION PARTICIPANTS -- Specialty Catalog."

References in this proxy statement to "we," "our" or "us" refers to
Specialty Catalog, and not to Acquisition Corp. When we refer to Specialty
Catalog's management, we mean one or more of Specialty Catalog's principal
executive officers.

Specialty Acquisition Corp.
c/o Kane Kessler, P.C.
1350 Avenue of the Americas, 26th Floor
New York,
NY 10019 Telephone (212) 541-6222

Acquisition Corp. is a Delaware corporation organized at the direction of
Mr. Guy Naggar, a member of Specialty Catalog's board of directors, for the
purpose of effecting the merger. If the merger is consummated, Acquisition
Corp. will be merged with and into Specialty Catalog. Acquisition Corp. has no
material assets and has not engaged in any activities except in connection with
entering into the merger agreement and carrying out the transactions
contemplated by the merger agreement. For further information, see "INFORMATION
ABOUT THE TRANSACTION PARTICIPANTS -- The Continuing Stockholders."

All information contained in this proxy statement relating to Acquisition
Corp. and its stockholders has been supplied by them for inclusion and has not
been independently verified by us. No persons have been authorized to give any
information or to make any representations other than those contained in this
proxy statement.

INFORMATION CONCERNING THE MEETING

Time, Date And Place.

The special meeting will be held on , , 2001 at a.m.,
local time, at 21 Bristol Drive, South Easton, Massachusetts 02375. See
"SPECIAL MEETING -- General."

Purpose Of The Meeting.

At the special meeting, holders of our common stock at the close of
business on the record date, which is September 25, 2001, will consider and
vote upon a proposal to approve and adopt the merger and the merger agreement.
If the merger agreement is adopted at the special meeting and the merger is
consummated, Acquisition Corp. will be merged with and into Specialty Catalog.
All shares of our common stock outstanding immediately prior to the time when
the merger is consummated (other than shares owned by Acquisition Corp. and
shares owned by stockholders who have perfected their appraisal rights) will be
converted into the right to receive $3.75 in cash per share, payable to the
holder thereof, without interest. See "SPECIAL MEETING -- What will be Voted
On".

Record Date For The Meeting; Quorum Requirements.

The close of business on September 25, 2001 has been fixed as the record
date for determining stockholders entitled to notice of, and to vote at, the
special meeting. Each share of common stock outstanding on the record date is
entitled to one vote at the special meeting. As of the record date, 4,337,886
shares of Specialty Catalog's common stock were outstanding. The presence, in
person or by proxy, of one third of all outstanding shares of Specialty
Catalog's common stock is required to constitute a quorum for the transaction
of business at the special meeting. See "SPECIAL MEETING -- Record date and
Voting; Quorum."

Voting Requirements.

Under the Delaware General Corporation Law, the affirmative vote of at
least a majority of all of the outstanding shares of our common stock is
required to approve and adopt the merger and the merger agreement. The
Continuing Stockholders other than LEG Partners III, LEG Partners Debenture,
and Messrs. Grabowski and McCain, who as of September 25, 2001, beneficially
owned (excluding options), in the aggregate, approximately 2.5 million shares
of common stock of Specialty Catalog, or approximately 57% of the outstanding
shares of common stock, have agreed, pursuant to the terms of subscription
agreements, to vote their shares for the approval and adoption of the merger
and the merger agreement. See "SPECIAL FACTORS--Related Agreements-Subscription
Agreements". Messrs. Grabowski and McCain, who as of September 25, 2001,
beneficially owned (excluding options), in the aggregate, approximately 0.5% of
the outstanding shares of common stock of Specialty Catalog, intend to vote
their shares for the approval and adoption of the merger and the merger
agreement. In addition, we understand that LEG Partners III, who as of
September 25, 2001, beneficially owned approximately 13.9% of the outstanding
shares of common stock of Specialty Catalog, will vote its shares for the
approval and adoption of the merger and the merger agreement. While it is
expected that LEG Partners III will vote in favor of the merger and the merger
agreement, LEG Partners III's commitment remains subject to the consummation of
the transactions contemplated by a note and warrant purchase agreement to be
entered into among Specialty Catalog, Acquisition Corp., LEG Partners III,
LEG Partners Debenture SBIC, L.P., SC Corporation (d\b\a SC Direct), SC
Publishing, Inc., Royal Advertising & Marketing, Inc., and Daxbourne
International Limited. See "SPECIAL FACTORS -- Amount and Source of Funds and
Financing of the Merger".

The merger agreement does not provide that approval of at least a majority
of our stockholders not affiliated with Acquisition Corp. or any of the
Continuing Stockholders is required to consummate the merger. Accordingly,
since the Continuing Stockholders will vote for the approval and adoption of
the merger and the merger agreement, the affirmative vote of no other
stockholder will be required to approve and adopt the merger and the merger
agreement.

special meeting to satisfy conditions to the closing of the merger agreement
must be approved and adopted by the holders of a majority of the shares of our
common stock present in person or represented by proxy at the special meeting so
long as a quorum exists. The Continuing Stockholders intend to vote in favor of
the proposal.

Proxies.

A proxy card is enclosed for your use in voting by mail. A proxy may be
revoked at any time prior to its exercise at the special meeting. Common stock
represented by properly executed proxies received at or prior to the special
meeting, and which have not been revoked, will be voted in accordance with the
instructions indicated on the proxy. See "SPECIAL MEETING -- Voting Your Shares
by Proxy" and "SPECIAL MEETING -- Revoking Your Proxy."

You should not send any certificates representing shares of common stock
with your proxy card. If the merger is consummated, information outlining the
procedure for the exchange of your certificates will be sent to you.

GOING PRIVATE TRANSACTION

The merger constitutes a "going private" transaction for Specialty Catalog
under the Federal securities laws. Following the merger, (i) the separate
corporate existence of Acquisition Corp. will cease and Specialty Catalog will
be the surviving corporation, (ii) the common stock of Specialty Catalog will
no longer be publicly traded or quoted on The Nasdaq National Market, and (iii)
Specialty Catalog will no longer be required to file periodic and other reports
with the United States Securities and Exchange Commission and will formally
terminate its reporting obligations under the Securities Exchange Act of 1934.
As a result of the merger, the holders of our common stock will be entitled to
receive the merger consideration and will no longer have any interest in
Specialty Catalog, including its future earnings or growth, the risk associated
with its business and the fluctuation of the price of its common stock.

RECOMMENDATION TO STOCKHOLDERS

Our board of directors, upon the recommendation of the special committee,
and the special committee have determined that the merger and the merger
agreement are fair to, advisable and in the best interests of the unaffiliated
stockholders of Specialty Catalog (which stockholders include all of Specialty
Catalog's stockholders other than Acquisition Corp. and its current and future
stockholders) and unanimously recommend that you vote "FOR" approval and
adoption of the merger and the merger agreement. Mr. Naggar did not vote as a
director on any matter of the board of directors relating to the merger. See
"SPECIAL FACTORS -- Recommendation of the Special Committee and the Board of
Directors; Considerations in Connection with the Merger; Fairness of the
Merger." Our stockholders should be aware that a number of our officers and
directors may have interests in the merger that may be different from, or in
addition to, the interests of our stockholders. See "SPECIAL FACTORS --
Interests of Certain Persons In The Merger." However, the board of directors
established the special committee consisting of an independent director to
review and evaluate the proposed transaction. The sole member of the special
committee is not an employee of Specialty Catalog, an employee or director of
Acquisition Corp. or a Continuing Stockholder. See "SPECIAL FACTORS -- Special
Committee."

CONSIDERATIONS IN CONNECTION WITH THE MERGER

During the course of its deliberations and in recommending approval and
adoption of the merger and the merger agreement, the special committee
considered, with the assistance of its financial and legal advisors, a number
of factors, including:

o the results of operations, financial condition, business and prospects
of Specialty Catalog;

o the economic and market conditions affecting Specialty Catalog and the
catalog/specialty distributor industry;

o financial projections for Specialty Catalog compiled by our management;

o the May 4, 2001 presentation and opinion of Burnham Securities;

o the premium of the $3.75 per share merger consideration over the prices
at which the shares have traded over the previous twelve months;

o the conclusion of the special committee that Specialty Catalog has
obtained the highest price per share that Acquisition Corp. is willing to
pay;

o the likelihood that a third party would not be willing to offer a higher
per share price than Acquisition Corp.;

o the possible delisting, and the resultant lack of liquidity in the event
of a delisting, of the Specialty Catalog shares from The Nasdaq National
Market;

o that under Delaware law, Specialty Catalog's stockholders have the right
to an appraisal of the value of their shares in connection with the
merger;

o that the merger consideration is payable in cash, thereby eliminating
any uncertainties in valuing the consideration;

o that the per share merger consideration and the other terms and
conditions of the merger agreement were the result of good faith
negotiations among the special committee and Mr. Naggar and their
respective advisors; and

o that the merger agreement does not unduly deter a third party from
making a competing acquisition proposal.

See "SPECIAL FACTORS -- Recommendation of the Special Committee and the
Board of Directors; Considerations in Connection with the Merger; Fairness of
the Merger."

FAIRNESS OPINION

Burnham Securities served as financial advisor to the special committee.
Burnham Securities has delivered a written opinion to the special committee and
our board of directors to the effect that, subject to certain assumptions and
qualifications set forth in its opinion, as of the date of the opinion, the
merger consideration of $3.75 per share to be received by the stockholders of
Specialty Catalog is fair to the unaffiliated stockholders of Specialty Catalog
(which stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders) from a financial
point of view. A copy of Burnham Securities' opinion, which includes a
discussion of the information reviewed, assumptions made and matters considered
by Burnham Securities, is attached to this proxy statement as Appendix B. You
should read this opinion in its entirety, as well as the other information
described under "SPECIAL FACTORS -- Opinion of Burnham Securities Inc."

THE MERGER

The merger agreement is the legal document that governs the merger. We
have attached the merger agreement as Appendix A to this proxy statement, and
we encourage you to read it carefully. See "SUMMARY OF THE MERGER AGREEMENT."

Structure of the Merger and Consequences to Specialty Catalog's Stockholders

Acquisition Corp., a Delaware corporation newly formed to effect the
merger, will be merged with and into Specialty Catalog, with Specialty Catalog
being the surviving corporation.

In the merger, each outstanding share of Specialty Catalog's common stock
(other than shares held by Acquisition Corp. and shares held by stockholders
who have perfected their appraisal rights) will be converted into the right to
receive $3.75 in cash, without interest. Generally, each outstanding
unexercised

option, warrant, or other right to purchase Specialty Catalog common stock
issued pursuant to the 1996 Stock Incentive Plan, as amended, and the 2000 Stock
Incentive Plan will be canceled immediately prior to the merger and converted
into the right to receive cash for the difference, if positive, between $3.75
per share and the exercise price of the option. See "SPECIAL FACTORS --
Structure of the Transaction; Participants," "SPECIAL FACTORS -- Treatment of
Options," and "SPECIAL FACTORS -- Related Agreements -- Stock Option Exercise
Agreements."

Appraisal Rights

Our stockholders are entitled to have the fair value of their shares of
common stock appraised by a court and paid to them in cash. To do this, the
holders of our common stock who choose to exercise their appraisal rights must
follow these required procedures:

o deliver a written demand for appraisal to us on or before the vote is
taken at the special meeting;

o do not vote in favor of, or abstain from, voting on the merger; and

o hold such shares of common stock from the date of the making of the
demand through the closing of the merger.

If a stockholder follows the required formalities, his/her shares will not
be converted in the merger into the right to receive the $3.75 per share in
cash, without interest. Instead, such holder's only right will be to receive
the appraised value of his/her shares in cash as determined by a court. See
"SPECIAL FACTORS -- Appraisal Rights."

Interest of Officers and Directors in the Mergers

Our stockholders should be aware that a number of our officers and
directors may have interests in the merger that may be different from, or in
addition to, the interests of our stockholders. See "SPECIAL FACTORS --
Interests of Certain Persons in the Merger," "SPECIAL FACTORS -- Related
Agreements," and "SPECIAL FACTORS -- Amount and Source of Funds and Financing
of the Merger."

Accounting Treatment

It is anticipated that the merger is expected to be accounted for under
the purchase method of accounting. The merger is structured as a leveraged
buyout transaction with certain stockholders of Specialty Catalog continuing to
be stockholders in the surviving corporation. The assets and liabilities of
Specialty Catalog will be recorded at fair value for the interests acquired by
the new investors and at the carryover, or predecessor, basis for continuing
stockholders from Specialty Catalog.

Conditions to Completion of the Merger

The obligations of each of Specialty Catalog and Acquisition Corp. to
complete the merger and the other transactions contemplated by the merger
agreement are subject to the satisfaction, or waiver, of numerous conditions.
To review the conditions to completion of the merger, see "SUMMARY OF THE
MERGER AGREEMENT -- Conditions to Completion of the Merger."

Regulatory Approvals

Specialty Catalog does not believe there are any material governmental or
regulatory approvals required for completion of the mergers, other than
compliance with applicable corporate law of Delaware, the Federal Securities
Laws and various blue sky laws.

MERGER FINANCING

Acquisition Corp. has made arrangements with Fleet National Bank and LEG
Partners III and LEG Partners Debenture, affiliated private investment
partnerships represented in the transaction by Golub

Associates Incorporated ("Golub Associates"), to finance the merger. In
addition, each of Mr. Naggar and Alexander intend to make equity contributions
to Acquisition Corp. prior to the merger of approximately $1.67 million, in the
aggregate. Acquisition Corp.'s receipt of cash proceeds from debt and equity
financing sufficient to consummate the transactions contemplated by the merger
is a condition precedent to Acquisition Corp.'s obligation to consummate the
merger. There can be no assurance that Acquisition Corp. will satisfy its
financing obligations under the merger agreement. For additional information,
please see "SPECIAL FACTORS -- Amount and Source of Funds and Financing of the
Merger."

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for the historical information contained herein, this proxy
statement includes and incorporates by reference "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including, but not limited to,
Specialty Catalog's expected future revenues, operations and expenditures,
estimates of the potential markets for our products, assessments of competitors
and potential competitors and projected timetables for the market introduction
of our products. Investors are cautioned that forward-looking statements are
inherently uncertain. Because there is no safe harbor for forward-looking
statements under the Private Securities Litigation Reform Act of 1995 in
connection with a going-private transaction such as the proposed merger, the
documents incorporated by reference herein are incorporated exclusive of the
language claiming the safe harbor. Actual performance and results of operations
may differ materially from those projected or suggested in the forward-looking
statements due to certain risks and uncertainties, including, but not limited
to, the following risks and uncertainties: (i) our indebtedness and future
capital requirements, (ii) increasing postal rates, paper prices and media
costs, (iii) limited sources of fiber used to make our products, (iv) the
limited number of suppliers of our products, (v) our dependence upon foreign
suppliers, especially in China, Korea and Indonesia, (vi) the customary risks
of doing business abroad, including fluctuations in the value of currencies,
(vii) the potential development of a cure for hair loss and cancer treatment
improvements, (viii) the effectiveness of our catalogs and advertising
programs, (ix) our competition, and (x) the impact of acquisitions on our
prospects. The forward-looking statements contained herein represent our
judgment as of the date of this statement, and we caution readers not to place
undue reliance on such statements.

HISTORICAL MARKET INFORMATION

Our common stock is traded on The Nasdaq National Market under the symbol
"CTLG." The following table sets forth the high and low sale prices on The
Nasdaq National Market for our shares of common stock for the periods
indicated:

HIGH LOW
----------- -----------

2001
First Quarter .............................. $ 2.656 $ 1.875
Second Quarter ............................. $ 3.600 $ 2.270
Third Quarter (through , 2001) ......... $ $
2000
First Quarter .............................. $ 5.250 $ 2.625
Second Quarter ............................. $ 3.125 $ 2.000
Third Quarter .............................. $ 3.000 $ 2.313
Fourth Quarter ............................. $ 2.969 $ 1.563
1999
First Quarter .............................. $ 4.375 $ 3.000
Second Quarter ............................. $ 4.000 $ 3.188
Third Quarter .............................. $ 4.500 $ 3.125
Fourth Quarter ............................. $ 6.000 $ 3.375

The number of registered holders of record of our common stock as of March
23, 2001 was approximately 50.

In December 2000, we were notified by The Nasdaq Stock Market, Inc. that
our common stock failed to maintain a minimum market value of public float and
was below its continued listing standards and that Specialty Catalog's current
listing was subject to review by Nasdaq in accordance with its continued
listing procedures. However, since the first public announcement of the
proposed merger, our common stock increased by over % as of , 2001,
thereby causing our market value of public

float to be in compliance with all requirements for continued listing on The
Nasdaq National Market and we are not currently subject to review by The Nasdaq
Stock Market, Inc. Accordingly, while an established public trading market
exists with respect to our common stock, there can be no assurance that, in the
event the merger is not consummated, the common stock will remain listed on The
Nasdaq National Market or otherwise be subject of an established trading
market.

We have not paid a dividend with respect to our common stock and we do not
anticipate paying dividends in the foreseeable future. Under the terms of our
existing debt agreement, we are not permitted to pay dividends.

On April 24, 2001, the trading day prior to the day that Mr. Naggar filed
an amended Schedule 13D announcing that he was preparing to make a preliminary
proposal regarding, among other things, a transaction involving the purchase of
all or substantially all of the outstanding shares of Specialty Catalog, the
closing price of Specialty Catalog's common stock on the Nasdaq Market was
$2.63.

On April 27, 2001, the last full trading day prior to the first public
announcement of the proposed transaction, the closing price of Specialty
Catalog's common stock on The Nasdaq National Market was $3.05. On May 3, 2001,
the last full trading day prior to the announcement of the execution of the
merger agreement, the closing price of Specialty Catalog's common stock on The
Nasdaq National Market was $3.40 per share. On , 2001, the closing
price of Specialty Catalog's common stock on the Nasdaq National Market was
$ per share. Our stockholders are urged to obtain a current market
quotation for the shares.

HISTORICAL BOOK VALUE, DIVIDENDS, AND NET EARNINGS

Set forth below is a summary of selected consolidated financial data with
respect to Specialty Catalog excerpted or derived from the information
contained in Specialty Catalog's Annual Report on Form 10-K for the year ended
December 30, 2000 and Specialty Catalog's Quarterly Report on Form 10-Q for the
period ended June 30, 2001, which are being delivered to Specialty Catalog's
stockholders simultaneously with this proxy statement and are incorporated
herein by reference. More comprehensive financial information is included in
such report and other documents filed by Specialty Catalog with the SEC. The
following summary is qualified by reference to such report and other documents
and all of the financial information, including any related notes, contained
therein. Such report and other documents not otherwise delivered with this
proxy statement may be inspected and copies may be obtained from the offices of
the SEC. See "WHERE YOU CAN FIND MORE INFORMATION."

BOOK VALUE PER DILUTED EARNINGS CASH DIVIDENDS MERGER
SHARE AT END OF PER SHARE FOR PER SHARE DURING CONSIDERATION PER
PERIOD PERIOD PERIOD SHARE
----------------- ------------------ ------------------ ------------------

Fiscal Year ended December 30, 2000 $ 2.01 $ 0.25 $--
====== ====== ===
Twenty-six Weeks ended June 30, 2001 $ 2.24 $ 0.29 $-- $ 3.75
====== ====== === ======

Specialty Catalog has not provided any pro forma data giving effect to the
proposed merger as it does not believe such information is material to its
stockholders in evaluating the merger agreement since the proposed merger
consideration is all cash and, if the proposed merger is completed, Specialty
Catalog's common stock would cease to be publicly traded. No financial
information has been provided for Acquisition Corp. since it was formed for the
sole purpose of effecting the merger and has no independent operations.

THE SPECIAL MEETING

GENERAL

This proxy statement is being furnished to our stockholders as part of the
solicitation of proxies by our board of directors for use at a special meeting
to be held on , 2001, starting at .m. local time, at 21
Bristol Drive, South Easton, Massachusetts 02375 or any adjournment thereof.

WHAT WILL BE VOTED ON

The purpose of the special meeting is for our stockholders to consider and
vote upon the approval and adoption of the merger and the merger agreement. A
copy of the merger agreement is attached to this proxy statement as Appendix A.

RECORD DATE AND VOTING; QUORUM

The holders of record of Specialty Catalog shares as of the close of
business on September 25, 2001, are entitled to receive notice of, and to vote
at, the special meeting. On the record date, there were 4,337,886 shares of our
common stock outstanding. The holders of one third of the shares of our common
stock outstanding on the record date will constitute a quorum for purposes of
the special meeting. Any shares of our common stock held in treasury are not
considered to be outstanding for purposes of determining a quorum. Once a share
is represented at the special meeting, it will be counted for the purpose of
the special meeting, unless the holder is present solely to object at the
special meeting.

REQUIRED VOTE

Each share of our common stock outstanding on September 25, 2001, entitles
the holder to one vote at the special meeting. Completion of the merger
requires the approval and adoption of the merger and the merger agreement by
the affirmative vote of the holders of a majority of the outstanding shares of
our common stock. You may vote your shares (1) by returning the enclosed proxy
or (2) by appearing at the special meeting and voting.

The Continuing Stockholders other than LEG Partners III, LEG Partners
Debenture, and Messrs. Grabowski and McCain, who as of September 25, 2001,
beneficially owned (excluding options), in the aggregate, approximately 2.5
million shares of common stock of Specialty Catalog, or approximately 57% of
the outstanding shares of common stock, have agreed, pursuant to the terms of
subscription agreements, to vote their shares for the approval and adoption of
the merger and the merger agreement. See "SPECIAL FACTORS -- Related Agreements
- Subscription Agreements". Messrs. Grabowski and McCain, who as of September
25, 2001, beneficially owned (excluding options), in the aggregate,
approximately 0.5% of the outstanding shares of common stock of Specialty
Catalog, intend to vote their shares for the approval and adoption of the
merger and the merger agreement. In addition, we understand that LEG Partners
III, who as of September 25, 2001, beneficially owned approximately 13.9% of
the outstanding shares of common stock of Specialty Catalog, will vote its
shares for the approval and adoption of the merger and the merger agreement.
While it is expected that LEG Partners III will vote in favor of the merger and
the merger agreement, LEG Partners III's commitment remains subject to the
consummation of the transactions contemplated by a note and warrant purchase
agreement to be entered into among Specialty Catalog, Acquisition Corp., LEG
Partners III, LEG Partners Debenture SBIC, L.P., SC Corporation (d\b\a SC
Direct), SC Publishing, Inc., Royal Advertising & Marketing, Inc., and
Daxbourne International Limited. See "SPECIAL FACTORS -- Amount and Source of
Funds and Financing of the Merger".

VOTING SHARES HELD IN "STREET NAME" BY PROXY

Under applicable rules, brokers who hold shares in street name for
customers have the authority to vote on "routine" proposals when they have not
received instructions from beneficial owners. Under these rules, brokers are
precluded from exercising their voting discretion with respect to the approval
of non-routine matters such as the merger proposal and thus, absent specific
instructions from the beneficial owner of such shares, brokers may not vote
such shares with respect to the approval of such proposals (i.e., "broker
non-votes"). Abstentions and properly executed broker non-votes will be treated
as shares that are present and entitled to vote at the special meeting for
purposes of determining whether a quorum exists and will have the same effect
as votes against approval and adoption of the merger and merger agreement.

DISSENTING HOLDERS

Our stockholders have the right to dissent from approval and adoption of
the merger and the merger agreement, and, subject to strict compliance with
certain requirements and procedures set forth in Section 262 of the Delaware
General Corporation Law, to receive payment of the "fair value" of shares of
common stock. Failure to follow such procedures precisely will result in a loss
of dissenters' rights. See "SPECIAL FACTORS -- Appraisal Rights."

VOTING YOUR SHARES BY PROXY

If you vote your shares of common stock by signing a proxy, your shares
will be voted at the special meeting as you indicate on your proxy card. If no
instructions are indicated on your signed proxy card, your shares of common
stock will be voted "FOR" the approval and adoption of the merger and the
merger agreement and "AGAINST" to grant to the proxies the discretionary
authority to adjourn the special meeting to satisfy conditions to the closing
of the merger agreement. See "THE SPECIAL MEETING -- Adjournments."

REVOKING YOUR PROXY

A proxy that is properly submitted to Specialty Catalog may be revoked at
any time before it is exercised. For a stockholder "of record" (meaning one
whose shares are registered in his or her own name) to revoke a proxy, the
stockholder may either:

o send in another signed proxy card with a later date;

o submit a written revocation to the Secretary of Specialty Catalog at the
address on the cover of this proxy statement; or

o attend the special meeting, notify us in writing that the you are
revoking your proxy and vote in person. However, simply attending the
special meeting will not revoke a proxy.

A "beneficial holder" whose shares are registered in another name (for example
in "street name") must follow the procedures required by the holder of record,
which is usually a brokerage firm or bank, to revoke a proxy. You should
contact the holder of record directly for more information on these procedures.

COSTS OF SOLICITING THESE PROXIES

All expenses incurred in connection with solicitation of the enclosed
proxy will be paid by Specialty Catalog. Officers and employees of Specialty
Catalog may solicit proxies by telephone or in person.

However, they will not be paid for soliciting proxies. We will also request
that persons and entities holding shares in their names or in the names of
their nominees that are beneficially owned by others send proxy materials to
and obtain proxies from those beneficial owners, and will reimburse those
holders for their reasonable expenses in performing those services.

ADJOURNMENTS

Although it is not expected, the special meeting may be adjourned for the
purpose of allowing Specialty Catalog or Acquisition Corp. additional time to
satisfy conditions to closing the merger as set forth in the merger agreement.
Any adjournment of the special meeting may be made without notice, other than
by an announcement made at the special meeting, by approval of the holders of a
majority of the shares of common stock present in person or represented by
proxy at the special meeting, whether or not a quorum exists. Any signed
proxies received by us in which the stockholder has voted to grant to the
proxies the discretionary authority to adjourn the special meeting to satisfy
conditions to the closing of the merger agreement will be voted at the
discretion of the proxies in favor of or against an adjournment of the special
meeting to satisfy conditions to the closing of the merger agreement. Any
signed proxies received by us in which the stockholder has not voted or voted
against granting to the proxies the discretionary authority to adjourn the
special meeting to satisfy conditions to the closing of the merger agreement
will be voted against the adjournment of the special meeting. Any adjournment
of the special meeting will allow stockholders who have already sent in their
proxies to revoke them at any time prior to their use.

SPECIAL FACTORS

STRUCTURE OF THE TRANSACTION; PARTICIPANTS

If the merger and the merger agreement are approved and adopted by our
stockholders and the other conditions to the closing of the merger are either
satisfied or waived, Acquisition Corp. will be merged with and into Specialty
Catalog, with Specialty Catalog being the surviving corporation. After the
merger, Specialty Catalog will be privately owned. For a chart describing the
equity ownership of Specialty Catalog following the merger, see "SPECIAL
FACTORS -- Interests of Certain Persons in the Merger."

When the merger is completed, each share of Specialty Catalog common stock
issued and outstanding at the closing of the merger (other than those shares
held by Acquisition Corp. and those shares held by Specialty Catalog
stockholders who have perfected their appraisal rights) will be canceled and
converted into the right to receive $3.75 in cash, without interest. The
Continuing Stockholders are Joseph Grabowski, Specialty Catalog's President and
Chief Executive Officer, Thomas McCain, Specialty Catalog's Senior Vice
President and Chief Financial Officer, Acquisition Corp. and the stockholders
of Acquisition Corp., which currently includes Mr. Naggar, who is a member of
Specialty Catalog's board of directors, First Global, Oracle, Ionic, Three
Greens, and Alexander and, upon consummation of the transactions contemplated
by the subscription agreements which shall occur prior to the merger, will
include Martin Franklin, who is a member of Specialty Catalog's board of
directors, The David Cicurel Settlement, LEG Partners III, LEG Partners
Debenture, Wynnefield Partners, Wynnefield Partners I, and Wynnefield Offshore.
Our stockholders should be aware that the Continuing Stockholders have
interests in the merger that are different from, or in addition to, the
interests of our stockholders. Pursuant to the terms of the subscription
agreements entered into between certain of the Continuing Stockholders and
Acquisition Corp., the Continuing Stockholders executing subscription
agreements have agreed to contribute some or all of their shares of Specialty
Catalog common stock for shares of Acquisition Corp. common stock immediately
prior to the merger. These shares of Acquisition Corp. common stock acquired by
the Continuing Stockholders will, upon completion of the merger, automatically
be converted into shares of common stock of Specialty Catalog, which will be
the surviving corporation in the merger. The shares of Specialty Catalog common
stock currently held by the Continuing Stockholders which are not contributed
to Acquisition Corp., pursuant to the merger, will be cancelled and converted
into the right to receive the merger consideration. Mr. Naggar, First Global,
Ionic, Oracle, Three Greens, and Alexander will be contributing all of their
shares of Specialty Catalog to Acquisition Corp. The other Continuing
Stockholders will contribute approximately thirty-two percent (32%) of their
shares of Specialty Catalog common stock to Acquisition Corp. in exchange for
shares of Acquisition Corp. common stock and, pursuant to the merger, will
receive the merger consideration upon cancellation of the remaining sixty-eight
percent (68%) of their shares of Specialty Catalog common stock. See "SPECIAL
FACTORS --Interest in Certain Persons in the Merger" and "SPECIAL FACTORS --
Related Agreements - Subscription Agreements."

As a result of the merger, Specialty Catalog will become a privately held
company and there will be no public market for its common stock, which will no
longer be quoted on The Nasdaq National Market and price quotations for sales
of shares in the public market will no longer be available. In addition, the
registration of Specialty Catalog common stock under the Securities Exchange
Act of 1934 will be terminated.

For income tax purposes, the receipt of the merger consideration by
holders of common stock pursuant to the merger will be a taxable sale of the
holders' common stock. See "Material Federal Income Tax Consequences of the
Merger."

The principal benefits of the merger to the unaffiliated stockholders of
Specialty Catalog (other than Acquisition Corp. and its current and future
stockholders) after the merger include the following:

o the receipt by such stockholders of $3.75 per share in cash,
representing a substantial premium over the market prices for Specialty
Catalog common stock over the previous twelve months;

o the avoidance of the risk associated with any decrease in the future
earnings, growth or value of Specialty Catalog following the merger; and

o the avoidance of owning a security that lacks liquidity and may no
longer be traded on a national exchange.

The principal detriments to the unaffiliated stockholders of Specialty
Catalog (other than Acquisition Corp. and its current and future stockholders)
after the merger include the following:

o Unaffiliated stockholders of Specialty Catalog (which stockholders
include all of Specialty Catalog's stockholders other than Acquisition
Corp. and its current and future stockholders) will cease to have an
interest in Specialty Catalog and therefore will no longer benefit from
increases in the future earnings, growth or value of Specialty Catalog or
payment of dividends on Specialty Catalog common stock, if any; and

o the receipt of cash in the merger will be a taxable transaction for U.S.
federal income tax purposes under the Internal Revenue Code of 1986 and
may also be a taxable transaction under applicable state, local, foreign
and other tax laws.

The principal benefits of the merger to the Continuing Stockholders are
that, because its common stock will be privately held, Specialty Catalog will
enjoy certain efficiencies, such as:

o a reduction of the cost and time devoted by its management and certain
other employees to compliance with certain Securities and Exchange
Commission reporting requirements;

o its directors, officers and beneficial owners of more than 10% of its
shares of common stock will be relieved of the reporting requirements
under Section 16 of the Securities Exchange Act of 1934;

o Specialty Catalog will be relieved of The Nasdaq National Market listing
and reporting requirements; and

o Specialty catalog will no longer be required to disclose material
confidential information concerning its business.

The principal detriments of the merger to the Continuing Stockholders
include the following:

o all of the risk of any decrease in the earnings, growth or value of
Specialty Catalog following the merger will be borne by Acquisition Corp.
and the other Continuing Stockholders; and

o Specialty Catalog will have substantially more debt outstanding after
the merger (approximately $8.5 million in new debt), which may adversely
affect the equity value held by the Continuing Stockholders. In general,
higher levels of debt can have the effect of increasing the risk to
equity holders of losing the entire value of their investment. In
addition, such indebtedness may:

(1) increase the vulnerability of Specialty Catalog to general adverse
economic and industry conditions;

(2) require Specialty Catalog to dedicate a portion of its cash flow
from operations to payments on its indebtedness, thereby reducing the
availability of its cash flow to fund working capital, capital
expenditures, acquisitions and investments and other general
corporate purposes;

(3) result in a reduction in the ability of Specialty Catalog to borrow
additional funds;

o much of the common stock of Specialty Catalog that will be held by the
Continuing Stockholders after the merger will be subject to restrictions
pursuant to the terms of a Stockholders Agreement. See "SPECIAL FACTORS
-- Related Agreements - Stockholders Agreement;" and

o following the merger, there will be no public trading market for
Specialty Catalog's shares.

MATERIAL CONTACTS AND BOARD DELIBERATIONS

The determination of the special committee and the board of directors that
the merger and the merger agreement are fair to, advisable and in the best
interests of the unaffiliated stockholders of Specialty Catalog (which
stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders) and their
recommendation of approval and

adoption of the merger and the merger agreement was the result of an extended
evaluation process. Since becoming a public company in 1996, the board of
directors of Specialty Catalog has from time to time evaluated and considered
various alternatives for enhancing stockholder value. During the last few
years, the board of directors believed that the trading prices of Specialty
Catalog common stock (to the extent unaffected by publicity concerning
Specialty Catalog's possible sale) have not reflected the inherent value of
Specialty Catalog. The board of directors and the management of Specialty
Catalog believe, based in part on the advice of their financial advisors, that
the market price of Specialty Catalog common stock has been adversely affected
by several factors, including:

o a lack of investor appreciation for the long-term earnings prospects of
Specialty Catalog, its products, the markets that Specialty Catalog
services, prospects for growth in unit sales and growth in gross margin
which has led to a low price/earnings ratio.

o the small market capitalization and low average daily trading volume of
Specialty Catalog common stock on The Nasdaq National Market;

o an insufficient number of market makers and securities trading firms
preparing research reports with respect to Specialty Catalog;

o the existence of few comparable public companies against which investors
could evaluate Specialty Catalog's performance; and

o that stocks with small market capitalizations, so called "microcap"
stocks have underperformed in the last two years.

On July 9, 1998, in an effort to maximize stockholder value the board of
directors thought it was appropriate and authorized management to explore
various strategic alternatives, including a possible sale or recapitalization
of Specialty Catalog and to contact investment bankers in this regard. On
September 8, 1998, the board of directors authorized Specialty Catalog to
engage an investment bank for the purpose of exploring a sale of Specialty
Catalog.

During September, 1998, the board engaged BNY Capital Markets, Inc.
(successor to Patricof & Co. Capital Corp.) for the purpose of pursuing
strategic alternatives, including the possible sale of Specialty Catalog.
Specialty Catalog, with the assistance of BNY Capital Markets, engaged in a
marketing effort to be sold consisting of a Confidential Information
Memorandum, which was dated September of 1998 and distributed to fifty-three
prospective purchasers (who were made up of investment funds, retailers,
individual investors and catalog retailers). On or about November 2, 1998, from
these efforts, two preliminary indications of interest were received. Due
diligence was commenced, but, in each case, the expression of interest was
withdrawn and due diligence was terminated by the prospective purchasers prior
to completion. Prior to the prospective purchasers withdrawing their respective
interest, in consultation with BNY Capital Markets, the viability of any
interest was assessed, including an assessment of the legitimacy of any
expression of interest and the ability of a potential acquirer to finance an
acquisition of Specialty Catalog.

During December, 1998, in accordance with its belief that Specialty
Catalog's common stock was undervalued at a price of $3.125 per share, upon
approval of the board of directors, Specialty Catalog repurchased 700,000
shares of common stock (approximately 14% of the then outstanding common
stock), from Dickstein Partners at $3.125 per share. The board of directors'
belief that the common stock was undervalued was in relation to the purchase
price of $3.125 per share. Specialty Catalog's common stock traded at a price
as low as $2.50 and as high as $5.00 during December 1998, with the last trade
being for $3.875. The proposed purchase price of the Dickstein Partners common
stock, $3.125 per share, was below the midpoint of the December 1998 trading
range.

On January 11, 1999, having received no viable indications of interest to
purchase Specialty Catalog, the board of directors ended the process of
pursuing a possible sale of Specialty Catalog. Additionally, the board of
directors authorized the repurchase of up to $1,000,000 of Specialty Catalog's
common stock. Pursuant to this authorization, throughout 1999 and 2000,
Specialty Catalog reacquired a total of 144,000 shares of common stock at an
average price of $3.56 per share.

Despite the formal termination of the efforts to sell Specialty Catalog in
early 1999, management continued to evaluate its strategic alternatives and
options on an ongoing basis.

On June 24, 1999, LEG Partners III, an affiliate of Golub Associates
Incorporated, who later in January 2000 executed a merger agreement with
Specialty Catalog, purchased 602,689 shares of Specialty Catalog's common
stock. The shares were purchased in a privately negotiated transaction directly
from Dickstein Partners for approximately $3.25 per share or $1,958,739, in the
aggregate, which represented approximately 13.7% of the then outstanding common
stock.

During August, 1999, Specialty Catalog announced that Steven L. Bock,
former Chairman, President and CEO of Specialty Catalog, had decided to resign
from those positions effective at the end of the term of his employment
agreement on December 31, 1999. Specialty Catalog understands that Mr. Bock
resigned in order to pursue other interests.

On October 4, 1999, Mr. Samuel Katz, a director of Specialty Catalog,
received a phone call from Mr. Lawrence Golub, the president of Golub
Associates, who expressed an interest in acquiring Specialty Catalog for $4.50
per share in a merger transaction, subject to his due diligence review and his
ability to obtain adequate financing commitments. Following numerous
discussions and negotiations relating to the cash consideration with Messrs.
Samuel Katz and Martin Franklin and the other members of a special committee of
the board of directors, on October 12, 1999, Mr. Golub confirmed that he was
prepared to offer $5.00 per share in a merger transaction subject to due
diligence and standard contingencies. Specialty Catalog understands that Mr.
Golub was willing to increase his offer to $5.00 per share based upon
discussions with Mr. Bock and Mr. Golub's assessment of Specialty Catalog
operating as a private rather than public company.

On October 13, 1999, the board of directors met and appointed Messrs.
Franklin and Katz as members of a special committee to negotiate a transaction
with Mr. Golub.

Following the October 13, 1999 meeting, the parties and their counsel held
numerous discussions which culminated on December 2, 1999, in the execution of
a non-binding letter of intent between the parties.

On December 2, 1999 Specialty Catalog and Mr. Bock entered into an
amendment to his employment agreement wherein Mr. Bock agreed to remain with
Specialty Catalog until the earlier of June 30, 2000 or the closing of the
transaction with Golub Associates.

On December 3, 1999 Specialty Catalog issued a press release announcing
the execution of the letter of intent with Mr. Golub in which he agreed to
purchase all outstanding shares of our common stock for a price of $5.00 per
share in cash. The letter of intent with Golub provided for a cash
consideration of $5.00 per share and contained financing and other
contingencies.

On December 22, 1999, the special committee retained Burnham Securities to
review and render an opinion on the fairness, from a financial point of view,
of the consideration to be received by Specialty Catalog's stockholders in the
proposed transaction.

On January 13, 2000, the special committee met and resolved to recommend
to the full board of directors that it approve the merger. Following the
special committee meeting on January 13, the board of directors approved the
terms of the merger agreement with Golub Associates.

On January 18, 2000, the parties executed the final form of merger
agreement with Golub Associates and option agreement. The merger agreement with
Golub Associates, which superceded the letter of intent, provided for the
following terms:

o merger consideration of $5.00 per share;

o the cancellation of all unexercised options of Specialty Catalog for a
cash payment equal to the merger consideration payable to the holder had
he exercised the option less the exercise price per share of the option;

o customary representations and warranties;

o a break up fee of 5% in the event another proposal was accepted; and

o the satisfaction of certain conditions to the consummation of the merger
including:

o approval of Specialty Catalog's stockholders;

o Specialty Catalog entering into an employment agreement with Mr. Bock
in a form acceptable to Golub Associates; and

o Golub Associates obtaining financing necessary to complete the
transaction.

Pursuant to the option agreement, Specialty Catalog granted Golub
Associates an option to purchase 500,000 shares of its common stock at $5 per
share, which was exercisable by Golub Associates in the event Specialty Catalog
accepted or recommended to its stockholders a competing offer.

On January 19, 2000 Specialty Catalog issued a press release announcing
the execution of the merger agreement and the option agreement.

On March 8, 2000, the merger agreement with Golub Associates was
terminated primarily because of the failure to satisfy the condition relating
to the continued employment of Mr. Bock with Specialty Catalog. Since the
failure of this condition resulted in the termination of the merger agreement,
it is not known whether or not all other conditions to consummation of the
transaction would have been satisfied by Specialty Catalog or otherwise.

Following the termination of discussions with Golub, Specialty Catalog
focused its efforts on operating the business under a new CEO. On May 9, 2000,
the Company announced the appointment of Joseph J. Grabowski as president of
Specialty Catalog effective as of May 8, 2000. On July 1, 2000, Mr. Grabowski
assumed the title of CEO, replacing Steven L. Bock whose resignation was
effective June 30, 2000.

On December 6, 2000, Specialty Catalog was notified by The Nasdaq National
Market that the public float of Specialty Catalog common stock failed to
maintain a minimum market value above the continued listing standards for The
Nasdaq National Market and that Specialty Catalog's listing was subject to
review by The Nasdaq Listing Qualifications Panel in accordance with The Nasdaq
National Market's continued listing procedures.

Specialty Catalog's poor performance over an extended period, coupled with
The Nasdaq National Market's notification, led the board to again consider
strategic options.

On February 16, 2001, in view of the fact that Specialty Catalog was
unsuccessful in its recent attempts to maximize stockholder value through the
aborted merger with Golub and the sale process with BNY Capital, Specialty
Catalog engaged Marlin Holdings, LLC ("Marlin") to assist Specialty Catalog
with the structure, financing and coordination of any management buyout or
other privatization transaction. Mr. Martin Franklin is the Chairman and Chief
Executive Officer of Marlin and a member of the board of directors of Specialty
Catalog. The board of directors believed that Marlin had the necessary
expertise and knowledge of Specialty Catalog to assist the board of directors
as it considered alternatives to maximize shareholder value. At the time, Mr.
Franklin was neither interested in buying nor participating in a transaction to
buy Specialty Catalog. One of the attractions of retaining Marlin over another
potential adviser was the detailed knowledge Mr. Franklin already had of
Specialty Catalog from his role as a director, and the board of directors did
not believe that this factor caused a conflict of interest as Mr. Franklin was
neither interested in buying nor participating in a transaction to buy
Specialty Catalog at that time. Marlin provided services to the board in
considering the merits of alternative ways of creating liquidity and value for
the stockholders, as well as assisting with discussions among Acquisition
Corp., the proposed mezzanine lender, the senior bank and Specialty Catalog.
The decision to retain Marlin was approved by all members of the board of
directors other than Mr. Franklin, who abstained. Marlin continued to provide
services throughout the negotiation of the transaction until the last week of
April, 2001.

On March 15, 2001, Specialty Catalog was notified again by The Nasdaq
National Market that Specialty Catalog did not regain compliance with The
Nasdaq National Market's listing standards and would be delisted. Thereupon,
Specialty Catalog requested a hearing to appeal The Nasdaq National Market's
determination, which stayed such delisting.

On March 26, 2001, the entire board of directors consisting of Messrs.
David Cicurel, Martin E. Franklin, Samuel L. Katz and Guy Naggar, held a
meeting to discuss, among other things, the notification from The Nasdaq
National Market. The members of the board of directors engaged in a lengthy
discussion regarding, among other things, various alternatives for enhancing
stockholder value. At the meeting Mr. Naggar, also a substantial stockholder of
Specialty Catalog, indicated that he was considering the possibility of
pursuing discussions pertaining to entering into an extraordinary transaction
with Specialty Catalog which could result in a change of ownership or structure
of Specialty Catalog, including a transaction to take Specialty Catalog private
through the purchase of all or substantially all of the outstanding shares of
Specialty Catalog. Some other members of the board of directors then expressed
an interest in possibly participating in any transaction led by Mr. Naggar. The
board of directors determined to increase the board of directors size and elect
a new independent member to the board of directors.

On March 26, 2001, Mr. Naggar held discussions with Mr. Franklin regarding
the possibility of Mr. Franklin participating in such a transaction. At that
time, Mr. Franklin did not agree to participate with Mr. Naggar as a potential
buyer of Specialty Catalog. There were no further discussions regarding Mr.
Franklin's involvement with Acquisition Corp. until the end of April.

On or about March 26, 2001, Mr. Naggar and Mr. Franklin held discussions
with Mr. Joseph Grabowski, the President and Chief Executive Officer of
Specialty Catalog, to solicit Mr. Grabowski's interest in continuing as
Specialty Catalog's CEO after a possible transaction. Mr. Grabowski indicated
that he would be interested in continuing to work for Specialty Catalog after a
possible transaction, but certain terms of his employment arrangement would
need to be revisited and revised. Mr. Naggar approached Mr. Grabowski for a
variety of reasons, but primarily due to the fact that Mr. Naggar believed that
Mr. Grabowski was a good CEO and he wanted him to stay in this position if a
successful privatization transaction were completed.

Subsequent to March 26, 2001, Mr. Naggar and Mr. Franklin held discussions
with Golub Associates and its representatives to explore the interest of one or
both of LEG Partners III and LEG Partners Debenture or their affiliates
(sometimes hereafter collectively referred to as the "LEG Parties") in
providing subordinated mezzanine financing for use in a transaction.

On or about April 10, 2001, at Mr. Naggar's request, Mr. Grabowski and
Thomas McCain, our Chief Financial Officer, initiated discussions with Fleet
National Bank, Specialty Catalog's primary lender, with respect to obtaining
the consent of Fleet National Bank to the proposed transaction and to
continuing and amending its credit facility, and allowing borrowings under the
credit facility after and in connection with a transaction.

On April 17, 2001, by unanimous written consent of the board of directors
of Specialty Catalog, David L. Moore was elected as a director of Specialty
Catalog. Mr. Moore was selected as an independent director of Specialty Catalog
on the basis of his experience as an executive officer or a member of the board
of directors of several companies, including two companies involved in direct
marketing. In particular, Mr. Moore previously has served as the Chairman of
Paradigm Direct LLC, Garden State Exterior Remodeling, Inc., and US Remodelers,
Inc.

On April 18, 2001, the board of directors held a telephonic special
meeting at which Mr. Naggar indicated he was considering making an offer to
acquire for cash, through a merger, all the outstanding shares of common stock
of Specialty Catalog at a price of $3.25 per share. Mr. Naggar believed that
this price represented a good premium over Specialty Catalog's recent
historical trading range and would allow him to achieve a satisfactory economic
return in this proposed transaction. Each of Messrs. Cicurel, Franklin and Katz
also noted that they had an interest in participating in the transaction. In
response to Mr. Naggar's indication, the board of directors voted to establish
a special committee comprised of directors who did not have actual or potential
conflicts of interest with such transaction and who were not officers or
employees of Specialty Catalog or its subsidiaries nor affiliated with Mr.
Naggar, nor current or possible future stockholders of any acquisition company
formed by Mr. Naggar. Mr. Moore was appointed as the sole member of the special
committee, which was thereupon authorized to review and evaluate any
acquisition proposal, including a proposal made by Mr. Naggar. If it deemed
advisable, the special committee was thereupon authorized to enter into
negotiations and discussions with Mr. Naggar,

his representatives and advisors, and with any other person making an
unsolicited proposal to acquire Specialty Catalog, to investigate and evaluate
any such transactions, and to make recommendations to the board of directors.
The board of directors did not authorize the special committee to solicit
indications of interest from third parties who might be interested in acquiring
Specialty Catalog or to conduct an auction of Specialty Catalog for reasons
which include (i) the fact that between 1998 and the April 30, 2001, Specialty
Catalog and its advisors have solicited indications of interest regarding a
possible sale of Specialty Catalog, including presenting fifty-three
prospective purchasers with detailed information concerning Specialty Catalog,
and did not receive any offer from any other buyer, other than Golub
Associates, of an interest relating to a merger or consolidation, sale or other
transfer of all or a substantial part of the assets of Specialty Catalog or a
purchase of the securities of Specialty Catalog that would enable the holder to
exercise control of Specialty Catalog at a price in excess of $3.25 per share,
(ii) the fact that the board of directors understood that it would not enter
into an agreement to sell Specialty Catalog to an affiliate of Specialty
Catalog which would contain a provision that would unduly deter a third party
from making an acquisition proposal, and (iii) Mr. Naggar indicated that he
would be interested in acquiring Specialty Catalog only if the transaction
could be done expeditiously. The board of directors also authorized and
directed the special committee to retain such legal, financial and other
advisors as the special committee deemed necessary to fulfill its duties, the
cost, fees and expenses of such advisors to be paid by Specialty Catalog.
Thereafter, Mr. Naggar contacted the other Continuing Stockholders and each of
Messrs. Katz and Cicurel to discuss their interest in possibly participating in
a proposed transaction.

On April 19, 2001, the special committee contacted the law firm of
Sullivan & Cromwell to inquire about retaining Sullivan & Cromwell as counsel
for the special committee.

On April 23, 2001, the special committee held a telephonic meeting with
representatives of Sullivan & Cromwell. The representatives of Sullivan &
Cromwell indicated that Sullivan & Cromwell was prepared to act as counsel to
the special committee. After due inquiry, the special committee determined that
Sullivan & Cromwell was independent of Mr. Naggar and the other stockholders of
Specialty Catalog who were or might later become Continuing Stockholders and
the special committee approved the engagement of Sullivan & Cromwell as its
counsel. The representatives of Sullivan & Cromwell then made a presentation to
the special committee regarding such committee's fiduciary duties,
responsibilities and prerogatives as a special committee. The representatives
of Sullivan & Cromwell and the special committee also discussed the need for
the special committee to begin contacting investment banks as candidates to
serve as financial advisor to the special committee.

On April 23, 2001, the special committee held a teleconference with Mr.
Franklin, as representative of Mr. Naggar, representatives of Kane Kessler,
counsel to Mr. Naggar and which had previously served as counsel to Specialty
Catalog, together with representatives of Sullivan & Cromwell. Mr. Franklin
provided an overview of the history of Specialty Catalog as well as Mr.
Naggar's relationship with Specialty Catalog. There was also discussion during
the meeting of:

o the formation of the special committee by the board of directors on
April 18, 2001, and the scope of authority of the special committee
determined by the board of directors also on April 18, 2000, including
the fact that the board of directors did not authorize the special
committee to solicit indications of interest from third parties relating
to a possible acquisition of Specialty Catalog or to conduct an auction
of Specialty Catalog to third parties;

o the threat of Specialty Catalog being delisted from The Nasdaq National
Market and the consequences of such delisting;

o the intention of Mr. Naggar to establish a group of current stockholders
of Specialty Catalog to purchase Specialty Catalog and the percent of
outstanding shares of Specialty Catalog expected to be represented in
such group;

o the actions previously taken by the board of directors to prevent the
actions of Mr. Naggar and possibly other stockholders participating with
him from triggering the anti-takeover provisions of Section 203 of the
DGCL, so that Specialty Catalog was legally able to consummate the
merger;

o the actions previously taken by the board of directors to eliminate or
negate the effects of Specialty Catalog's Rights Plan, so that Specialty
Catalog could engage in the transaction with Mr. Naggar without
triggering the "poison pill" contained in the Specialty Catalog Rights
Plan;

o the anticipated structure, process and timing of a proposal or draft
form of merger agreement from Mr. Naggar;

o financing of a proposal from Mr. Naggar; and

o preliminary review of the material terms expected to be contained in the
draft form of merger agreement to be submitted by Mr. Naggar to the
special committee and its counsel.

The special committee also asked to be provided with the most recent
projections, financial information and budgets of Specialty Catalog prepared by
the management of Specialty Catalog. At the request of the special committee,
management of Specialty Catalog subsequently arranged to make a presentation to
the special committee and arranged for the special committee to conduct its own
on site due diligence of Specialty Catalog's facilities.

On April 24, 2001, Mr. Franklin and Mr. Grabowski entered into preliminary
discussions concerning Mr. Grabowski's participation in the transaction and
continuing as Chief Executive Officer of Specialty Catalog following completion
of a transaction.

On April 25, 2001, the special committee received information regarding
two investment banks that the special committee was considering as possible
financial advisors to the special committee. The special committee also
received confidential non-public financial projections for Specialty Catalog
for the balance of 2001 and for years 2002 through 2005 which had been prepared
by the management of Specialty Catalog for the use of the board of directors as
well as extensive background information on Specialty Catalog, all of which was
reviewed by the special committee.

On April 25, 2001, the special committee met telephonically with
representatives of Sullivan & Cromwell to discuss the status of the special
committee's discussions with potential financial advisors to the special
committee as well as to discuss various legal, financial and operational due
diligence issues relating to Specialty Catalog.

Late in the day on April 25, 2001, Mr. Naggar filed a Schedule 13D
(Amendment No. 2) with the SEC which disclosed the possibility of his making a
preliminary proposal regarding a transaction.

On April 26, 2001, Messrs. Grabowski and McCain attended a hearing at The
Nasdaq Stock Market, Inc. regarding our continued failure to meet certain
listing standards.

On April 26, 2001, the special committee met telephonically with
representatives of Sullivan & Cromwell to review the due diligence and
investigations regarding Specialty Catalog conducted by the special committee
and Sullivan & Cromwell as of such date and to discuss its schedule of further
due diligence for the upcoming week.

On April 26, 2001, Mr. Naggar contacted Mr. Moore by telephone to formally
propose a transaction in which an entity formed by Mr. Naggar would acquire all
of the shares of Specialty Catalog not owned by Mr. Naggar or the other
Continuing Stockholders for $3.25 in cash per share. During the course of the
discussion, Mr. Naggar outlined his interest in and concerns about Specialty
Catalog and explained his valuation of the shares to be purchased. Mr. Naggar
explained that he had run a number of different economic scenarios through his
returns analysis and that while he had a long interest and belief in the
Specialty Catalog business, he believed that there are significant business
risks inherent in the direct marketing of wigs as had been apparent in
Specialty Catalog's performance over the last couple of years. Taking into
account these risks, Mr. Naggar believed that his offer of $3.25 per share was
reasonable. Mr. Naggar did not indicate which other stockholders of Specialty
Catalog he expected would also become Continuing Stockholders.

On April 27, 2001, the special committee interviewed Mr. Mike Patile of
Fleet Securities, Inc. and Mr. Richard Lewisohn of Burnham Securities in
connection with retaining a financial advisor for the special committee. After
discussing the credentials of Burnham Securities to serve as financial advisor
to the special committee, Burnham Securities provided Mr. Moore with a draft
form of engagement letter.

On April 28, 2001, Mr. Naggar had a telephone meeting with Mr. Moore to
discuss the $3.25 merger consideration per share previously offered by Mr.
Naggar. Mr. Moore indicated to Mr. Naggar prior to such discussions of the
merger consideration that he was in the process of becoming fully informed
about Specialty Catalog and its value and that the special committee had not
yet engaged a financial advisor. Mr. Moore noted, however, that he had
conducted his own preliminary review of Specialty Catalog and had engaged in
preliminary discussions with Burnham Securities regarding the range of fair
values for the common stock of Specialty Catalog, and that based on this
preliminary review and discussions he believed that $3.25 per share was an
inadequate price. During such discussions and in reaction to Mr. Moore's
statement that $3.25 per share was an inadequate price, Mr. Naggar increased
his offer to $3.50 cash per share. Mr. Moore indicated that this offer was
still inadequate. Although Mr. Moore believed that both the initially proposed
offer of $3.25 and the increased offer of $3.50 were insufficient, Mr. Moore
had not yet concluded what price would be acceptable.

On April 29, 2001, Mr. Naggar had further telephonic discussions with Mr.
Moore during which he increased his offer to $3.75 cash per share. Mr. Naggar
believed that while there was more risk in undertaking a transaction at $3.75
per share it was still within his acceptable returns analysis and if Specialty
Catalog was not willing to enter into a transaction at a lower price he was
willing to offer $3.75 per share but no higher. Mr. Naggar indicated to Mr.
Moore that this was his best and final offer and that his offer would expire at
the close of business on May 4, 2001 if a definitive merger agreement with
Specialty Catalog was not signed and if the special committee did not receive a
fairness opinion from Burnham Securities.

On April 29, 2001, the special committee met telephonically with
representatives of Sullivan & Cromwell. The special committee relayed the
substance of its discussions with Mr. Naggar during the preceding three days
regarding Mr. Naggar's offer, which discussions had culminated in the proposed
merger consideration being increased by Mr. Naggar from $3.25 per share to
$3.75 per share. The special committee also reported on its discussions with
investment banking firms and indicated its desire to retain Burnham Securities
as its financial advisor subject to confirmation that Burnham Securities was
independent of Mr. Naggar and the other stockholders of Specialty Catalog, who
were or might later become Continuing Stockholders. The special committee chose
Burnham Securities because of its general reputation, its prior experience in
advising the previous special committee of the board of directors of Specialty
Catalog in connection with the proposed acquisition of Specialty Catalog by
Golub Associates in 1999, which transaction had not been consummated, the fact
that Burnham Securities' proposed fee was less than that proposed by the other
investment bank interviewed, and the fact that Burnham Securities indicated
that it could perform its fairness analysis and tender its fairness opinion in
the time frame contemplated by Mr. Naggar's offer.

On April 30, 2001, at the direction of the special committee,
representatives of Sullivan & Cromwell contacted representatives of Burnham
Securities to inquire into the independence of Burnham Securities for purposes
of it potentially serving as financial advisor to the special committee.
Following this telephone call, Burnham Securities sent a proposed form of
engagement letter to Sullivan & Cromwell. Later that day, representatives of
Sullivan & Cromwell met telephonically with the special committee to report on
the results of the inquiry. Representatives of Sullivan & Cromwell advised the
special committee about the standards of independence under applicable law.
Representatives of Sullivan & Cromwell also reviewed for the special committee
its relatively minor drafting comments on the language of the engagement letter
for Burnham Securities. The special committee then determined that Burnham
Securities was independent and approved the engagement of Burnham Securities as
financial advisor to the special committee, subject to finalizing the
engagement letter with Burnham Securities. Representatives of Sullivan &
Cromwell and representatives of Burnham Securities subsequently satisfactorily
resolved all of Sullivan & Cromwell's drafting comments regarding the
engagement letter and such engagement letter was executed by Burnham Securities
and Specialty Catalog, dated as of April 30, 2001. The special committee
subsequently directed representatives of Burnham Securities to undertake a
financial analysis of Mr. Naggar's offer in order to permit Burnham Securities
to render an opinion as to the fairness, from a financial point of view, of
such offer to the unaffiliated stockholders of Specialty Catalog (which
stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders).

Mr. Moore subsequently had discussions with the management of Specialty
Catalog regarding the projections. Management indicated that these projections
were target projections that were based upon achieving the assumptions set
forth in the projections which changes were intended to yield more
realistically achievable projections since Burnham Securities believed the
assumptions used in the projections were aggressive. After discussions with
Burnham Securities, management agreed to certain changes to the assumptions
used in the projections. However, after receiving the adjusted projections, it
was still the view of the special committee and Burnham Securities that the
adjusted projections remained overly optimistic and did not take into account
the history of Specialty Catalog missing its projections, the current state of
the economy and the market in which Specialty Catalog operates, and other
events expected to lower operating results.

On April 30, 2001, the board of directors held a telephonic meeting. Mr.
Moore reviewed the status of the negotiations of the special committee with Mr.
Naggar, including the discussions of the merger consideration offered and other
material terms of the transaction. Mr. Moore noted that he had rejected the
initial offer from Mr. Naggar of $3.25 per share and that after several
conversations Mr. Naggar agreed to increase the offer to $3.75 per share, which
Mr. Naggar had stated was his best and final offer. Mr. Moore also reported to
the board of directors that Mr. Naggar had stated that his offer would expire
at the close of business on May 4, 2001, if a definitive merger agreement with
Specialty Catalog was not signed and if the special committee did not receive a
fairness opinion from Burnham Securities. The board of directors also discussed
the advisability of disclosing Mr. Naggar's offer and all of the directors
(other than Mr. Naggar who abstained) determined that Specialty Catalog should
issue a press release. After the meeting, Specialty Catalog issued a press
release announcing that Mr. Naggar had made an offer to acquire for cash,
through merger, all of the issued and outstanding shares of common stock of
Specialty Catalog, other than shares held by Acquisition Corp. for $3.75 per
share.

From the morning of April 30, 2001 to late in the day on May 1, 2001, the
special committee had a series of conversations with Messrs. Franklin,
Grabowski and McCain regarding the results of operations, financial condition,
business and prospects of Specialty Catalog, including the financial
projections supplied by Specialty Catalog to the special committee, economic
and market conditions and the catalog/specialty distributor industry. The
special committee also requested, received and reviewed further information on
Specialty Catalog and its industry.

On and continuing after April 30, 2001, discussions among Messrs. Naggar
and Franklin, independently and jointly, were held with Golub Associates and
its representatives relating to the LEG Parties providing subordinated
mezzanine financing for use in a transaction and the possibility of LEG
Partners III participating in a transaction as a Continuing Stockholder.

On or about April 30, 2001, Golub Associates, on behalf of the LEG
Parties, negotiated the terms of the subordinated mezzanine financing with
Messrs. Naggar and Franklin and circulated several drafts of a proposed letter
of intent.

On April 30, 2001, Specialty Catalog received a summary term sheet from
Fleet National Bank relating to the extension of credit to Specialty Catalog by
Fleet National Bank after the merger under an amendment to Specialty Catalog's
current bank facility.

On or about April 30, 2001, Mr. Naggar and Mr. Franklin held discussions
regarding Mr. Franklin's potential involvement with Acquisition Corp. Mr.
Franklin indicated that he was not interested in taking an active role as a
potential buyer of Specialty Catalog. However, Mr. Franklin indicated that he
may be interested in participating as a passive equity investor at a later
date, once the deal structure and definitive agreement had been finalized.

On May 1, 2001, Mr. Franklin, filed a 13D (Amendment No. 2) with the SEC
in which Mr. Franklin indicated that he was considering the possibility of
participating in a possible transaction involving Specialty Catalog.

On May 1, 2001, Nicolas Berggruen, who in his capacity as an investment
advisor of Alexander is the beneficial owner of 279,700 shares of common stock
of Specialty Catalog, also filed a 13D (Amendment No. 1) indicating that
Alexander Enterprise Holding Corp. and its representatives had various
preliminary discussions with Mr. Naggar concerning the possibility of
participating with Mr. Naggar in a transaction.

On May 2, 2001, the special committee, representatives of Sullivan &
Cromwell and representatives of Burnham Securities, participated in a
telephonic presentation by Messrs. Grabowski and McCain regarding Specialty
Catalog at which numerous legal and financial due diligence questions were
posed to and answered by the management of Specialty Catalog.

The special committee and its counsel received a draft form of merger
agreement from legal counsel to Mr. Naggar on May 2, 2001. Later in the day,
the special committee held a telephonic meeting with representatives of
Sullivan & Cromwell, during which representatives of Sullivan & Cromwell
reviewed and discussed the significant terms of the draft form of merger
agreement with the special committee including: (i) termination events and the
reimbursement of Acquisition Corp.'s expenses in connection with certain
termination events; (ii) the scope of Specialty Catalog's representations and
warranties; (iii) the scope of the parties' closing conditions, including
financing conditions; and (iv) limits on Acquisition Corp.'s expenses to be
incurred or reimbursed by Specialty Catalog. The special committee also
discussed with Sullivan & Cromwell comments and proposed changes to the draft
of the merger agreement for submission to legal counsel to Mr. Naggar. During
the evening of May 2, 2001, representatives of Sullivan & Cromwell negotiated
with counsel for Mr. Naggar changes to the draft of the merger agreement, as
sought by the special committee. The special committee also contacted Mr.
Naggar to request that Mr. Naggar increase the merger consideration proposed
from $3.75 per share to $4.25 per share. In making this counterproposal, the
special committee believed, based on its own review of Specialty Catalog and
the advice of Burnham Securities, that $3.75 per share was within the range of
fair consideration. However, the special committee made the counterproposal in
an effort to obtain not only a fair price for the stockholders of Specialty
Catalog (other than Acquisition Corp. and its current and future stockholders)
but also to obtain the best price obtainable from Mr. Naggar.

On May 2, 2001, Golub Associates, on behalf of LEG Partners III, filed a
13D (Amendment No. 4) indicating it had held preliminary discussions with Mr.
Naggar and other stockholders concerning the possibility of participating with
Mr. Naggar in a transaction in addition to the mezzanine financing. Golub
Associates further indicated that it had discussions with Mr. Naggar regarding
various proposals to provide a portion of the financing needed by Mr. Naggar to
fund a transaction.

On May 3, 2001, First Global, Ionic, Oracle and Three Greens, and others
filed a Schedule 13D (Amendment No. 2) with the SEC in which the filers
indicated that they had held preliminary discussions with Mr. Naggar concerning
the possibility of participating with Mr. Naggar in a transaction.

On May 3, 2001, negotiations continued between the special committee and
its representatives and Mr. Naggar's representatives. Counsel for Mr. Naggar
subsequently distributed a revised draft of the merger agreement. After
reviewing the revised draft of the merger agreement, the special committee met
with its legal and financial advisors to discuss unresolved issues in the
agreement. Representatives of Sullivan & Cromwell were provided with detailed
direction from the special committee and were directed to continue negotiations
with counsel for Mr. Naggar. Prior to commencing such further negotiations, the
special committee was informed by Mr. Naggar in writing that the proposed
merger consideration of $3.75 per share would not be increased and constituted
the best and final offer that Mr. Naggar would make. Mr. Naggar also emphasized
that his proposal would expire at the close of business on May 4, 2001, if a
definitive merger agreement with Specialty Catalog was not signed and if the
special committee did not receive a fairness opinion from Burnham Securities.
Representatives of Sullivan & Cromwell, with continued guidance from the
special committee, continued negotiations with counsel for Mr. Naggar regarding
the draft of the merger agreement throughout May 3, 2001 and into the morning
of May 4, 2001.

On May 3, 2001, Messrs. Franklin and Grabowski held formal discussions
regarding proposed arrangements for Mr. Grabowski's participation in the
transaction and continuation as Chief Executive Officer of Specialty Catalog
after the merger.

On the morning of May 4, 2001, Mr. Moore and representatives of Burnham
Securities undertook a tour of our facilities and posed numerous due diligence
inquires to the management of Specialty Catalog. Later that day, the special
committee met telephonically with its legal and financial advisors to review
the substantially finalized merger agreement. Representatives of Burnham
Securities presented to the special committee an extensive written and oral
financial analysis of the proposed transaction. Mr. Moore relayed

to representatives of Burnham Securities and Sullivan & Cromwell that he had
requested that Mr. Naggar increase the merger consideration proposed from $3.75
per share to $4.25 per share but that Mr. Naggar had responded to such request
in writing indicating that the proposed merger consideration of $3.75 per share
would not be increased and constituted the best and final offer that Mr. Naggar
would make. At the end of such presentation, representatives of Burnham
Securities delivered their oral opinion to the special committee, which opinion
was subsequently confirmed in writing, to the effect that, as of May 4, 2001,
the merger consideration of $3.75 per share was fair, from a financial point of
view, to the unaffiliated stockholders of Specialty Catalog (which stockholders
include all of Specialty Catalog's stockholders other than Acquisition Corp.
and its current and future stockholders). The special committee adopted the
conclusion and analyses of Burnham Securities. The special committee then
determined that the merger and the merger agreement are fair to, advisable and
in the best interests of the unaffiliated stockholders of Specialty Catalog
(which stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders). The special
committee then resolved to recommend that the board of directors of Specialty
Catalog approve and declare advisable the merger and the merger agreement; and
resolved to recommend that the stockholders of Specialty Catalog approve and
adopt the merger and the merger agreement if submitted for their approval.

Following the special committee meeting on May 4, 2001, the board of
directors met telephonically (Mr. Naggar recused himself from the meeting). At
that meeting, the board of directors discussed the terms of the merger
agreement; and Mr. Moore summarized Burnham Securities' analyses regarding the
fairness of the transaction, reviewed the process undertaken by the special
committee, and advised the board of directors that Burnham Securities had
provided its opinion orally and would provide a written opinion that the
consideration to be received by the stockholders of Specialty Catalog was fair,
from a financial point of view, to the unaffiliated stockholders of Specialty
Catalog (which stockholders include all of Specialty Catalog's stockholders
other than Acquisition Corp. and its current and future stockholders). The
special committee then recommended that the board of directors approve and
declare advisable the merger and the merger agreement.

After receiving the recommendation of the special committee, the board of
directors, with all members voting in favor, other than Mr. Naggar who was not
in attendance, among other things: (1) determined that the merger and the
merger agreement are fair to, advisable and in the best interests of the
unaffiliated stockholders of Specialty Catalog (which stockholders include all
of Specialty Catalog's stockholders other than Acquisition Corp. and its
current and future stockholders), (2) approved the merger and the merger
agreement and declared the merger and merger agreement advisable; and (3)
recommended that Specialty Catalog stockholders approve and adopt the merger
and the merger agreement if submitted for their approval.

On May 4, 2001, Specialty Catalog, Acquisition Corp., and Golub Associates,
on behalf of the LEG Parties, entered into a letter of intent regarding the LEG
Parties' consideration of a potential subordinated debt and warrant investment
in Acquisition Corp. to finance the merger.

On May 4, 2001, the merger agreement was executed by Specialty Catalog and
Acquisition Corp. and Specialty Catalog issued a news release announcing the
execution of the merger agreement.

RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS;
CONSIDERATIONS IN CONNECTION WITH THE MERGER, FAIRNESS OF THE MERGER

Each of the special committee and the board of directors recommends that
the stockholders approve and adopt the merger and the merger agreement. Both
the special committee and the board of directors, upon the recommendation of
the special committee, have determined that the merger and the merger agreement
are fair to, advisable and in the best interests of the unaffiliated
stockholders of Specialty Catalog (which stockholders include all of Specialty
Catalog's stockholders other than Acquisition Corp. and its current and future
stockholders).

Recommendation of the Special Committee and the Board of Directors

The special committee has determined that the merger and the merger
agreement are fair to, advisable and in the best interests of the unaffiliated
stockholders of Specialty Catalog (which

stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders). The special
committee expressed no opinion as to the fairness of the merger and the merger
agreement to Acquisition Corp. or the other Continuing Stockholders.
Accordingly, the special committee has recommended to the board of directors
that it approve and declare advisable the merger and the merger agreement and
has recommended that Specialty Catalog stockholders vote to approve and adopt
the merger and the merger agreement. The board of directors, upon the
recommendation of the special committee, has approved the merger and the merger
agreement and declared the merger and the merger agreement advisable and has
recommended that Specialty Catalog stockholders adopt and approve the merger
and the merger agreement.

Considerations of the Special Committee

During the course of its deliberations and in recommending adoption of the
merger agreement and approval of the merger, the special committee considered,
with the assistance of its financial and legal advisors, a number of factors,
including the following material factors:

o Information with respect to the results of operations, financial condition,
business and prospects of Specialty Catalog and the economic and market
conditions affecting Specialty Catalog and the catalog/specialty distributor
industry. This information allowed the special committee to consider Specialty
Catalog and its performance and prospects in the context of the industry in
which it operates and the economy as a whole as well as to assess, in this
context, the reasonableness and completeness of the financial information,
financial projections and assumptions provided by the management of Specialty
Catalog to both the special committee and its financial advisor, Burnham
Securities. This assessment was necessary since such financial information and
projections were used by Burnham Securities in performing the financial
analyses summarized below which supported the fairness opinion of Burnham
Securities. The special committee considered this to be a factor that weighed
in favor of the merger.

o Non-public financial projections for Specialty Catalog prepared by the
management of Specialty Catalog, the risks and uncertainties associated with
meeting these financial projections and the possible future values of the
shares of Specialty Catalog if the financial projections are, or are not, met.
These projections are based upon numerous assumptions relating to, among other
things, industry performance, market and financial conditions, as well as
factors not within the control of a company, that must be made in attempting to
determine the value of a company by projecting future cash flows. Although the
special committee was aware that the upper range of implied value per share
obtained from Burnham Securities' valuation analyses, some of which analyses
were based in part on the financial projections of Specialty Catalog, was in
excess of the per share merger consideration (such range of implied value per
share being $1.42 to $5.98), the special committee believed that the merger was
a superior alternative to attempting to achieve value in excess of the per
share merger consideration as an independent publicly traded company. This is
because of the special committee's view, based on discussions with Burnham
Securities, that there were significant risks and uncertainties associated with
Specialty Catalog being able to achieve the performance assumptions underlying
an implied value of the shares of Specialty Catalog in excess of the per share
merger consideration, that the projections were based on overly optimistic
assumptions and that the projections did not take into account the history of
Specialty Catalog missing its projections and other events expected to lower
operating results. Despite this, the special committee believed that the use by
Burnham Securities of such financial projections was reasonable since Burnham
Securities recognized the limitations of such projections and, as discussed
below under "OPINION OF BURNHAM SECURITIES INC.," adjusted the weighting given
to each valuation analysis accordingly. These assumptions include achieving the
financial results set forth in the financial projections for Specialty Catalog
as well as market conditions occurring that would provide favorable valuation
multiples. In determining the independent going concern value of Specialty
Catalog for purposes of determining the fairness of the merger, the special
committee relied upon and adopted the financial analyses performed by Burnham
Securities summarized below. On balance, the special committee considered the
financial projections for Specialty Catalog to be a factor that weighed in
favor of the merger.

o The presentation made by Burnham Securities to the special committee on May
4, 2001 and Burnham Securities' oral opinion as of that date, which was
confirmed in writing, dated as of May 4, 2001, to the

effect that, based upon the assumptions made, matters considered and
limitations on the review described in the written opinion, as of the date of
the opinion, the $3.75 per share merger consideration to be received by the
Specialty Catalog stockholders is fair from a financial point of view to the
unaffiliated stockholders of Specialty Catalog (which stockholders include all
of Specialty Catalog's stockholders other than Acquisition Corp. and its
current and future stockholders). The special committee relied on the financial
analyses performed by Burnham Securities to determine the going concern value
of Specialty Catalog. In its review of the analyses performed by Burnham
Securities, the special committee did not weigh each of the analyses prepared
by Burnham Securities separately, but rather considered them as a whole. The
special committee considered the presentation by and opinion of Burnham
Securities to be a factor that weighed in favor of the merger.

o The $3.75 per share merger consideration represents a significant premium
over the prices at which the shares have traded over the previous twelve
months. The historical market prices of the shares were deemed relevant because
they indicate the arm's length trading prices of shares as determined in the
open market. The special committee considered the fact that the shares had
traded at prices as high as $3.00 per share and as low as $1.78 per share
during the twelve month period prior to the public disclosure of Mr. Naggar's
intent to make a merger proposal on April 25, 2001. The special committee also
considered the fact that the $3.75 per share merger consideration represented a
premium of approximately 42%, 58%, 50%, 25% and 110%, respectively, over the
per share closing market price one day, one week, four weeks, at the 52-week
high and at the 52-week low, respectively, prior to the public disclosure of
the potential merger on April 25, 2001. The special committee realized the
shares had at times traded at prices in excess of $6.00 per share during 1997
and 1998; however, the special committee believed, according to the financial
analyses undertaken by Burnham Securities, that the earnings, operations, and
prospects of Specialty Catalog no longer supported such a price per share. The
special committee considered the historical trading price of the shares to be a
factor that weighed in favor of the merger since it would allow stockholders of
Specialty Catalog to realize a significant premium over prices at which the
shares could have been sold over the past twelve months.

o The conclusion of the special committee, based on the extensive
negotiations by and on behalf of the special committee with Mr. Naggar and his
advisors, that Specialty Catalog has obtained the highest price per share that
Acquisition Corp. is willing to pay. This determination was the result of the
special committee's good faith negotiations with Mr. Naggar and his advisors in
an attempt to obtain the highest possible price and the fact that the per share
merger consideration was increased by Mr. Naggar by approximately fifteen
percent to a price which is $0.50 per share more than the initial proposal of
$3.25 per share made by Mr. Naggar. The special committee considered this to be
a factor that weighed in favor of the merger since the special committee
believed no third party would offer a higher price to stockholders of Specialty
Catalog for their shares than the price offered by Mr. Naggar.

o The likelihood that a third party would not be willing to offer a higher
per share price than Acquisition Corp. in light of:

(1) the fact that prior to the April 30, 2001 public disclosure of Mr.
Naggar's offer to acquire Specialty Catalog and since 1998 Specialty
Catalog and its advisors have solicited indications of interest
regarding a possible sale of Specialty Catalog, including presenting
fifty-three prospective purchasers with detailed information
concerning Specialty Catalog, and did not receive any offer from any
other buyer, other than Golub Associates, of an interest relating to a
merger or consolidation, sale or other transfer of all or a
substantial part of the assets of Specialty Catalog or a purchase of
the securities of Specialty Catalog that would enable the holder to
exercise control of Specialty Catalog at a price in excess of $3.75
per share.

(2) the fact that, as discussed in detail under "SPECIAL FACTORS --
Material Contacts And Board of Directors Deliberations," in January
2000, Specialty Catalog executed a merger agreement with Golub
Associates which provided for merger consideration of $5.00 per share
upon the satisfaction of certain conditions to the consummation of
such merger, which merger agreement was subsequently terminated. The
special committee considered the $5.00 per share merger consideration
offered by Golub Associates in January 2000 in the context of the
stronger

market economy and Specialty Catalog share price performance and
prospects at that time versus at the time of the Naggar merger agreement
and noted that, although the per share merger consideration offered by
Golub Associates was higher than that offered by Naggar, it did not
represent a greater premium to stockholders of Specialty Catalog. The
$5.00 per share merger consideration offered by Golub Associates
represented a premium of approximately 40%, 29%, 48%, 21% and 111%,
respectively, over the per share closing market price one day, one week,
four weeks, at the 52-week high and at the 52-week low, respectively,
prior to the public disclosure of the potential Golub Associates merger.
As discussed above, the $3.75 per share merger consideration in the
Naggar merger agreement represents a premium of approximately 42%, 58%,
50%, 25% and 110%, respectively, over the per share closing market price
one day, one week, four weeks, at the 52-week high and at the 52-week
low, respectively, prior to the public disclosure of the potential
Naggar merger. Therefore the special committee did not believe that the
higher per share merger consideration offered by Golub Associates in
January 2000 indicated that a third party would be willing to offer a
higher per share price than Acquisition Corp. in May 2001;

(3) the fact that, in the period of time between April 25, 2001, when Mr.
Naggar filed an Amended Schedule 13D with the SEC indicating his intent
to submit a proposal to acquire Specialty Catalog, and the special
committee's decision to recommend approval and adoption of the merger
and the merger agreement on May 4, 2001, Specialty Catalog did not
receive any proposals from any third party regarding a potential
acquisition transaction.

The special committee considered these to be factors that decreased the
likelihood that a third party would make a superior offer and, as such,
considered these to be factors that weighed in favor of the merger. The special
committee also considered these to be factors that enabled the special
committee to determine that the merger was fair to the unaffiliated
stockholders of Specialty Catalog (which stockholders include all of Specialty
Catalog's stockholders other than Acquisition Corp. and its current and future
stockholders) despite the special committee not being authorized to solicit
other indications of interest.

o In light of the relatively thin trading market and lack of liquidity of the
shares, the merger will afford stockholders an opportunity to dispose of their
shares without the possible diminution of value resulting from the lack of an
active trading market. The liquidity of the shares may be further decreased if
the shares are delisted from The Nasdaq National Market. Specialty Catalog
received a Nasdaq Staff Determination Letter indicating that the market value
of its public float was below $5,000,000 as required by The Nasdaq National
Market for over thirty consecutive trading days and therefore the shares are
subject to delisting from The Nasdaq National Market. Specialty Catalog
requested and was given a hearing before the Nasdaq Listing Qualifications
Panel to review the staff determination in an attempt to retain its listing on
The Nasdaq National Market. Since the first public announcement of the proposed
merger, the share price of Specialty Catalog common stock increased, thereby
causing the market value of public float of Specialty Catalog to be in
compliance with all requirements for continued listing on The Nasdaq National
Market and Specialty Catalog is not currently subject to review by The Nasdaq
Stock Market, Inc. While an established public trading market exists with
respect to Specialty Catalog common stock, there can be no assurance that, in
the event the merger is not consummated, the common stock will remain listed on
The Nasdaq National Market or otherwise be subject of an established trading
market. These factors affect the likelihood that a share price in excess of the
per share merger consideration offered under the merger agreement would be
achieved in the foreseeable future and, as such, the special committee
considered them to be factors that weighed in favor of the merger.

o Approval and adoption of the merger and the merger agreement requires the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon and, under Delaware law, Specialty Catalog's stockholders have the
right to an appraisal of the value of their shares in connection with the
merger. Therefore, the merger cannot proceed without the support of a majority
of stockholders, and stockholders who do not support the merger and pursue
their appraisal rights will be entitled to have their shares purchased at a
price to be determined in a judicial proceeding. The special committee
considered this to be a factor that weighed in favor of the merger.

o The consideration to be received in the merger is payable in cash, thereby
eliminating any uncertainties in valuing the consideration to be received by
Specialty Catalog's stockholders. The special committee considered this to be a
factor that weighed in favor of the merger.

o Specialty Catalog repurchased a block of its shares of common stock at an
average price of $2.63 per share based on repurchases during 2000 and at an
average price of $3.56 per share based on repurchases during 1999 and 2000. The
special committee considered this to be a factor that weighed in favor of the
merger since the repurchases were made on the open market and the average
repurchase prices indicate the arm's length trading prices of shares of
Specialty Catalog as determined in the open market for such repurchases and
what the market and the sellers of such repurchased shares presumably believed
was a fair price for such shares.

o The $3.75 per share merger consideration represents an amount in excess of
the net book value per share of $2.01 as of December 30, 2000. The special
committee considered this to be a factor that weighed in favor of the merger.

o The board of directors delegated broad powers to the special committee to
conduct its evaluation and review of the merger proposal and negotiate with Mr.
Naggar and his advisors and, to advise the board of directors in connection
with these matters, the special committee engaged Burnham Securities as its
financial advisor and Sullivan & Cromwell as its legal advisor. Accordingly,
the per share merger consideration and the other terms and conditions of the
merger agreement were the result of good faith negotiations among the special
committee and Mr. Naggar and their respective advisors. The special committee
considered this to be a factor that weighed in favor of the merger.

o The merger agreement does not unduly deter a third party from making an
acquisition proposal, inhibit the special committee from withdrawing or
modifying its approval or recommendation of the merger or the merger agreement,
or inhibit the board of directors from approving, recommending or accepting an
acquisition proposal that the special committee determines to be of a higher
price per share and more favorable to the stockholders of Specialty Catalog
than the merger. Specifically, the merger agreement includes provisions which
permit the special committee to withdraw its recommendation of the merger if
there is a more favorable acquisition proposal, permit the board of directors
to terminate the merger agreement in order to accept a more favorable
acquisition proposal with a third party, and limit the aggregate amount of
expenses that Specialty Catalog may incur on behalf of Acquisition Corp. and
its affiliates and expenses for which Acquisition Corp. and its affiliates may
seek reimbursement from Specialty Catalog upon termination of the merger
agreement to $400,000, except if Specialty Catalog consummates an acquisition
proposal that was inquired or made prior to the termination of the merger
agreement. Since the merger would not preclude a third party from making a
superior proposal prior to consummation of the merger, the special committee
considered this to be a factor that weighed in favor of the merger. The special
committee also considered this to be a factor that enabled the special
committee to determine that the merger was fair to the unaffiliated
stockholders of Specialty Catalog (which stockholders include all of Specialty
Catalog's stockholders other than Acquisition Corp. and its current and future
stockholders) despite the special committee not being authorized to solicit
other indications of interest.

o The merger is subject to a financing condition. Although the special
committee and the board of directors anticipate that Acquisition Corp. will be
able to secure the financing required to consummate the merger, there is no
assurance that Acquisition Corp. will be successful in securing such financing
and therefore the financing contingency increases the risk that the merger will
not be consummated. Due to this risk, the special committee considered this to
be a factor that weighed against the merger.

o The possible conflicts of interest of certain directors and members of
management of Specialty Catalog, discussed below. The special committee
considered this to be a factor that weighed against the merger.

o The likelihood that although some stockholders of Specialty Catalog may
prefer to receive cash for their shares, others may prefer to maintain an
equity ownership interest in Specialty Catalog. If the merger is consummated,
Specialty Catalog stockholders, other than the Continuing Stockholders, will

receive cash for their shares, and thus it will no longer be possible for the
unaffiliated stockholders of Specialty Catalog (which stockholders include all
of Specialty Catalog's stockholders other than Acquisition Corp. and its
current and future stockholders,) to maintain an equity ownership interest in
Specialty Catalog. The special committee considered this to be a factor that
weighed against the merger.

o The board of directors did not authorize the special committee to solicit
indications of interest from third parties relating to a possible acquisition
of Specialty Catalog or to conduct an auction of Specialty Catalog to third
parties. The special committee considered this to be a factor that weighed
against the merger.

o If the merger is completed, the member of the special committee will
receive (solely in his capacity as a holder of options of Specialty Catalog)
$13,750 in merger consideration. The special committee, however, believes that
his interests are consistent with the interests of the unaffiliated
stockholders of Specialty Catalog (which stockholders include all of Specialty
Catalog's stockholders other than Acquisition Corp. and its current and future
stockholders.) The member of the special committee will also receive
compensation for his services as a member of the board of directors. See
"SPECIAL FACTORS -- Special Committee." The special committee believes that
this payment does not present a conflict of interest because this compensation
is payable for serving on the board of directors whether or not the merger is
completed. The special committee considered this to be a neutral factor with
respect to the merger.

o The experience and familiarity of the special committee with Specialty
Catalog. Mr. Moore, the sole member of the special committee, was elected to
the board of directors of Specialty Catalog on April 17, 2001. The merger
agreement was executed on May 4, 2001. During the period from April 17, 2001 to
May 4, 2001, Mr. Moore undertook an intensive and extensive review of Specialty
Catalog and the catalog/specialty distributor industry. Mr. Moore also had
numerous discussions with the management and certain directors of Specialty
Catalog as well as with the financial advisors to the special committee
regarding the results of operations, financial condition, business and
prospects of Specialty Catalog. See "SPECIAL FACTORS -- Material Contacts and
Board of Directors Deliberations." The special committee considered this to be
a neutral factor with respect to the merger.

The foregoing discussion of the information and factors considered by the
special committee includes all of the material factors considered by the
special committee in reaching its conclusions and recommendation but is not
meant to be exhaustive. In view of the variety of factors considered in
reaching its determination, the special committee did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its conclusions and recommendation.

The special committee did not consider book value to be a material factor
because it does not believe that book value is a true indication of the value
of Specialty Catalog, because it is a reflection of the historical value of the
assets and liabilities of Specialty Catalog as recorded on the balance sheet of
Specialty Catalog in accordance with GAAP and not a reflection of either the
current fair market value of such assets and liabilities or their value as part
of a profitable going concern. The special committee also did not view the
liquidation value of the assets of Specialty Catalog to be a material factor
because it believes that the value that could be obtained through a liquidation
of the assets of Specialty Catalog would be significantly less than the value
that could be obtained through a sale of Specialty Catalog as a going concern
since liquidation value reflects the projected price that could be obtained for
the assets of Specialty Catalog if it went out of business and assumes that
such assets would be sold separately from the rest of Specialty Catalog and
therefore does not reflect the value of the assets as part of a profitable
going concern or the goodwill of Specialty Catalog.

Considerations of the Board of Directors

The board of directors consists of five directors, one of whom served on
the special committee. At the May 4, 2001 meeting of the board of directors,
during which all directors except Mr. Naggar attended, the special committee
reported to the other members of the board of directors on its review of the
merger agreement and the related financing commitments and the factors taken
into account by the special committee in reaching its determination that the
merger and the merger agreement are fair to, advisable

and in the best interests of the unaffiliated stockholders of Specialty Catalog
(which stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders). Accordingly, the
same factors considered by the special committee were taken into account by the
entire board of directors and the board of directors adopted the conclusion and
analyses of the special committee. In addition, Specialty Catalog's board of
directors considered the determinations and recommendations of the special
committee and believes that these factors support the board of directors'
fairness determination. Furthermore, the board of directors considered the fact
that the $3.75 per share merger consideration and the terms and conditions of
the merger agreement were the result of good faith negotiations among the
special committee and Mr. Naggar and their respective advisors. The board of
directors believes that this factor supports the board of directors' fairness
determination.

Additionally, in arriving at the board of directors fairness
determination, the board of directors considered the fact that it had engaged
Marlin Holdings to, among other things, help structure and coordinate a
management buyout or other privatization transaction, that Mr. Franklin, who is
the Chairman and Chief Executive Officer of Marlin Holdings, is a director of
Specialty Catalog and that Marlin Holdings will receive a payment of
approximately $250,000 upon closing of the merger as provided under the terms
of the Marlin Engagement Agreement. See "SPECIAL FACTORS -- Related Agreements
- Engagement of Marlin Holdings, LLC". The board of directors considered this
to be a neutral factor with respect to the board of directors' fairness
determination.

The board of directors, including the member of the special committee,
also believes that the merger is procedurally fair because, among other things:

o The member of the special committee is not a Continuing Stockholder.

o The special committee retained Burnham Securities, an independent financial
advisor, to act for the purpose of preparing an opinion and report concerning
the fairness of the merger consideration.

o The special committee retained Sullivan and Cromwell, an independent legal
advisor, to assist it in negotiating the terms of the merger.

o The $3.75 per share merger consideration and the other terms and conditions
of the merger agreement resulted from active good faith negotiating between the
special committee and its representatives, and Mr. Naggar and his
representatives. The special committee conducted extensive negotiations on
behalf of Specialty Catalog, and the negotiations were extensive. The special
committee devoted substantial time and effort in evaluating the terms and
conditions of the merger agreement and the merger consideration.

o Neither the special committee nor the special committee's advisors, who
negotiated the terms and conditions of the merger agreement with Acquisition
Corp., had a financial interest in the merger that could present them with
actual or potential conflicts of interest.

o All unaffiliated stockholders of Specialty Catalog (which stockholders
include all of Specialty Catalog's stockholders other than Acquisition Corp.
and its current and future stockholders) will be treated the same in the
merger, i.e., all will receive a cash payment of $3.75 per share. Acquisition
Corp. and certain Continuing Stockholders are, by contrast, making additional
investments in Specialty Catalog, which investments are necessary to pay out
the merger consideration and to restructure the capitalization of Specialty
Catalog.

o The fairness of the $3.75 per share merger consideration to the
unaffiliated stockholders of Specialty Catalog (which stockholders include all
of Specialty Catalog's stockholders other than Acquisition Corp. and its
current and future stockholders) is subject to evaluation by an independent
state court - the Delaware Court of Chancery - through the mechanism of
appraisal rights in accordance with the Delaware General Corporation Law. This
gives the unaffiliated stockholders of Specialty Catalog (which stockholders
include all of Specialty Catalog's stockholders other than Acquisition Corp.
and its current

and future stockholders) an opportunity (provided they preserve and perfect
their appraisal rights as more fully described in "SPECIAL FACTORS -- Appraisal
Rights") to present in a neutral forum their basis for objecting to the value
of the merger consideration and, if the Delaware court deems it appropriate,
the court may order the payment of more than $3.75 per share.

The board of directors believes that each of these factors supports its
procedural fairness determination. In consideration of the procedural fairness
of the merger to the unaffiliated stockholders of Specialty Catalog (which
stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders), the board of
directors did not find it practicable to, and did not,

o structure the merger agreement so that the approval of at least a majority
of such unaffiliated stockholders is required to consummate the merger, and

o engage independent financial and legal advisors on behalf of the
unaffiliated stockholders of Specialty Catalog (which stockholders include all
of the stockholders of Specialty Catalog other than Acquisition Corp. and its
current and future stockholders) (however, the special committee engaged an
independent financial advisor, Burnham Securities, for the purpose of preparing
an opinion and report concerning the fairness of the merger consideration, and
an independent legal advisor to assist it in negotiating the terms of the
merger).

The board of directors believed, in light of the other procedural
safeguards set forth above, including the formation of the special committee
and the retention of independent financial and legal advisors by the special
committee, that the totality of the circumstances gave rise to its belief that
the merger is procedurally fair.

The members of the board of directors, including the member of the special
committee, evaluated the merger in light of their knowledge of the business,
financial condition and prospects of Specialty Catalog, and based upon the
advice of financial and legal advisors to the special committee. In light of
the number and variety of factors that the board of directors considered in
connection with their evaluation of the merger, the board of directors did not
find it practicable to assign relative weight to any of the foregoing factors.

OPINION OF BURNHAM SECURITIES INC.

As of April 30, 2001, the special committee of the Specialty Catalog board
of directors engaged Burnham Securities to act as its financial advisor in
connection with the proposed transaction and to render an opinion as to the
fairness, from a financial point of view, to the unaffiliated stockholders of
Specialty Catalog (which stockholders include all of Specialty Catalog's
stockholders other than Acquisition Corp. and its current and future
stockholders), of the consideration to be received by the stockholders of
Specialty Catalog in the merger. Burnham Securities was selected based on
Burnham Securities' qualifications, experience and reputation in mergers and
acquisitions. Burnham Securities rendered its oral opinion (as confirmed in
writing) on May 4, 2001 to the special committee that, as of such date, the
consideration to be received in the merger by holders of Specialty Catalog
common stock was fair, from a financial point of view, to the unaffiliated
stockholders of Specialty Catalog (which stockholders include all of Specialty
Catalog's stockholders other than Acquisition Corp. and its current and future
stockholders). The amount of the consideration was determined through
negotiations between the special committee and the Acquisition Corp. Burnham
Securities did not recommend that any specific consideration was appropriate
for the transaction.

The full text of the opinion delivered by Burnham Securities to the
special committee, dated as of May 4, 2001, which sets forth, among other
things, the assumptions made, general procedures followed, matters considered
and limitations on the scope of review undertaken by Burnham Securities in
rendering its opinion, is attached as Appendix B to this proxy statement and is
incorporated herein by reference. Burnham Securities' opinion addresses only
the fairness, from a financial point of view, to the unaffiliated stockholders
of Specialty Catalog (which stockholders include all of Specialty Catalog's
stockholders other than Acquisition Corp. and its current and future
stockholders) of the consideration to be received by such holders. Burnham
Securities' opinion does not constitute a recommendation as to how any

Specialty Catalog stockholder should vote with respect to the merger. Burnham
Securities' opinion does not address the relative merits of the merger or any
other transactions or business strategies discussed by the board of directors
to proceed with the transaction. The summary of Burnham Securities' opinion set
forth below is qualified in its entirety by reference to the full text of its
opinion. You are urged to read the opinion carefully in its entirety.

In undertaking its analysis as to the fairness of the merger, Burnham
Securities has relied on traditional valuation techniques, conducted other
financial studies and analyses and performed such other investigations and took
into account such other factors as it deemed necessary or appropriate for
purposes of the opinion expressed, including:

1. reviewing publicly available information concerning Specialty Catalog
since August 1996;

2. analyzing certain financial statements and other financial and
operating data concerning Specialty Catalog prepared by and for the
management of Specialty Catalog including a term sheet, dated April 30,
2001, from Specialty Catalog's senior lender, a treasury stock buyback
summary which details stock buybacks from 1998 through 2000 and an
internal presentation which provided a detailed overview of the business
and financial prospects of Specialty Catalog;

3. Prepared financial projections for the years 2001 through 2005 prepared
by the management of Specialty Catalog as summarized in this proxy
statement under "SPECIAL FACTORS -- Certain Projections Prepared by
Specialty Catalog's Management";

4. discussing the past and current operations and financial condition and
the prospects of Specialty Catalog with the management of Specialty
Catalog;

5. visiting the South Easton, MA facility of Specialty Catalog and
engaging in discussions with the management of Specialty Catalog;

6. comparing the financial performance of Specialty Catalog and the prices
and trading activity of Specialty Catalog common stock with that of
certain other comparable publicly-traded companies and their securities;

7. comparing the merger with other transactions involving public and
private companies that were deemed to be comparable;

8. considering the average price per share paid by Specialty Catalog for
the 144,000 shares purchased in the open market in 1999 and 2000;

9. analyzing transactions concluded by Specialty Catalog (Daxbourne and
American Healthcare Institute);

10. considering the dearth of interest in acquiring Specialty Catalog by
fifty three candidates whose interest was solicited within the preceding
two years and the failed acquisition of Specialty Catalog by Golub
Associates in 2000;

11. considering the potential consequences to Specialty Catalog
shareholders if the shares of common stock of Specialty Catalog were
delisted from The Nasdaq National Market; and

12. reviewing the public announcements and filings relating to the merger
and the drafts of the merger agreement as they became available and
certain other related documents.

Burnham Securities did not assume responsibility for the independent
verification of, and did not independently verify, any of the financial and
other information concerning Specialty Catalog in connection with its review of
the merger and, in preparing its opinion, Burnham Securities assumed and relied
upon the accuracy, completeness and fairness of all such information. In
connection with its opinion, Burnham Securities did not prepare or obtain any
independent evaluation or appraisal of any of the assets or liabilities of
Specialty Catalog nor had Burnham Securities been furnished with any such
evaluation or appraisal. With respect to the financial projections and business
prospects used in its analysis, Burnham Securities assumed such information was
reasonably prepared on a consistent basis with prior practice, that they
reflected the best currently available estimates and judgments of Specialty

Catalog's management as to expected future financial performance of Specialty
Catalog and that they provided a reasonable basis upon which Burnham Securities
could form its opinion. Burnham Securities was not requested to opine upon, and
its opinion did not in any manner address Specialty Catalog's underlying
business decision to proceed with the transaction. Burnham was not requested to
and did not, solicit or entertain any other offers of the purchase of the stock
or assets of Specialty Catalog or any other transaction involving Specialty
Catalog. Burnham Securities assumed that, in all respects material to its
analysis, the representations and warranties of Acquisition Corp. and Specialty
Catalog contained in the merger agreement were true and correct, that
Acquisition Corp. and Specialty Catalog will each perform all of the covenants
and agreements to be performed by them under the merger agreement, and that all
conditions to the obligations of Acquisition Corp. and Specialty Catalog to
effect the merger will be satisfied in the merger agreement, in each case
without any waiver or modification of any material terms or conditions by any
party thereto.

Burnham Securities' opinion is necessarily based upon market, economic,
financial and other conditions as they existed and can be evaluated on, and
information made available to Burnham Securities as of, the date of the opinion
and any subsequent change in such conditions would require a reevaluation of
such opinion. Burnham Securities assumes no obligation to update, revise or
affirm its opinion. Burnham Securities expresses no opinion on the fairness of
other potential transactions between Specialty Catalog, Acquisition Corp., and
the stockholders, or any other parties.

The preparation of a fairness opinion is a complex process and involves
various subjective judgments and determinations as to the most appropriate and
relevant assumptions and financial analyses and the application of these
methods to the particular circumstances involved. Such an opinion is therefore
not necessarily susceptible to partial analysis or summary description.
Accordingly, Burnham Securities believes that its analyses and the summaries
set forth below must be considered as a whole and that selecting portions of
its analyses, without considering all analyses, or of the following summary,
without considering all factors and analyses, could create an incomplete and
misleading view of the processes underlying the analyses performed by Burnham
Securities in connection with its opinion. In arriving at its opinion, Burnham
Securities did attribute particular weights to analyses or factors considered
by it, and made qualitative judgments as to the significance and relevance of
each analysis and factor. Burnham Securities did not form an opinion as to
whether any individual analysis or factor (positive or negative), considered in
isolation, supported or failed to support the Burnham Securities' opinion. In
performing its analyses, Burnham Securities made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which may be beyond Specialty Catalog's control. The
analyses performed by Burnham Securities do not necessarily confirm actual
values and are not necessarily indicative of actual future results, which may
be significantly more or less favorable than suggested by such analyses, and
Burnham Securities assumes no responsibility if actual values or future results
are materially different from its assumptions or the results of its analyses.
Such analyses were prepared solely as part of the Burnham Securities'
evaluation of the fairness to the unaffiliated stockholders of Specialty
Catalog (which stockholders include all of Specialty Catalog's stockholders
other than Acquisition Corp. and its current and future stockholders), from a
financial point of view, of the consideration to be received by such
stockholders in the merger. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually can or may be acquired.

The following is a brief summary of the material financial analyses
performed by Burnham Securities in connection with providing its opinion to the
special committee of the board of directors and the board of directors of
Specialty Catalog on May 4, 2001. Some of the summaries of the financial
analyses included information presented in tabular format. To fully understand
the financial analyses, you should read the tables together with the text of
each summary. Considering the data set forth in the tables without considering
the narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses.

In rendering its opinion, Burnham Securities, among other things,
performed four primary valuation analyses of Specialty Catalog:

(i) Market Multiple Analysis: This method utilizes certain market
information from selected companies that are in comparable
businesses and/or have similar sales levels, growth prospects and
overall profit margins.

(ii) Comparable Transactions Multiple: This method is based on a
review of comparable transactions in the catalog/specialty
distributor industry over a two-year period. These transactions
provide a better picture of how companies were actually valued by
market participants with regard to size, structure, and value
based on the implied and explicit market multiples.

(iii) Discounted Cash Flow Analysis: This analysis involves a review
of Specialty Catalog's internal forecasts and projections
regarding its future operations and the cash flows derived
therefrom in order to value the shares of Specialty Catalog.

(iv) Stock Buy-Back Analysis: This analysis involves a review of
Specialty Catalog's buy-back of its shares from shareholders over
the last two years in the public market.

After Burnham Securities arrived at its valuation ranges, it then weighted
each estimate according to its relative importance. The following weights were
applied for each method: Market Multiple - 35%, Comparable Transactions
Multiple - 25%, Discounted Cash Flow - 20%, and Stock Buy-Back Analysis - 20%.
Burnham Securities granted the Market Multiple and Comparable Transactions
Multiple a higher weighting because Burnham Securities believes the public
markets' current assessments of comparable companies and transactions are more
efficient in valuing ongoing businesses. In addition, the discounted cash flow
analysis was underweighted due to the view of Burnham Securities that the
projections were based on overly optimistic assumptions and did not take into
account the history of Specialty Catalog missing its projections and other
events expected to lower operating results and the preference of small
specialty catalog companies to consider historical and current cash flows from
operations more importantly than projected results when evaluating prospective
acquisitions or strategic alliances. Stock buy-backs were underweighted due to
the relatively low percentages of shares re-acquired by Specialty Catalog as
well as the timing of its purchases.

1. MARKET MULTIPLE ANALYSIS OF PUBLICLY TRADED REFERENCE COMPANIES:

Burnham Securities compared the historical financial, operating and stock
market performances of certain publicly traded companies that it considered
relevant with the historical financial and operating performance of Specialty
Catalog based upon publicly available financial information to that of the
following, publicly traded companies:

o BLAIR CORPORATION (AMEX:BL) Blair Corporation's business consists of the
sale of fashion apparel for men and women, plus a wide range of home
products that are primarily marketed through direct mail merchandising.
The company's targeted customers are from the over "50, low-to-moderate
income" market.

o CONCEPTS DIRECT, INC. (NASDAQ:CDIR) Concepts Direct, Inc. is a direct
marketing company that owns and operates five catalog titles and related
niche marketing vehicles. It sells personalized paper products and a
diverse line of merchandise (gift items, home decorative items and
apparel).

o GAIAM, INC. (NASDAQNM:GAIA) Gaiam, Inc. is a multi-channel lifestyle
company dedicated to providing a broad selection of natural and healthy
alternatives to traditional information, goods and services. The company
uses a multi-channel marketing approach, through catalogs, e-commerce,
business-to-business channels, media broadcasts and 21,000 retail points.

o INTEGRITY INCORPORATED (NASDAQ:ITGR) Integrity, Inc. is engaged in the
production, distribution and publishing of Christian lifestyle products
developed to facilitate worship, entertainment and education. It sells
directly through consumer marketing and wholesale trade methods. It has
niche consumer product lines targeting customers who are budget-conscious
(Fairhope), African-American (Urban Praise), and greeting cards.

o J. JILL GROUP, INC. (NASDAQ:JILL) The J. Jill Group, Inc. is a specialty
marketer of high quality women's apparel, accessories and gifts. These
apparel offerings are almost entirely private label, with emphasis on
natural fibers and unique details. J. Jill's target customers are active,
affluent women age 35 to 55. The company markets its products through the
J. Jill catalog, retail stores and the Internet.

o MOVIE STAR, INC. (AMEX:MSI) Movie Star, Inc. designs, manufactures,
markets and sells an extensive line of ladies' sleepwear, robes,
leisurewear, loungewear, panties and daywear. The company's products
consist of ladies' pajamas, nightgowns, baby dolls, nightshirts, and
daywear.

o RIGHT START, INC. (NASDAQ:RTST) The Right Start, Inc. is a specialty
retailer of high quality, developmental, educational and care products
for infants and children. RightStart.com's nationally distributed
catalog, and RightStart.com's online store are located at
www.rightstart.com.

Burnham Securities selected these companies, which operate in the catalog
specialty distributor industry, as comparable because they are publicly traded
companies that provide products meeting the lifestyle needs of a particular
niche customer base or community. For the purpose of this analysis, these
companies may be considered comparable to Specialty Catalog in one or more
respects. Burnham Securities analyzed, among other things, the market values
and certain other financial data for these companies, including their revenues,
earnings before interest, taxes, depreciation and amortization (or EBITDA),
earnings per share, enterprise value (market value of equity plus net debt) and
all other relevant financial information, in each case for the most recent
12-month period for which information was available.

Burnham Securities used Specialty Catalog's actual fiscal results for the
year ended December 31, 2000 to derive the following multiples:

MULTIPLE: ADJUSTED AVERAGE PRICE PER SHARE
---------------------------- ------------------ ----------------

Price/Sales 0.29x $ 3.67
Enterprise Value/EBITDA 5.58x $ 3.81
Price/Earnings 13.21x $ 3.08
Price/ Operating Cash Flow 5.83x $ 2.79
Price/Book 1.21x $ 2.21

These multiples were applied against management's operating statistics to
derive an estimated value for each parameter. A composite valuation was
determined by weighing each multiple parameter by its relative importance as a
valuation measure.

Burnham Securities derived a valuation range from $10.5 million (or $2.21
per share) to $18.2 million ($3.81 per share) by compiling a list of average
trailing historical multiples that were based upon historical financial
information from the composite group of companies.

2. COMPARABLE TRANSACTIONS ANALYSIS:

During its deliberations, Burnham Securities reviewed over 77 transactions
under $50 million of total invested capital (the total amount of capital
including debt and equity offered in each transaction) that involved companies
in the catalog/specialty distributor industry that exhibited similar financial
and operating characteristics and that sell to similar niche customer bases as
does Specialty Catalog. In selecting the representative transactions Burnham
Securities considered a number of criteria. They include: industry
similarities, size of transaction, closely held companies and date of
transaction. None of the comparable transactions are representative of a "going
private" transaction. The six transactions Burnham Securities considered
involved entities comparable to Specialty Catalog such as: Gaiam, Inc.,
Concepts Direct Inc., and a former competitor (previously noted in Specialty
Catalog's filings) Real Goods Trading Company.

GAIAM, INC. (NASDAQ:GAIA), based in Broomfield, Colorado, is a leading
direct marketer (e.g., catalog and online) of alternative energy products such
as battery storage systems, solar heaters and refrigerators. In January, 2001,
Gaiam, Inc. acquired the publicly traded Real Goods Trading Corp, which

had trailing twelve-month revenues of $18.0 million, for a total invested
capital of $11.73 million. Gaiam, Inc. paid a multiple of 0.65 to revenues to
acquire RGTC.

ADVANTAGE MARKETING SYSTEM, (AMEX:AMM), based in Oklahoma City, Oklahoma,
is a direct marketer of weight management, dietary supplement and personal care
products. It reported nine-month revenues of $27.1 million as of September,
2000. It has been pursuing an expansion strategy for its network of independent
distributors and acquired Life Science Technologies, Inc., another marketing
company, to execute that strategy. Advantage Marketing System paid 0.22 times
revenues to acquire Life Science Technologies, Inc.

NATURAL WONDERS INC. (NASDAQ:NATWQ), based in Fremont, California, is a
specialty retailer of unique and affordable gifts inspired by the wonders of
science and nature. Natural Wonders Inc. reported 1999 revenues of over $147.1
million and in September, 2000 acquired World of Science stores for a total of
$10.55 million (a combination of $5.4 million in cash and assumption of
liabilities of $5.1 million). Natural Wonders Inc. paid World of Science
shareholders a multiple of 2.93 to EBITDA and a multiple of 0.18 to revenues.

POTPOURRI HOLDINGS, INC., based in Medfield, Massachusetts, is a leading
home/gift and knitting craft cataloger. Potpourri Holdings, Inc., which is
privately held, distributes more than 30 million catalogs per year and reported
2000 revenues of over $100 million. Potpourri Holdings, Inc. has acquired 11
companies since 1998 including its October, 1999 purchase of Catalog Ventures
from ValueVision for $10.5 million. Catalog Vision had trailing twelve-month
revenues, at the time of the acquisition, of over $31 million. Potpourri paid a
multiple of 0.3 times revenues. This acquisition was expected to help extend
Potpourri's catalog business.

In June, 1999, GUITAR CENTER (NASDAQ:GTRC), a retailer of musical
instruments based in Agoura Hills, California, acquired Musician's Friend Inc.
for $29.9 million in stock plus $18.4 million in assumption of debt. Musician's
Friends, Inc. is a retailer of music products through mail order, catalog, and
the Internet. Guitar Center paid a multiple of 0.5 to revenues to expand its
reach into more diversified sales channels.

In March, 1999, Interiors, Inc. (NASDAQOTC:INTXA), based in Mount Vernon,
New York, acquired Petals Inc. for a total of $8.4 million ($6 million in cash
and assumption of $2.4 million of liabilities). Interiors, which reported 2000
revenues of over $96 million, is in the decorative accessories business.
Petals, which had trailing twelve month revenues of $39.6 million at the time
of the acquisition also manufactures, markets, and distributes decorative silk
flowers. Interiors, Inc. paid 3.23 times EBITDA and 0.21 times revenues.

Burnham Securities compared multiples for the merger implied by the merger
consideration and certain financial data of Specialty Catalog to the
corresponding multiples in the selected merger and acquisition transactions.
Burnham Securities focused on (i) total invested capital to revenues for the
respective transaction as a multiple of revenues for the latest twelve months
preceding the transaction and (ii) total invested capital as a multiple of
EBITDA for the last twelve months preceding the respective transaction. The
transactions that Burnham Securities used generated the following adjusted
average multiples:

MULTIPLE: ADJUSTED AVERAGE PRICE PER SHARE
--------------------------------- ------------------ -----------------

Total Invested Capital/Revenues 0.35x $ 4.41
Total Invested Capital/EBITDA 3.07x $ 1.42
Multiple: Adjusted Average Price Per Share

These multiples were applied against management's operating statistics to
derive an estimated value for each parameter. In order to arrive at an average
valuation, Burnham took the average value based on the comparable transactions'
multiples.

Using the comparable transactions multiple, Burnham Securities derived a
valuation range for Specialty Catalog from $6.8 million (or $1.42 per share) to
$21.0 million ($4.41 per share).

3. DISCOUNTED CASH FLOW ANALYSIS:

This analysis involved a review of Specialty Catalog's internal forecasts
and projections regarding its future operations and the cash flows derived
therefrom in order to value the shares of Specialty Catalog. The free operating
cash flows of Specialty Catalog were discounted and then adjusted for special
items as deemed appropriate. In order to arrive at the free cash flow estimates
by year, after-tax free cash flows from operations were utilized and adjusted
for capital expenditures, changes in working capital and other appropriate
adjustments. This provided a measure of Specialty Catalog's ability to generate
consistent free cash flows for the benefit of its stockholders.

Once each year's free cash flows were determined, a discount rate was
applied to such cash flows to provide an aggregate present value of the future
cash flows. A range of discount rates were utilized ranging from 11.61% to
16.54%. Specialty Catalog's historic weighted average cost of capital of 14.03%
was also used as a discount rate.

Burnham Securities derived a valuation range from $19.3 million (or $4.06
per share) to $28.5 million (or $5.98 per share), with a value of $23.1 million
(or $4.84 per share) using the weighted average cost of capital discount rate,
based on an analysis of management's projections for fiscal years 2001 to 2005.
Given Burnham Securities' current assessment of the industry in which Specialty
Catalog competes and the overall state of the economy, Burnham Securities
assumed management's projections to be acceptable and consistent with previous
projections that Burnham Securities previously evaluated, as well as with
projections periodically presented to Specialty Catalog's board of directors.
Management projects Specialty Catalog's revenue growth will compound annually
from 2001 to 2005 at approximately 5%.

Due to the recent history of Specialty Catalog and its utilization of
leverage (in the form of a senior credit facility), Specialty Catalog currently
has a Net Operating Loss Carryforward of $9 million. Specialty Catalog is
limited to use $1.55 million annually to offset operating profit. Burnham
Securities took into consideration the management estimates of the company's
(Net Operating Loss) into its analysis.

Financial projections used by Burnham Securities in its analysis were
based on Specialty Catalog's estimates. Burnham Securities makes no
representations as to the accuracy or attainability of the projections for the
future performance of Specialty Catalog used in this analysis.

4. STOCK BUYBACK ANALYSIS:

Specialty Catalog's management provided Burnham Securities with the
financial details (the price and number of shares involved) of its fifteen
separate buybacks of Specialty Catalog common stock from investors during 1999
and 2000. Specialty Catalog purchased a total of 144,000 shares of its common
stock at an average price of $3.56 per share. Based on this average price and
the 4,768,000 outstanding shares involved in the merger, this resulted in a
valuation of Specialty Catalog of $16.9 million (or $3.56 per share).

When these shareholders sold their shares, an analyst might assume that
the sellers believed that they were receiving the best possible price at the
time of the transactions. The average stock buyback price reflects an aggregate
price that a number of sophisticated and knowledgeable sellers received for
their shares over a measurable period of time (as opposed to a single
transaction, that could be influenced by a specific event).

Valuation estimate

Based on its analysis of the range of valuations derived from the
preceding four methods, Burnham Securities arrived at a weighted average
valuation range for Specialty Catalog from $12.6 million (or $2.65 per share)
to $20.7 million (or $4.35 per share).

Other Considerations

In early 1999, the board of directors of Specialty Catalog authorized the
repurchase of Specialty Catalog's shares in the open market, implying (if not
announcing) that stockholder value would best be

served by buying back its shares. Throughout 1999 and 2000, Specialty Catalog
re-acquired a total of 144,000 shares at an average price of $3.56. This
decision by the board of directors followed a lengthy process by a highly
reputable investment bank that, over a period lasting six months, had been
engaged to identify a purchaser for all the shares of Specialty Catalog Corp.
Over the course of the engagement, fifty-three prospective purchasers (many of
them being highly regarded and active acquirers of companies) were contacted
and presented with detailed information concerning Specialty Catalog's history,
current operations and future prospects. According to the management, not one
bona fide proposal was forthcoming. During the course of the engagement, which
had been publicly announced, Specialty Catalog's shares traded in a range
between $3 and $4 per share.

Specialty Catalog's former Chairman announced his resignation in the
summer of 1999, but his successor did not emerge until July, 2000 after the
aborted takeover attempt of Specialty Catalog in the first quarter of 2000.
Since then, the stock has traded primarily between a low of $1.56 per share and
a high of $3.50 per share.

From an external perspective, Specialty Catalog has suffered from
inattention by the financial marketplace community. Institutional investors who
require liquidity as a primary factor for their stock selections dominate the
major markets.

On March 21, 2001, Specialty Catalog announced in a press release that it
had received a Nasdaq Staff Determination Letter indicating that it failed to
maintain a minimum market value of its "public" float of $5,000,000 over 30
consecutive trading days and that failure to cure this deficiency would cause
the NASDAQ to de-list Specialty Catalog and relegate its shares to trade on the
NASDAQ SmallCap Market, a significantly less reliable exchange for existing and
prospective shareholders. However, since the first public announcement of the
proposed merger, Specialty Catalog's common stock increased by over % as of
, 2001, thereby causing its market value of public float to be in
compliance with all requirements for continued listing on The Nasdaq National
Market and is not currently subject to review by The Nasdaq Stock Market, Inc.
Accordingly, while an established public trading market exists with respect to
our common stock, there can be no assurance that, in the event the merger is
not consummated, the common stock will remain listed on The Nasdaq National
Market or otherwise be subject of an established trading market.

Immediately prior to Mr. Guy Naggar's 13D filing on April 25, 2001, which
indicating his intention to purchase all or substantially all of the
outstanding shares of Specialty Catalog that he and his affiliates do not own,
Specialty Catalog's stock closed at $2.63, a 30% discount from the $3.75
proposed acquisition price. The merger price represents a 43% premium to the
last sale prior to the public filing. A press release of Specialty Catalog was
made on Monday, April 30 stating that that Mr. Guy Naggar, a British investor
and substantial shareholder of the company, had submitted a final proposal to
acquire for cash, through merger, all of the issued and outstanding shares of
common stock of the company, other than his shares and the shares of others who
may join him, for $3.75 a share. The last reported sale of Specialty Catalog
stock prior to the release was $3.05 per share. The merger price represents a
23% premium to the last sale prior to the corporate announcement.

Fee Arrangements

Burnham Securities, as part of its investment banking services, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, strategic transactions, corporate
restructurings, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In December, 1999, Burnham Securities was engaged by the then
existing independent committee of the board of directors of Specialty Catalog
to provide financial advice and advise on the fairness of the consideration to
be received by Specialty Catalog stockholders in a proposed merger that was not
consummated. Burnham Securities has acted as a financial advisor to the special
committee in connection with the merger. Burnham Securities may in the future
provide investment banking or other financial advisory services to Specialty
Catalog.

Pursuant to an engagement letter dated April 30, 2001, the special
committee agreed to pay Burnham Securities a fee of $62,500 in connection with
the delivery of the fairness opinion rendered on May 4, 2001,

which was comprised of $25,000 payable to Burnham Securities upon execution of
the letter agreement and $37,500 payable to Burnham Securities at the time the
opinion was rendered. Such amount has been paid in its entirety. Specialty
Catalog also has agreed to reimburse Burnham Securities for its reasonable
out-of-pocket expenses, including reasonable fees and expenses of its counsel.
Specialty Catalog has also agreed to indemnify Burnham Securities against
certain liabilities, including liabilities under the federal securities laws or
relating to or arising out of Burnham Securities' engagement as financial
advisor.

CERTAIN PROJECTIONS PREPARED BY SPECIALTY CATALOG'S MANAGEMENT

Specialty Catalog's management prepared certain projections of operating
performance for Specialty Catalog for the five years ended December 2005, which
were provided to your board of directors, Burnham Securities, LEG Partners III,
Fleet National Bank, Mr. Naggar and Alexander. Specialty Catalog does not as a
matter of course make public forecasts as to future operations and the
projections set forth below are included in this proxy statement only because
such information was provided to the parties listed above in connection with
arranging the financing for the transaction and in connection with the
financial advisors' review of the proposed transaction.

Projections of this type are based on estimates and assumptions that are
inherently subject to significant economic, industry and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond Specialty Catalog's control. Accordingly, there can be no
assurance that the projected results would be realized or that actual results
would not be significantly higher or lower than those projected. In addition,
the projections were not prepared with a view for public disclosure or
compliance with the published guidelines of the SEC or the American Institute
of Certified Public Accountants regarding projections and forecasts and are
included in this proxy statement only because such information was furnished to
Burnham Securities. The inclusion of this information should not be regarded as
an indication that anyone who received this information considered it a
reliable predictor of future operating results and this information should not
be relied upon as such. The projections are based upon a variety of assumptions
relating to the businesses of Specialty Catalog which, although considered
reasonable by Specialty Catalog's management, may not be realized, and are
subject to significant uncertainties and contingencies, many of which are
beyond the control of management. Neither our independent auditors, nor any
other independent accountants, have compiled, examined, or performed any
procedures with respect to the projected financial information contained
herein, nor have they expressed any opinion or any other form of assurance on
such information or its achievability, and assume no responsibility for, and
disclaim any association with, the projected financial information.

SPECIALTY CATALOG CORP.
SUMMARY OF FINANCIAL PROJECTIONS

1998 1999 2000 2001 2002 2003 2004 2005
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------

Revenues ................ $ 48,884 $ 45,022 $ 53,313 $ 52,857 $ 54,437 $ 59,296 $ 63,082 $ 68,312
======== ======== ======== ======== ======== ======== ======== ========
Gross margin ............ 30,966 31,593 36,968 36,055 37,495 41,014 43,559 47,151
Operating expenses ...... 26,692 28,277 32,419 29,239 30,922 34,114 36,458 39,715
-------- -------- -------- -------- -------- -------- -------- --------
EBITDA .................. $ 4,274 $ 3,316 $ 4,549 $ 6,816 $ 6,573 $ 6,900 $ 7,101 $ 7,436
======== ======== ======== ======== ======== ======== ======== ========
Gross margin as a %
of sales ............... 63.3% 70.2% 69.3% 68.2% 68.9% 69.2% 69.1% 69.0%
======== ======== ======== ======== ======== ======== ======== ========
Operating expenses
as a % of sales ........ 54.6% 62.8% 60.8% 55.3% 56.8% 57.5% 57.8% 58.1%
======== ======== ======== ======== ======== ======== ======== ========
EBITDA as a % of
sales .................. 8.7% 7.4% 8.5% 12.9% 12.1% 11.6% 11.3% 10.9%
======== ======== ======== ======== ======== ======== ======== ========

The following are the material general assumptions relating to Specialty
Catalog's management's projections:

1. Sales growth of three percent, nine percent, six percent and twelve percent
in fiscal 2002, 2003, 2004 and 2005, respectively.

2. Gross margin rates were projected at approximately current gross margin
rates, and vary by mix of sales.

3. Operating expenses were projected at approximate current rates, with gains
from operating efficiencies generally offset by price and salary inflation.

POSITION OF THE CONTINUING STOCKHOLDERS AS TO THE FAIRNESS OF THE MERGER

By virtue of their potential status as a "group" for purposes of Rule
13d-5 of the Securities Exchange Act of 1934, each of the Continuing
Stockholders other than LEG Partners III may be deemed to beneficially own
approximately 59% of Specialty Catalog common stock and, as a result, is deemed
to be an "affiliate" of Specialty Catalog under applicable SEC regulations. In
addition, as a result of current ownership of Specialty Catalog, and
participation as a Continuing Stockholder, LEG Partners III and LEG Partners
Debenture are considered affiliates of Specialty Catalog under Rule 13e-3 of
the Exchange Act. Rule 13e-3 of the Exchange Act governs "going-private"
transactions by certain issuers and their affiliates. Accordingly, in
compliance with Rule 13e-3, the Continuing Stockholders are required to
consider the fairness of the merger to Specialty Catalog's unaffiliated
stockholders, who in this transaction are the stockholders of Specialty Catalog
other than the Continuing Stockholders.

Each of the Continuing Stockholders has considered the factors examined by
the special committee and the board of directors described in detail above and
has adopted the overall analyses and the conclusions of the special committee
and the board of directors that the merger is fair to the unaffiliated
stockholders of Specialty Catalog (which stockholders include all of Specialty
Catalog's stockholders other than Acquisition Corp. and it current and future
stockholders) and believes that the transaction is fair to such unaffiliated
stockholders. In particular, the Continuing Stockholders considered the
following factors:

o The historical results of operations, financial condition, assets,
liabilities, business strategy and prospects of Specialty Catalog and the
nature of the industry in which Specialty Catalog competes. The
Continuing Stockholders considered this to be a positive factor in their
determination that the merger is fair to the unaffiliated stockholders.

o The relationship of the $3.75 per share merger consideration offered in
the merger to the current market price and the market prices for
Specialty Catalog common stock over the previous twelve months during
which the weighted average trading price had been $2.43 per share and 25%
of the trading volume had been at prices below $2.35 per share, 60% of
the trading volume had been at prices below $2.50, and 83% of the trading
volume had been at prices below $2.75. The Continuing Stockholders
considered this to be a positive factor in their determination that the
merger is fair to the unaffiliated stockholders.

o The recent market prices for Specialty Catalog's shares including the
fact that the $3.75 per share merger consideration represented (i) a
42.6% premium over the closing price on May 3, 2001, the last trading day
prior to the public announcement of the merger agreement, and (ii)
approximately 49.8% over the average closing price for the thirty day
period immediately preceding the day that Mr. Naggar filed an amendment
to his Schedule 13D announcing that he was preparing to make a
preliminary proposal regarding, among other things, a transaction
involving the purchase of all or substantially all of the outstanding
shares of Specialty Catalog. The Continuing Stockholders considered this
to be a positive factor in their determination that the merger is fair to
the unaffiliated stockholders.

o Specialty Catalog had repurchased a block of its shares during 2000 at
an average price of $2.63 per share. The Continuing Stockholders
considered this to be a positive factor in their determination that the
merger is fair to the unaffiliated stockholders.

o The per share merger consideration of $3.75 represents an amount in
excess of the net book value per share of $2.01 as of December 30, 2000.
The Continuing Stockholders considered this to be a positive factor in
their determination that the merger is fair to the unaffiliated
stockholders.

o During the last two years, other than the terminated merger with Golub
Associates, Specialty Catalog has not received any offers relating to a
merger or consolidation, sale or other transfer of all or a substantial
part of its assets or a purchase of its securities that would enable the
holder to exercise control of Specialty Catalog. The Continuing
Stockholders considered this to be a positive factor in their
determination that the merger is fair to the unaffiliated stockholders.

o The fact that Specialty Catalog's board of directors received an opinion
from Burnham Securities that the consideration to be received by
Specialty Catalog's stockholders in the merger is fair to the
unaffiliated stockholders of Specialty Catalog (which stockholders
include all of Specialty Catalog's stockholders other than Acquisition
Corp. and its current and future stockholders) from a financial point of
view demonstrates the fairness of the merger consideration. The
Continuing Stockholders considered this to be a positive factor in their
determination that the merger is fair to the unaffiliated stockholders.

o In light of the relatively thin trading market and lack of liquidity of
the shares of Specialty Catalog common stock, the merger will afford
stockholders an opportunity to dispose of their shares without the
possible diminution of value resulting from the lack of an active trading
market and without incurring transaction costs. The liquidity of the
shares may be further decreased if the shares are delisted from The
Nasdaq National Market. The Continuing Stockholders considered this to be
a positive factor in their determination that the merger is fair to the
unaffiliated stockholders.

o The consideration to be received in the merger is payable in cash,
thereby eliminating any uncertainties in valuing the consideration to be
received by Specialty Catalog's stockholders. The Continuing Stockholders
considered this to be a positive factor in their determination that the
merger is fair to the unaffiliated stockholders.

o Mr. Naggar, First Global, Ionic, Oracle, Three Greens, and Alexander
will be contributing all of their shares of Specialty Catalog to
Acquisition Corp. The other Continuing Stockholders will contribute
approximately thirty-two (32%) percent of their shares of Specialty
Catalog common stock to Acquisition Corp. in exchange for shares of
Acquisition Corp. common stock and, pursuant to the merger, will receive
the merger consideration upon cancellation of the remaining seventy (70%)
percent of their shares of Specialty Catalog common stock. The Continuing
Stockholders considered this to be a positive factor in their
determination that the merger is fair to the unaffiliated stockholders.

In consideration of the fairness of the merger to Specialty Catalog's
unaffiliated stockholders, the Continuing Stockholders did not find it
practicable to, and did not, appraise the assets of Specialty Catalog to
determine a liquidation value for Specialty Catalog. The Continuing
Stockholders considered Specialty Catalog as a viable going concern business
and did not consider the liquidation value as a relevant valuation methodology.

Each of the Continuing Stockholders may have given differing weight to
each or several of the factors listed above, as well as, the factors contained
in the analysis of the special committee and the board of directors, and below
regarding the procedures followed in the transaction, and as set forth in the

discussion under the headings "Considerations of the Special Committee" and
"Considerations of the Board of Directors." Such differences have not caused
any Continuing Stockholder to come to a conclusion other than that the merger
is fair to Specialty Catalog's unaffiliated stockholders.

In addition, based upon the following factors, each of the Continuing
Stockholders believes that the procedures used by the special committee in
negotiating the merger agreement and the transactions contemplated therein were
fair to the unaffiliated stockholders of Specialty Catalog:

o A special committee consisting of an independent director was
established. The special committee retained its own financial and legal
advisors and conducted a vigorous process of evaluation and negotiation
of the merger. Negotiations were considered to be an important element of
a fair bargaining process and the fact that there were effective
negotiations in this case indicated that the process leading to the
merger was fair.

o The special committee and board of directors have determined that the
merger and the merger agreement are fair to, advisable and in the best
interest of the unaffiliated stockholders of Specialty Catalog (which
stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders) and recommend
that the stockholders approve and adopt the merger and the merger
agreement. In light of their fiduciary duties to the stockholders of
Specialty Catalog and their careful consideration of the merger, the
Continuing Stockholders believe the fact that the special committee and
Specialty Catalog's board of directors reached these determinations
indicates that the merger and the consideration offered in the merger are
fair to the unaffiliated stockholders of Specialty Catalog (which
stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders).

o The special committee consisted of one non-employee, independent
director appointed by the board of directors to represent solely the
interests of the unaffiliated stockholders of Specialty Catalog (which
stockholders include all of Specialty Catalog's stockholders other than
Acquisition Corp. and its current and future stockholders); the sole
member of the special committee was not a Continuing Stockholder; and the
special committee retained and received advice from independent financial
and legal advisors.

o The special committee retained Burnham Securities, an independent
financial advisor, to act for the purpose of preparing an opinion and
report concerning the fairness of the merger consideration.

o The special committee retained Sullivan and Cromwell, an independent
legal advisor, to assist it in negotiating the terms of the merger.

o Specialty Catalog's unaffiliated stockholders (which stockholders
include all of Specialty Catalog's stockholders other than Acquisition
Corp. and its current and future stockholders), who object to the merger
will obtain "fair value" for their shares if they exercise and perfect
their dissenters' rights under Delaware law.

o The $3.75 per share merger consideration and the terms and conditions of
the merger agreement were the result of good faith negotiations among the
special committee and Mr. Naggar and their respective advisors described
under "SPECIAL FACTORS -- Material Contacts and Board Deliberations".

o If the merger is completed, the member of the special committee will
receive (solely in his capacity as a holder of options of Specialty
Catalog) $13,750 in merger consideration, and this interest is consistent
with the interests of the unaffiliated stockholders of Specialty Catalog
(which stockholders include all of Specialty Catalog's stockholders other
than Acquisition Corp. and its current and future stockholders).

o During the period from April 17, 2001 to May 4, 2001, the special
committee undertook an intensive and extensive review of Specialty
Catalog and the catalog/specialty distributor industry

and had numerous discussions with the management and certain directors of
Specialty Catalog as well as with the financial advisors for the special
committee regarding the results of operations, financial condition,
business and prospects of Specialty Catalog.

The Continuing Stockholders believe that the merger was procedurally fair,
even though:

o the merger agreement was structured so that the approval of at least a
majority of such unaffiliated stockholders is not required to consummate
the merger and

o the board of directors did not engage independent financial and legal
advisors on behalf of the unaffiliated stockholders of Specialty Catalog
(which stockholders include all of the stockholders of Specialty Catalog
other than Acquisition Corp. and its current and future stockholders)
(however, the special committee engaged an independent financial advisor,
Burnham Securities, for the purpose of preparing an opinion and report
concerning the fairness of the merger consideration and an independent
legal advisor to assist it in negotiating the terms of the merger).

In light of the other procedural safeguards set forth above, including the
formation of the special committee by the board of directors and the retention
of independent financial and legal advisors by the special committee, that the
totality of the circumstances support the belief of the Continuing Stockholders
that the merger is procedurally fair. In making this determination, LEG
Partners III, and several of the other Continuing Stockholders not engaged in
the negotiations and discussions of prices, processes, alternative transactions
and terms, have relied on the accuracy and completeness of the descriptions set
forth above under "Considerations of the Special Committee" and "Considerations
of the Board of Directors."

The Continuing Stockholders have interests in the merger transaction not
shared by other stockholders of Specialty Catalog. These interests are
described below under the heading "Interests of Certain Persons in the Merger."
Each of the Continuing Stockholders intends to vote in favor of the approval
and adoption of the merger and the merger agreement at the special meeting of
the stockholders. See "SUMMARY TERM SHEET -- Required Vote," "QUESTIONS AND
ANSWERS ABOUT THE MERGER -- What Vote is Required?" and "SUMMARY -- Information
Concerning the Meeting - Voting Requirements."

None of the Continuing Stockholders participated in the deliberations of
the special committee regarding, or received advice from the special
committee's financial advisor as to, the merger. Each of the Continuing
Stockholders has, however, considered the analyses and findings of the special
committee and the board of directors (described in detail under "SPECIAL
FACTORS -- Recommendation of the Special Committee and the Board of Directors;
Considerations in Connection with the Merger; Fairness of the Merger"), as well
as the opinion of Burnham Securities (described in detail under "SPECIAL
FACTORS -- Opinion of Burnham Securities Inc."), with respect to the fairness
of the merger to the unaffiliated stockholders.

As of the date of this proxy statement, each of the Continuing
Stockholders believes that the factors considered provide a reasonable basis
for their belief that the merger and the merger agreement are fair to Specialty
Catalog's unaffiliated stockholders (which stockholders include all of
Specialty Catalog's stockholders other than Acquisition Corp. and its current
and future stockholders). This belief should not be construed as a
recommendation by the Continuing Stockholders to vote to approve and adopt the
merger and the merger agreement. In addition, this belief does not necessarily
indicate that one or all of the Continuing Stockholders would be willing to
sell their shares of common stock for the merger price or would vote in favor
of the merger if they were not participating as Continuing Stockholders. The
Continuing Stockholders, or certain of them, may have a risk tolerance which
differs from other stockholders, or for other reasons may seek a price higher
than the merger price. These differing views of the Continuing Stockholders
does not render the merger price unfair or effect their respective belief that
the merger price is fair. The Continuing Stockholders make no recommendation as
to how the unaffiliated stockholders should vote their shares. The Continuing
Stockholders have not undertaken any formal evaluation of the fairness of the
merger to the unaffiliated stockholders, and do not believe it is possible to
assign specific relative weights to the factors considered by them.

PURPOSE, REASONS AND PLANS

Purpose.

The purpose of the merger is for Acquisition Corp. to acquire, in
accordance with Delaware law, all of the shares of common stock of Specialty
Catalog issued and outstanding at the consummation of the merger.

Reasons of Specialty Catalog for the Merger.

Specialty Catalog's primary reason for entering into the merger agreement
at this time is the view of its board of directors that it is unlikely (i) that
the trading price of Specialty Catalog shares will exceed and sustain a trading
price of $3.75 per share if Specialty Catalog remains a publicly traded
company, and (ii) that Specialty Catalog will be able to effect an alternative
transaction in which stockholders will receive $3.75 per share or more in the
forseeable future. The board of directors and the special committee believe,
based upon the reasons discussed above under the caption "SPECIAL FACTORS --
Recommendation of the Special Committee and the Board of Directors;
Considerations in Connection with the Merger; Fairness of the Merger," that the
merger is being undertaken now because it is the best available opportunity to
enhance stockholder value at this time. Although the board of directors at its
meeting in the spring of 2001 considered only this merger to enhance
stockholder value, since 1998 Specialty Catalog and its advisors have solicited
indications of interest regarding a possible sale of Specialty Catalog,
including presenting fifty-three prospective purchasers with detailed
information concerning Specialty Catalog, and did not receive any offer from
any other buyer, other than Golub Associates, of an interest relating to a
merger or consolidation, sale or other transfer of all or a substantial part of
the assets of Specialty Catalog or a purchase of the securities of Specialty
Catalog that would enable the holder to exercise control of Specialty Catalog
at a price in excess of $3.75 per share.

Reasons of the Continuing Stockholders for the Merger.

Each of the Continuing Stockholders believes that it is in Specialty
Catalog's best interest to operate as a privately held entity. For a discussion
of the reasons for the structure of the transaction, see "SPECIAL FACTORS --
Structure of the Transactoion; Participants." Despite Specialty Catalog being a
market leader with what the Continuing Stockholders believe to be a solid
management team, Specialty Catalog's historical stock prices have been at
levels below what the Continuing Stockholders believe to be full value of
shares of Specialty Catalog common stock. Each of the Continuing Stockholders
believes that this trend has prevented stockholders from realizing appropriate
value for their interests in Specialty Catalog. As a privately held entity
which will no longer be subject to the reporting requirements of the Exchange
Act, Specialty Catalog will have the flexibility to focus on continuing
improvements to the business without the constraints and distractions of being
a public company, including the following:

o Specialty Catalog may be more likely to make decisions that may
negatively affect quarterly earnings but that may, in the long-run,
increase the value of Specialty Catalog's assets or earnings.

o Specialty Catalog will be able to eliminate the cost and time devoted by
its management and certain other employees, as well as outside advisors,
to matters relating exclusively to having equity securities publicly
traded.

o Specialty Catalog will no longer be required to disclose material
confidential information concerning its business.

These assessments are based upon publicly available information regarding
Specialty Catalog and the Continuing Stockholders' due diligence, investigation
or knowledge of Specialty Catalog and its industry and the experience of the
Continuing Stockholders in investing in or managing public companies generally.
While the Continuing Stockholders believe that there will be significant
opportunities associated with their investment in Specialty Catalog and that
the value of such an equity investment could be considerably greater than both
the original cost thereof and the market sales prices prior to the first public
announcement of the merger for the shares, which is each Continuing
Stockholders' purpose in undertaking this transaction. However, they also
realize that there also are substantial and significant risks that such
opportunities may never be fully realized.

Based on (1) assumed total equity of Specialty Catalog of $9,558,032
(including the accounting value of warrants to be issued to the mezzanine
lender in the amount of $1,129,432) after the merger, (2) 4,337,886 shares of
Specialty Catalog common stock issued and outstanding, (3) net option value of
$1,643,104, (4) the $3.75 per share price being paid to current holders of
Specialty Catalog common stock and (5) the net option value, equal to
$1,135,193 minus the applicable exercise price, being paid to certain current
holders of Specialty Catalog options, the effect of the merger on each of the
Continuing Stockholders and LEG Partners III's interest in the net book value
and net earnings of Specialty Catalog in terms of both dollar amounts and
percentages is set forth below:

IMPLIED VALUE CURRENT
NUMBER OF OF CURRENT PERCENTAGE OF PERCENTAGE OF
SHARES OF INVESTMENT SPECIALTY SPECIALTY
SPECIALTY (STOCK AND CATALOG'S IMPLIED VALUE CATALOG'S
CATALOG BEFORE OPTION VALUE) STOCK AND OF INVESTMENT EQUITY AFTER
MERGER ($) OPTION VALUE AFTER MERGER MERGER
---------------- --------------- --------------- --------------- --------------

Alexander Enterprise Holdings Corp. .......... 279,700 $1,048,875 5.9% $2,196,610 26.1%
Guy Naggar ................................... 411,667(1) $1,518,750 8.5% $1,496,134 17.7%
First Global Holdings Limited ................ 244,655 $ 917,456 5.1% $ 798,966 9.5%
Oracle Investments and Holdings Limited....... 244,656 $ 917,460 5.1% $ 798,969 9.5%
Ionic Holdings LDC ........................... 244,655 $ 917,456 5.1% $ 798,966 9.5%
Three Greens Holdings Limited ................ 98,376 $ 368,910 2.1% $ 321,265 3.8%
Martin Franklin .............................. 398,188(1) $1,368,206 7.6% $ 413,302 4.9%
The David Cicurel Settlement ................. 40,111 $ 150,416 1.0% $ 52,157 0.6%
LEG Partners III SBIC, L.P. .................. 602,689 $2,260,084 12.6% $ 620,381 7.4%(2)
Wynnefield Partners Small Cap Value, L.P. 206,549 $ 774,559 4.3% $ 212,615 2.5%
Wynnefield Partners Small Cap
Value, L.P. I ............................... 248,050 $ 930,188 5.2% $ 255,331 3.0%
Wynnefield Partners Small Cap Value
Offshore Fund, Ltd. ......................... 104,008 $ 390,030 2.2% $ 107,061 1.3%
Joseph Grabowski ............................. 261,000(1) $ 353,750 5.1% $ 271,787 3.2%
Thomas McCain ................................ 33,600(1) $ 68,500 0.6% $ 14,493 0.2%
Acquisition Corp. ............................ 0 0 0 0 0

----------
(1) Excludes out-of-the-money options and includes vested and unvested
in-the-money options.

(2) Excludes warrants to be issued to LEG Partners III and LEG Partners
Debenture to purchase, in the aggregate, 13.4% of the fully diluted
common stock of Specialty Catalog, at the time of exercise, subject to
adjustment, with an accounting value of $1,129,432.

Plans For Specialty Catalog.

It is expected that, following the merger, the operations and business of
Specialty Catalog will be conducted substantially as they are currently
conducted. Neither Specialty Catalog nor any of the Continuing Stockholders
have any present plans or proposals that relate to or would result in an
extraordinary corporate transaction involving Specialty Catalog's corporate
structure, business or management, such as a merger, reorganization,
liquidation, relocation of any operations or sale or transfer of a material
amount of assets. However, after the merger, Specialty Catalog and the
Continuing Stockholders will continue to evaluate Specialty Catalog's business
and operations and, from time to time, may propose or develop new plans and
proposals which they consider to be in the best interests of Specialty Catalog
and its stockholders, including the disposition or acquisition of material
assets, alliances, joint ventures and other forms of cooperation with third
parties or other extraordinary transactions.

INTEREST OF CERTAIN PERSONS IN THE MERGER

In considering the recommendations of the special committee and of the
board of directors with respect to the merger, the directors and officers of
Specialty Catalog who are Continuing Stockholders have interests in the merger
that are different from the interests of stockholders of Specialty Catalog in

general. The members of Specialty Catalog's board of directors were aware of
certain of the directors' and officers' interests in the merger when deciding
to approve the merger, as was the special committee when deciding to recommend
such approval. See "SPECIAL FACTORS -- Material Contacts and Board
Deliberations and "SPECIAL FACTORS -- Recommendation of the Special Committee
and the Board of Directors; Considerations in Connection with the Merger;
Fairness of the Merger." These interests include those described below.

The Continuing Stockholders, LEG Partners III, and certain members of
management have interests in the merger as employees and/or directors of
Specialty Catalog, or as stockholders with a continuing equity interest in
Specialty Catalog, that are different from, or in addition to, yours as a
stockholder. In particular, (i) the Continuing Stockholders will continue to
hold all or part of their common stock of Specialty Catalog after the merger;
see "SPECIAL FACTORS -- Related Agreements - Subscription Agreements," (ii) any
options to acquire Specialty Catalog stock held by Continuing Stockholders will
be surrendered or converted into shares of common stock of Specialty Catalog
after the merger pursuant to the terms and provisions of the stock option
exercise agreements entered into by the Continuing Stockholders; see "SPECIAL
FACTORS -- Related Agreements - Stock Option Exercise Agreements," and (iii)
the Continuing Stockholders will not recognize a taxable transaction for U.S.
federal income tax purposes from the receipt of shares of Specialty Catalog
common stock by such Continuing Stockholders in exchange for shares of common
stock of Acquisition Corp.; see "SPECIAL FACTORS -- Material Federal Income Tax
Consequences of the Merger." When making the determination to approve and
recommend approval of the merger transactions to Specialty Catalog's
stockholders, both the board of directors and the special committee of
independent directors appointed to review and evaluate the merger were aware of
the interests of the Continuing Stockholders and certain members of management
and considered these interests, together with the other factors described under
"SPECIAL FACTORS -- Recommendation of the Special Committee and the Board of
Directors; Considerations in Connection with the Merger; Fairness of the
Merger."

As of September 25, 2001, there were 4,337,886 shares of our common stock
outstanding. The table below sets forth the number of shares and the percentage
ownership of Specialty Catalog which were held as of September 25, 2001 by each
of the Continuing Stockholders and LEG Partners III before the consummation of
the merger and are expected to be held by the Continuing Stockholders and LEG
Partners III after the merger. In the table, shares that the Continuing
Stockholders and LEG Partners III and LEG Partners Debenture have the right to
acquire by November 24, 2001 by exercising options, warrants or conversion
privileges are deemed to be beneficially owned and outstanding for the purpose
of computing their respective percentage ownership of common stock of Specialty
Catalog before the merger. Except as indicated in the footnotes to the table,
we believe that the Continuing Stockholders have sole voting and investment
power with respect to the shares shown to be beneficially owned by them, based
on information provided by these stockholders. Also see "SPECIAL FACTORS --
Amount and Source of Funds and Financing of the Merger-Equity Contributions,"
"SPECIAL FACTORS -- Related Agreements - Subscription Agreements," "SPECIAL
FACTORS -- Related Agreements - Stock Option Exercise Agreements," "SPECIAL
FACTORS -- Related Agreements - Option Agreements," and "INFORMATION ABOUT THE
TRANSACTION PARTICIPANTS -- Security Ownership of Certain Beneficial Owners and
Management."

NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
SHARES OWNERSHIP SHARES AFTER OWNERSHIP AFTER
BEFORE MERGER BEFORE MERGER MERGER (12) MERGER (12)
--------------- --------------- -------------- ----------------

Alexander Enterprise Holdings Corp. (1) ............ 279,700 6.4% 672,634 26.1%
Guy Naggar (2) ..................................... 409,100 9.3% 458,138 17.7%
First Global Holdings Limited (3) .................. 244,655 5.6% 244,655 9.5%
Oracle Investments and Holdings Limited (3) ........ 244,656 5.6% 244,656 9.5%
Ionic Holdings LDC (3) ............................. 244,655 5.6% 244,655 9.5%
Three Greens Holdings Limited (4) .................. 98,376 2.3% 98,376 3.8%
Martin Franklin (5) ................................ 368,955 8.5% 126,559 4.9%
The David Cicurel Settlement (6) ................... 40,111 0.9% 12,659 0.5%
LEG Partners III SBIC, L.P. (7) .................... 602,689 13.9% 190,215 7.4%
LEG Partners Debenture SBIC, L.P. (7) .............. 0 0.0% 0 0.0%
Wynnefield Partners Small Cap Value, L.P. (8) ...... 206,549 4.8% 65,190 2.5%
Wynnefield Partners Small Cap Value, L.P. I (8)..... 248,050 5.7% 78,287 3.0%
Wynnefield Partners Small Cap Value Offshore
Fund, Ltd. (8) .................................... 104,008 2.4% 32,826 1.3%
Joseph Grabowski (9) ............................... 94,333 2.1% 83,333 3.2%
Thomas McCain (10) ................................. 44,934 1.0% 4,444 0.2%
Acquisition Corp. .................................. 0 0.0% 0 0.0%
------- ---- ------- ----
TOTAL (11) ......................................... 3,230,771 72.5% 2,556,627 99.0%
========= ==== ========= ====

----------
(1) Nicolas Berggruen acts as an investment advisor to Alexander.

(2) Number of shares before merger includes options to purchase 7,433 shares
of our common stock.

(3) Marion Naggar's Children's Settlement is the sole shareholder of each of
Oracle, First Global and Ionic. Abacus (CI) Limited and Abacus Trustees
(Jersey) Limited are the trustees of the Marion Naggar's Children's
Settlement and have the authority to appoint the directors of First
Global, Oracle and Ionic.

(4) GA Naggar 1982 Settlement is the sole shareholder of Three Greens. Abacus
(CI) Limited and Abacus Trustees (Jersey) limited are the trustees of the
GA Naggar 1982 Settlement and have the authority to appoint the directors
of Three Greens.

(5) Number of shares before merger includes options to purchase 20,767 shares
of our common stock.

(6) Abacus (CI) Limited is the sole trustee of The David Cicurel Settlement.

(7) Golub Associates provides administrative and operational services to LEG
Partners III and LEG Partners Debenture. Golub Debenture GP, LLC, a
Delaware limited liability company, is the general partner of LEG Partners
Debenture. Golub PS-GP, LLC is the general partner of LEG Partners III.
Lawrence E. Golub is the managing member of Golub PS-GP, LLC and the
president of Golub Associates. In connection with the financing of the
merger, LEG Partners III and LEG Partners Debenture will be issued
warrants to purchase, in the aggregate, 13.4% of the fully diluted common
stock of Specialty Catalog at the time of exercise, subject to adjustment.
See "SPECIAL FACTORS -- Amount and Source of Funds and Financing of the
Merger."

(8) Wynnefield Capital Management, LLC, is the general partner of Wynnefield
Partners Small Cap Value, L.P. and Wynnefield Partners Small Cap Value,
L.P. I and Wynnefield Capital, Inc., is the investment manager of the
Wynnefield Small Cap Value Offshore Fund, Ltd. Nelson Obus and Joshua
Landes are the managing members of Wynnefield Capital Management, LLC and
the principal executive officers of Wynnefield Capital, Inc.

(9) Number of shares before merger includes options to purchase 83,333 shares
of our common stock.

(10) Number of shares before merger includes options to purchase 33,334 shares
of our common stock.

(11) Number of shares before merger includes options to purchase 144,867
shares of our common stock. Number of shares after merger does not
include 24,333 shares held by other members of management. See "SPECIAL
FACTORS -- Related Agreements - Stock Option Exercise Agreements."

(12) Includes (i) shares of Specialty Catalog issued to the Continuing
Stockholders at the time of the merger in exchange for their shares of
Acquisition Corp., see "SPECIAL FACTORS -- Related Agreements -
Subscription Agreements", and (ii) shares of Specialty Catalog issued to
the Continuing Stockholders pursuant to the stock option exercise
agreements, see "SPECIAL FACTORS -- Related Agreements - Stock Option
Exercise Agreements". Excludes (i) options to purchase shares of
Specialty Catalog pursuant to the option agreements under the 2001 Stock
Incentive Plan, see "SPECIAL FACTORS -- Related Agreements - Option
Agreements" and "SPECIAL FACTORS -- Related Agreements - 2001 Stock
Incentive Plan", (ii) shares of Specialty Catalog issued to certain
members of management, who are not Continuing Stockholders, pursuant to
the stock option exercise agreements, see "SPECIAL FACTORS -- Related
Agreements -- Stock Option Exercise Agreements", and (iii) warrants to
purchase, in the aggregate, 13.4% of the fully diluted common stock of
Specialty Catalog, at the time of exercise, subject to adjustment, to be
issued to LEG Partners III and LEG Partners Debenture SBIC, L.P. in
connection with the financing of the merger. See "SPECIAL FACTORS --
Amount and Source of Funds and Financing of the Merger."

SPECIAL COMMITTEE

The board of directors voted to establish a special committee comprised of
directors who did not have actual or potential conflicts of interest with such
transaction and who were not officers or employees of Specialty Catalog or its
subsidiaries nor affiliated with Mr. Naggar, nor current or possible future
stockholders of any acquisition company formed by Mr. Naggar. The sole member
of the special committee, Mr. Moore, is not an employee of Specialty Catalog,
an employee or director of Acquisition Corp., or a Continuing Stockholder, and
he does not have interests in the merger different from the interests of the
unaffiliated stockholders of Specialty Catalog (which stockholders include all
of Specialty Catalog's stockholders other than Acquisition Corp. and its
current and future stockholders). See "SPECIAL FACTORS -- Material Contacts and
Board Deliberations."

Mr. Moore was granted no additional compensation for his service on the
special committee. Mr. Moore holds options to purchase 10,000 shares of common
stock, which equals the number of options which were granted to each member of
the board of directors on August 25, 2000, at $2.375 per share upon his
appointment as a member of the board of directors. Mr. Moore is also entitled
to certain indemnification rights like all other directors, and to directors'
and officers' liability insurance that will be continued by Specialty Catalog
following the merger as described above for the current and former officers and
directors of Specialty Catalog. The board of directors and the special
committee believe that the foregoing arrangements do not affect the special
committee's independence or impartiality.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following discussion summarizes the material U.S. federal income tax
considerations relevant to the merger that are generally applicable to holders
of our common stock. This discussion is based on currently existing provisions
of the Internal Revenue Code of 1986, existing and proposed U.S. Treasury
Regulations, and current administrative rulings and court decisions, all of
which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences. Special tax consequences not
described below may be applicable to particular classes of taxpayers, including
financial institutions, broker-dealers, persons who are not citizens or
residents of the United States or who are foreign corporations, foreign
partnerships, or foreign estates or trusts as to the United States, persons who
will own, actually or constructively, stock of Specialty Catalog after the
merger, and holders who acquired their stock through the exercise of an
employee stock option or otherwise as compensation.

Your receipt of the merger consideration in the merger will be a taxable
transaction for U.S. federal income tax purposes. Your gain or loss per share
will be equal to the difference between $3.75 and your

adjusted basis in that particular share of common stock. Such gain or loss
generally will be a capital gain or loss. In the case of individuals, trusts,
and estates, such capital gain will be subject to a maximum U.S. federal income
tax rate of 20% for shares of common stock held for more than 12 months prior
to the date of the merger.

Those certain Continuing Stockholders that will receive cash in the merger
transaction will recognize a taxable transaction for U.S. federal income tax
purposes. The gain or loss per share that will be recognized for U.S. federal
income tax purposes will be equal to the difference between $3.75 and the
Continuing Shareholder's adjusted basis for the particular share of common
stock. Such gain or loss generally will be a capital gain or loss.

The receipt of shares of Specialty Catalog common stock by the Continuing
Stockholders in exchange for shares of common stock of Acquisition Corp. will
not be a taxable transaction for U.S. federal income tax purposes. Each
Continuing Stockholder's basis in his shares of Specialty Catalog common stock
will be equal to such Continuing Stockholder's basis in his shares of
Acquisition Corp. exchanged for shares of Specialty Catalog in the merger
transaction.

You may be subject to backup withholding at the rate of 31% with respect
to the merger consideration received by you, unless you (1) are a corporation
or come within certain other exempt categories and, when required, demonstrate
this fact, or (2) provide a correct taxpayer identification number ("TIN"),
certify as to no loss of exemption from backup withholding, and otherwise
comply with applicable requirements of the backup withholding rules. To prevent
the possibility of backup U.S. federal income tax withholding on payments made
pursuant to the merger, you must provide the paying agent with your correct TIN
by completing a Form W-9 or substitute Form W-9. If you do not provide the
Paying Agent with your correct TIN, you may be subject to penalties imposed by
the Internal Revenue Service as well as backup withholding. Any amount withheld
under these rules will be creditable against your U.S. federal income tax
liability. Specialty Catalog (or its agent) will report to you and the IRS the
amount of any "reportable payments," as defined in Section 3406 of the Internal
Revenue Code, and the amount of tax, if any, withheld with respect thereto.

The foregoing tax discussion is based upon present law. The foregoing
discussion does not discuss tax consequences under the laws of states or local
governments or of any other jurisdiction or tax consequences to categories of
stockholders that may be subject to special rules, such as foreign persons,
tax-exempt entities, insurance companies, financial institutions, and dealers
in stocks and securities. The foregoing discussion may not be applicable to a
stockholder who continues to own, actually or constructively, stock of
Specialty Catalog after the merger or who acquired his or her shares of common
stock pursuant to the exercise of stock options or otherwise as compensation.
You should consult your own tax advisor as to the specific tax consequences of
the merger to you, including the application and effect of U.S. federal, state,
local, and other tax laws and the possible effect of changes in such tax laws.

ACCOUNTING TREATMENT OF THE MERGER

The merger is expected to be accounted for under the purchase method of
accounting. The merger is structured as a leveraged buyout transaction with
certain stockholders of Specialty Catalog continuing to be stockholders in the
surviving corporation. The assets and liabilities of Specialty Catalog will be
recorded at fair value for the interests acquired by the new investors and at
the carryover, or predecessor, basis for continuing stockholders from Specialty
Catalog.

REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGERS

APPRAISAL RIGHTS

If the merger is consummated, holders of shares of common stock are
entitled to appraisal rights under Section 262 of the Delaware General
Corporation Law ("Section 262"), provided that they comply with the conditions
established by Section 262.

Section 262 is reprinted in its entirety as Appendix C to this proxy
statement. The following discussion is not a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Appendix C. This discussion and Appendix C should be reviewed carefully by any
holder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, as failure to comply with the required procedures
will result in the loss of appraisal rights.

A record holder of the common stock who makes the demand described below
with respect to such shares, who is continuously the record holder of such
shares through the effective time of the merger, who otherwise complies with
the statutory requirements of Section 262 and who neither votes in favor of
approval and adoption of the merger and the merger agreement nor consents to
the merger and the merger agreement in writing will be entitled to an appraisal
by the Delaware Court of Chancery of the fair value of his or her shares of
common stock. Except as set forth herein, stockholders will not be entitled to
appraisal rights in connection with the merger.

Under Section 262, we are required to notify you not less than 20 days
prior to the special meeting that the appraisal rights are available and
include in each such notice a copy of Section 262. This proxy statement
constitutes our notice to you. Holders of shares who desire to exercise their
appraisal rights must not vote in favor of the approval and adoption of the
merger and the merger agreement and must deliver a separate written demand for
appraisal to us prior to the vote by the stockholders at the special meeting. A
demand for appraisal must be executed by or on behalf of the stockholder of
record and must reasonably inform us of the identity of the stockholder of
record and that such stockholder intends thereby to demand an appraisal of his
Specialty Catalog common stock. A proxy or vote against the approval and
adoption of the merger and the merger agreement will not by itself constitute
such a demand. Within ten days after the effective time of the merger, we must
provide notice of the effective time to all stockholders who have complied with
Section 262.

A stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: Corporate Secretary c/o Specialty Catalog
Corp., 21 Bristol Drive, South Easton, Massachusetts 02375.

A person having a beneficial interest in shares of Specialty Catalog
common stock that are held of record in the name of another person, such as a
broker, fiduciary, depositary or other nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly, and in a timely
manner, to perfect appraisal rights. If the shares of common stock are owned of
record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian), depositary or other
nominee, such demand must be executed by or for the record owner. If the shares
of common stock are owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as agent for the record owner. If
a stockholder holds shares of common stock through a broker who in turn holds
the shares through a central securities depository nominee, such as Cede & Co.,
a demand for appraisal of such shares must be made by or on behalf of the
depository nominee and must identify the depository nominee as record holder.

A record holder, such as a broker, fiduciary, depositary or other nominee,
who holds shares of common stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In
such case, the written demand must set forth the number of shares covered by
such demand. Where the number of shares is not expressly stated, the demand
will be presumed to cover all shares of common stock outstanding in the name of
such record owner.

Within 120 days after the effective time of the merger, either Specialty
Catalog or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court of Chancery, with a copy
served on Specialty Catalog in the case of a petition filed by a stockholder,
demanding a determination of the fair value of the shares of all dissenting
stockholders. Stockholders seeking to exercise appraisal rights should not
assume that we will file such a petition or that we will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
holders of common

stock who desire to have their shares appraised should initiate petitions
necessary for the perfection of their appraisal rights within the time periods
and in the manner prescribed in Section 262. Within 120 days after the
effective time of the merger, any stockholder who has theretofore complied with
the applicable provisions of Section 262 will be entitled, upon written
request, to receive from us a statement setting forth the aggregate number of
shares of common stock not voting in favor of the approval and adoption of the
merger and the merger agreement and with respect to which demands for appraisal
were received by us and the number of holders of such shares. We are obligated
to mail that statement within 10 days after we receive a written request
therefor.

If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights. The Delaware Court of Chancery may require the
stockholders who have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction, the
Delaware Court of Chancery may dismiss the proceedings as to such stockholder.
Where proceedings are not dismissed, the Delaware Court of Chancery will
appraise the shares of Specialty Catalog common stock owned by such
stockholders, determining the fair value of such shares exclusive of any
element of value arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value.

Although we believe that the merger consideration is fair, no
representation is made as to the outcome of the appraisal of fair value as
determined by the Delaware Court of Chancery and stockholders should recognize
that such an appraisal could result in a determination of a value higher or
lower than, or the same as, the merger consideration. Moreover, we do not
anticipate offering more than the merger consideration to any stockholder
exercising appraisal rights and reserve the right to assert, in any appraisal
proceeding, that, for purposes of Section 262, the fair value of shares of
Specialty Catalog's common stock is less than the merger consideration. In
determining fair value, the Delaware Court of Chancery is required to take into
account all relevant factors. These factors will include market value, asset
value, dividends, earnings prospects, the nature of the enterprise and any
other facts which could be ascertained as of the date of the merger which throw
light on future prospects of Specialty Catalog.

Holders of shares of common stock considering seeking appraisal should
recognize that the fair value of their shares determined under Section 262
could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the merger agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court of Chancery and taxed against the parties as
the court deems equitable in the circumstances. Upon the application of a
dissenting stockholder, a court may order that all or a portion of the expenses
incurred by any dissenting stockholder in connection with the appraisal
proceeding, including without limitation reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all
shares of stock entitled to appraisal.

Any holder of shares of common stock who has duly demanded appraisal in
compliance with Section 262 will not, after the effective time of the merger,
be entitled to vote for any purpose any shares subject to such demand or to
receive payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior to
the effective time.

At any time within 60 days after the effective time of the merger, any
stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the merger; after this period, the stockholder may
withdraw such demand for appraisal only with the consent of Specialty Catalog.
If no petition for appraisal is filed with the Delaware Court within 120 days
after the effective time of the merger, stockholders' rights to appraisal will
cease, and all holders of shares of Specialty Catalog's common stock will be
entitled to receive the consideration offered pursuant to the merger agreement.
Inasmuch as we have no obligation to file such a petition, and have no present
intention to do so, any stockholder who desires such a petition to be filed is
advised to file it on a timely basis. Any stockholder may withdraw such
stockholder's demand for appraisal by delivering to Specialty Catalog a written
withdrawal of his or her demand for appraisal and acceptance of the merger
consideration, except (i) that

any such attempt to withdraw made more than 60 days after the effective time of
the merger will require our written approval and (ii) that no appraisal
proceeding in the Delaware Court of Chancery will be dismissed as to any
stockholder without the approval of the court, and such approval may be
conditioned upon such terms as the court deems just.

AMOUNT AND SOURCE OF FUNDS AND FINANCING OF THE MERGER

Immediately following the merger, Specialty Catalog will pay to the
stockholders of Specialty Catalog, other than Acquisition Corp., an aggregate
amount of approximately $9.9 million to cancel the outstanding shares of
Specialty Catalog common stock and stock options, assuming (i) no Specialty
Catalog stockholders exercise and perfect their dissenters' rights in
connection with the merger, (ii) certain stock options held by members of
management are converted into options of Specialty Catalog after the merger and
(iii) no other stockholders participate with the Continuing Stockholders.
Moreover, Specialty Catalog will incur approximately $1.1 million in fees and
expenses in connection with the merger and related transactions. In addition to
these cash expenditures, the transaction contemplates that (i) certain
executives will roll over an aggregate of $408,000 of option value of Specialty
Catalog for stock and restricted stock value in the surviving corporation, (ii)
certain directors, including Messrs. Nagger, Franklin, and Cicurel, will roll
over an aggregate of approximately $88,000 of Specialty Catalog option value
for stock value in the surviving corporation (see "SPECIAL FACTORS -- Related
Agreements - Stock Option Exercise Agreements"), and (iii) the Continuing
Stockholders will exchange $7.5 million of common stock value of Specialty
Catalog into common stock of Acquisition Corp. Acquisition Corp.'s receipt of
cash proceeds from debt and equity financing sufficient to consummate the
transactions contemplated by the merger agreement is a condition precedent to
Acquisition Corp.'s obligation to consummate the merger agreement, the merger
and the transactions contemplated thereby. There can be no assurance that
Acquisition Corp. will satisfy this financing condition. However, the following
arrangements are intended to provide the necessary financing for the merger.

Fleet Bank Proposal

On December 27, 2000, Specialty Catalog entered into a $12.25 million
credit agreement (the "credit agreement") with Fleet National Bank ("Fleet")
for the purpose of refinancing its existing senior debt and to provide for its
working capital needs. The new credit facility, which may be increased to $13.0
million in 2002, replaced our former credit facilities with the Fleet. The
credit agreement includes a $9.0 million five-year term note (the "term loan")
and a $3.25 million two-year revolving credit agreement (the "line of credit").
The amount available on the line of credit increases as principal amortization
payments on the term loan are paid, such that the total credit agreement
remains at $12.25 million over the two years of the line of credit agreement.
The line of credit provides for revolving credit loans and letters of credit
with floating rates based on margins over LIBOR or prime at our option. The
term loan is for five years and is being amortized at the rate of $450,000 a
quarter beginning January 1, 2001.

As of December 30, 2000, $6.4 million of the term loan was under LIBOR
contract rates ranging from 8.6625 percent to 9.02813 percent and the remainder
of the term loan was at the base rate of 9.75 percent. As of December 30, 2000,
approximately $788,000 of the line of credit was at the base rate of 9.75
percent. We are required to pay a commitment fee of 0.375 percent per annum on
the unused portion of the commitment. At December 30, 2000, $2.5 million was
available under this line of credit.

The credit agreement is collateralized by a first perfected security
interest in all tangible and intangible assets of Specialty Catalog, subject to
certain permitted liens. The Agreement is subject to certain consolidated
covenants, including but not limited to leverage and debt service coverage
ratios, minimum earnings requirements, and a restriction on the payment of cash
dividends on Specialty Catalog common stock.

On April 30, 2001, Specialty Catalog received a term sheet from Fleet
relating to terms and conditions upon which Fleet might extend credit to
Specialty Catalog under an amended credit facility to be entered into in
connection with the merger.

The proceeds of the financing will be used to provide a portion of the
proceeds required to consummate the merger and, to provide working capital and
other general corporate needs of Specialty

Catalog as the surviving corporation and its subsidiaries. A copy of the Fleet
term sheet is filed as an exhibit to the Schedule 13E-3 filed by Specialty
Catalog and its affiliates and is incorporated herein by reference.

Senior Subordinated Notes

Specialty Catalog anticipates that it will obtain approximately $7.5
million of financing from LEG Partners III and LEG Partners Debenture, which
are each affiliates of Golub Associates, for use in connection with the merger
agreement, the merger and the transaction contemplated thereby. For a detailed
description of the LEG Parties, please read "INFORMATION ABOUT THE TRANSACTION
PARTICIPANTS."

On May 4, 2001, Specialty Catalog, Acquisition Corp., and Golub Associates
on behalf of the LEG Parties entered into a letter of intent (the "Golub letter
of intent") regarding consideration of a potential subordinated debt and
warrant investment in Acquisition Corp. to finance the merger. Pursuant to the
terms of the letter of intent, the LEG Parties are to receive (i) $7.5 million
of senior subordinated debt, at the annual rate of interest of 14.0% (12.5% in
cash and 1.5% deferred), and (ii) warrants to purchase approximately 13.4% of
the fully diluted equity of Specialty Catalog. Pursuant to the Golub letter of
intent, the senior subordinated notes (the "Notes") will have the following
features:

o a maturity of the shorter of (i) six months longer than the senior term
loan or (ii) sixty-six months;

o subordinated to the senior bank financing;

o quarterly principal payments equal to 4.5% of the original principal
amount commencing June 30, 2003, with the balance due upon maturity; and

o cash interest payable quarterly.

Pursuant to the Golub letter of intent, the senior subordinated note will
contain covenants customary for this type of financing, including, without
limitation, pro rata rights of first refusal on subsequent financing, minority
investor protections including certain put rights, and board of director
observation and participation.

In addition, LEG Partners III has the right, at its option, to roll over,
on the same basis as other equity investors of Acquisition Corp., a portion of
its common stock ownership of Specialty Catalog.

The Golub letter of intent provides that in the event Specialty Catalog
and Acquisition Corp. proceed with such a transaction, the parties may not use
subordinated debt financing from any other source other than Golub Associates
to finance the transaction. The letter of intent also provides that Golub
Associates is to be reimbursed for certain expenses incurred in connection with
the financing of the transaction.

The Golub letter of intent is not a financing commitment from Golub
Associates. Neither Golub Associates nor its investment affiliates are under
any obligation to provide this financing until each of the terms in the Golub
letter of intent has been met to their sole satisfaction and all of the
financing documents in form and substance satisfactory to Golub Associates and
its investment affiliates have been executed by the parties.

The foregoing is a brief summary of the material provisions of the Golub
letter of intent. This summary is qualified in its entirety with reference to
the Golub letter of intent, a copy of which is filed as an exhibit to the
Schedule 13E-3 filed by Specialty Catalog incorporated herein by reference.

Note and Warrant Purchase Agreement

The following describes the material terms of the note and warrant
purchase agreement based upon a draft which is believed to be in substantially
the form to be entered into prior to the merger.

The full text of the proposed form of draft note and warrant purchase
agreement is filed as an exhibit to the Schedule 13E-3 filed by Specialty
Catalog and its affiliates and is incorporated herein by reference. We
encourage you to read the note and warrant purchase agreement, because it
contains substantially all of the material provisions that will govern the
subordinated debt portion of financing for the merger.

Pursuant to the note and warrant purchase agreement, Specialty Catalog
will issue and sell to the LEG Parties, for cash (i) $7,500,000 principal
amount of its 14% Series A Senior Subordinated Notes due June 30, 2006 (the
"Notes") and (ii) warrants to purchase shares of the common stock of Specialty
Catalog.

Terms of the Notes. The Notes represent a promise to repay the principal
amount of $7,500,000, payable in quarterly installments of 41/2% each,
commencing on June 30, 2003 and continuing until June 30, 2006. Interest will
accrue quarterly at a rate of 14% (including a current payment of 12.5%). At
least approximately 89% of the interest is to be paid in cash by wire transfer
of immediately available funds at each interest payment date, and the balance
of any unpaid interest will be added to the principal due. The interest rate on
the Notes in the event of a default on payment of principal of the Notes is
18%. Each of SC Corporation (d/b/a SC Direct), SC Publishing, Inc. and
Daxbourne International Limited are expected to be parties to the note purchase
and warrant agreement.

The note and warrant purchase agreement provides that Specialty Catalog
may prepay the Notes in an amount of at least $250,000 at any time, subject to
certain premium charges. Following three-day notice, an amount of the principal
of the Notes, together with accrued interest thereon, may be paid if, in the
twelve month period after the sale of the Notes is consummated, Specialty
Catalog pays a premium of 7% of the principal amount to be prepaid. Similarly,
in each of the 24, 36 and 48 month periods following consummation of the sale
of the Notes, a 6%, 5% or 3% premium, respectively, will be assessed on any
prepayment. Sixty months after the consummation of the sale of Notes, no
premium is required to accompany any prepayment of the notes.

Unless a majority of the holders of the Notes consent to forgo the
applicable restrictions, a mandatory prepayment of the Notes must be made if
the following events occur:

o A change of control of Specialty Catalog, among other things (as more
fully described in the note and warrant purchase agreement): the Notes
must be prepaid in full.

o Sale of 25% or more of Specialty Catalog's assets or another transaction
accomplishing same: the Notes must be prepaid in full.

o 90 days after the end of each fiscal year, Specialty Catalog must prepay
the Notes in an amount equal to the greater of (a) one-half of 25% of the
consolidated excess cash flow, or (b) 25% of such Consolidated Excess
Cash Flow less the amount required to be paid to Fleet Bank, Specialty
Catalog's senior lender.

Conditions Precedent. The note and warrant purchase agreement stipulates
certain conditions which must be satisfied in order to obligate the LEG Parties
to purchase the Notes. The majority of these conditions are customary
provisions, while some are tailored to the circumstances of the merger and the
particular terms of the Notes. Accordingly, the following is a summary of
certain restrictions and requirements that require compliance by Specialty
Catalog and Acquisition Corp. together and separately, as applicable:

o On the date the note and warrant purchase agreement is consummated, and
after allowing for the payment of the merger consideration, Specialty
Catalog and Acquisition Corp. must have, on a consolidated basis,
$2,000,000 of "excess cash or senior debt available."

o LEG Partners must receive their pro rata shares of: (i) a funding fee of
$150,000, less any amounts paid by Specialty Catalog, as a commitment fee
prior to consummation of the sale and purchase of the Notes, and (ii)
costs and expenses incurred in connection with the transaction.

o LEG Partners must be satisfied with the terms of the merger documents
and with the legal structure and capitalization of Specialty Catalog
post-merger.

o Specialty Catalog must have minimum EBITDA for the twelve-month period
ending on the date of the latest financial statements, of not less than
$5,810,000 (as adjusted for certain permitted exceptions).

Affirmative and Negative Covenants. The note and warrant purchase
agreement provides that Specialty Catalog will agree to provide the holders of
the Notes with certain rights, to abide by certain ongoing requirements and to
use the proceeds from the sale of the Notes for specified purposes in a
particular manner. In summary, Specialty Catalog will agree to the following
covenants:

o The LEG Parties will have the right to have two representatives attend
all meetings of the board of directors, and at all times after either the
repayment in full of the Notes or upon and during the continuance of a
default under the note and warrant purchase agreement, the LEG Parties
shall have a right to designate one member to the Board of Directors,
with permitted exceptions.

o Specialty Catalog cannot create or suffer to exist any lien upon its
property, income or profits except: (a) liens less than $50,000 in value
that arise in the ordinary course of business or from tax obligations;
(b) purchase money liens; (c) liens securing a subsidiary's debt to
Specialty Catalog; and (d) reservations, easements and rights of way
affecting real property.

o Specialty Catalog cannot incur any debt other than certain permitted
indebtedness.

o Specialty Catalog cannot make any acquisitions or loans other than: (a)
fixed assets used in the business and constituting capital expenditures;
(b) goods used in the manufacture of products or services offered by
Specialty Catalog in the ordinary course; (c) loans to employees less
than $50,000 in the aggregate, outstanding.

o Specialty Catalog cannot sell, lease or otherwise dispose of any
property, assets or rights except: (a) inventory in the ordinary course;
(b) obsolete equipment and inventory; (c) arms-length sales in which (i)
75% of the consideration is cash, (ii) the sale price is at least fair
market value, and (iii) the proceeds of the sale are applied to payment
of indebtedness for money borrowed (provided the value of all property
sold by Specialty Catalog in any year does not exceed 5% of Specialty
Catalog tangible assets as valued at the beginning of such year).

o Specialty Catalog cannot pay or increase any salaries, bonuses or other
compensation to officers, directors, stockholders or affiliates or pay
any management, consulting, advisory or similar fees to its officers,
directors, stockholders or affiliates unless such compensation is at the
same level set as of the date of the consummation of the note and warrant
purchase agreement or consistent with past practice and certain other
permitted exceptions.

o Specialty Catalog cannot enter into any leases, other than capital
leases, that would cause the annual aggregate payment obligations
thereunder to exceed $800,000.

o Specialty Catalog cannot transfer any cash or property to any officer,
director, employee or affiliate, enter into any contract or transaction
with any such person or modify any outstanding contract with any such
person, except in permitted circumstances.

o Specialty Catalog also agreed to maintain compliance with certain
financial covenants.

Warrant Agreement

The following describes the material terms of the warrant agreement based
upon a draft which is believed to be in substantially the form to be entered
into prior to the merger. The full text of the proposed form of the warrant
agreement is filed as an exhibit to the Schedule 13E-3 filed by Specialty
Catalog and its affiliates and is incorporated herein by reference.

In connection with the sale of the Notes, Specialty Catalog has agreed to
issue warrants to the LEG Parties to purchase the common stock of Specialty
Catalog in an amount equal to thirteen and four tenths percent (13.4%) of
Specialty Catalog's fully diluted common stock, at the time of exercise,
subject to certain adjustments. The aggregate percentage of shares of common
stock into which the warrants are convertible may be lower as a result of
certain capital stock issuances and grants of permitted dilutive options, as
more fully described in the warrant agreement.

Terms of the Warrants. The exercise price for a holder's warrant will be
$.01 per share for each share of Specialty Catalog's common stock issuable upon
exercise of such warrant. The warrants will be

exercisable for ten years from issuance. Holders of shares underlying the
warrants will be entitled to customary registration rights with respect to
registrations of Specialty Catalog's securities under the Securities Act.

Put Option. At the written request and upon due notice, as required, of
any holder or holders of 50% or more of the warrants outstanding at any time,
Specialty Catalog will purchase the number of warrants specified by such
requesting holder. The put option may be exercised after five years following
the date of the warrant agreement or upon the occurrence of certain put events,
including an initial public offering of Specialty Catalog common stock, the
sale of 25% or more of Specialty Catalog's assets or certain other transactions
constituting a change of control. The "Put Price" of a warrant to be
repurchased by the Company will be an amount equal to the quotient of the fair
value of the company (as computed according to more detailed terms included in
the warrant agreement) divided by the number of shares of common stock
constituting the company's fully-diluted common stock.

Equity Contributions

Each of Alexander and Mr. Naggar intend to make capital contributions to
Acquisition Corp. in such amount that is required (after taking into account
the proceeds from Fleet and Golub Associates) in exchange for common stock of
Acquisition Corp. in order to enable Acquisition Corp. to consummate, the
merger and the transactions contemplated by the merger agreement. Pursuant to
the terms of their subscription agreements, Mr. Naggar and Alexander will
contribute to Acquisition Corp. approximately $200,000 and $1.47 million,
respectively, in exchange for shares of common stock of Acquisition Corp. See
"SPECIAL FACTORS -- Related Agreements - Subscription Agreements."

At this time, the Continuing Stockholders do not have any alternative
financing plans. However, the Continuing Stockholders believe that Fleet will
extend credit to Specialty Catalog under an amended credit facility, that LEG
Partners will close on the $7.5 million loan and the transactions contemplated
by the subscription agreements will close in accordance with their respective
terms. Therefore, the Continuing Stockholders believe that they will have
sufficient financing to close the transactions contemplated by the merger
agreement.

TREATMENT OF OPTIONS

Immediately prior to the effective time of the merger, and except as
otherwise consented to by Acquisition Corp., each outstanding, unexercised
option to purchase the common stock (an "Option") granted under each of the
Specialty Catalog 1996 Stock Incentive Plan, as amended, and the Specialty
Catalog 2000 Stock Incentive Plan (collectively, the "Specialty Catalog Stock
Option Plans") other than Options held by the Continuing Stockholders and
certain members of management, whether or not exercisable, shall be cancelled
by Specialty Catalog in consideration of a cash payment, if applicable, from
the surviving corporation in an amount equal to the product of multiplying (a)
the excess, if any, of (x) $3.75, over (y) the per share exercise price of such
Option, by (b) the number of shares (of common stock) subject to such Option.
Any cash payment shall be net of any required withholding taxes. In other
words, all holders of Options exercisable at a price greater than $3.75 per
share will receive no consideration in return for the cancellation of their
Options. However, for each Option exercisable at a price less than $3.75 per
share, the option holder will receive for each Option to purchase a share an
amount equal to the excess of $3.75 over the per share exercise price of such
Option, less any required withholding taxes. The obligation to make any cash
payment for options issued outside of the Specialty Catalog Stock Option Plans
shall be handled on a negotiated basis and subject to obtaining any necessary
consents of optionees to the cancellation of such options. Also see "SPECIAL
FACTORS -- Related Agreements - Stock Option Exercise Agreements."

RELATED AGREEMENTS

Employment Agreements

Joseph Grabowski. On May 8, 2000, Specialty Catalog entered into an
employment agreement with Mr. Grabowski. The term of the employment agreement
commenced on May 8, 2000 and, unless

extended, terminates on May 7, 2002. Under this employment agreement, Mr.
Grabowski will receive an annual salary of $300,000, along with other benefits
and will be eligible for a performance bonus of up to 100 percent of his annual
salary, based upon performance as compared against the annual performance plan.
Upon executing the employment agreement, Mr. Grabowski was granted options
under our 2000 Stock Incentive Plan to purchase 250,000 shares of our common
stock at $2.50 per share, the then trading price of the stock. Mr. Grabowski is
also eligible to receive an additional grant of 250,000 stock options, at a
price which shall equal the trading price on the date of the grant, as defined
in the 2000 Stock Incentive Plan, after the end of the first fiscal year in
which our gross revenues exceed $120,000,000.

Specialty Catalog may terminate Mr. Grabowski's employment upon his death
or permanent disability, or if he engages in conduct that constitutes "cause"
under the employment agreement. Mr. Grabowski may terminate his employment for
"Good Reason" as defined in the employment agreement. In the event Mr.
Grabowski's employment is terminated by Specialty Catalog other than for
"cause", Mr. Grabowski will receive a "Termination Payment" as defined in the
employment agreement. The employment agreement contains non-competition and
other restrictions effective during the term of employment and for a one-year
period thereafter.

Prior to the closing of the merger, Specialty Catalog and Mr. Grabowski
will enter into an amendment to his employment agreement that will, among other
things, extend his term of employment until December 31, 2004, increase his
annual salary to $312,500, award Mr. Grabowski a bonus payment of $100,000 upon
the effectiveness of the amendment, and provides that Mr. Grabowski will be
granted options to purchase 54,135 shares of common stock under our 2001 Stock
Incentive Plan at an exercise price of $3.75 per share. The amendment will be
effective upon the consummation of the merger and the transactions contemplated
by the stock option exercise agreement between Specialty Catalog and Mr.
Grabowski and the option agreement between Specialty Catalog and Mr. Grabowski.
See "SPECIAL FACTORS -- Related Agreements - Employment Agreements," "SPECIAL
FACTORS -- Related Agreements -- Stock Option Exercise Agreements" and "SPECIAL
FACTORS -- Related Agreements -2001 Stock Incentive Plan"

The foregoing is a brief summary of the material provisions of the
amendment to Mr. Grabowski's employment agreement. A draft of the form of
amendment to Mr. Grabowski's employment agreement, which is expected to be
entered into prior to the closing of the merger, is filed as an exhibit to
Schedule 13E-3 filed by Specialty Catalog and its affiliates and is
incorporated herein by reference.

Thomas McCain.

Thomas McCain has served as Specialty Catalog's Senior Vice President and
Chief Financial Officer since June 22, 1999. Specialty Catalog intends to enter
into an employment agreement with Mr. McCain. The term of the employment
agreement commences upon the closing of the merger and, unless extended,
terminates on August 31, 2003. Under this employment agreement, Mr. McCain will
receive an annual salary of $185,000, along with other benefits and will be
eligible for a performance bonus of $40,000 for fiscal year 2001 and 20 percent
of his annual salary for each fiscal year thereafter based upon certain
business-related performance goals. The employment agreement also provides that
Mr. McCain will be granted options to purchase 23,049 shares of Specialty
Catalog common stock under our 2001 Stock Incentive Plan at an exercise price
of $3.75 per share.

Specialty Catalog may terminate Mr. McCain's employment for any reason
including, but not limited to, his death or permanent disability, or if he
engages in conduct that constitutes "cause" under the employment agreement. In
the event Mr. McCain's employment is terminated by Specialty Catalog for any
reason, Mr. McCain will receive a termination payment as more fully described
in the employment agreement. The employment agreement contains non-competition
and other restrictions effective during the term of employment and for a
one-year period thereafter. This employment agreement will be effective upon
the consummation of the merger and the transactions contemplated by the stock
option exercise agreement between Specialty Catalog and Mr. McCain. See
"SPECIAL FACTORS -- Related Agreements - Stock Option Exercise Agreements" and
"SPECIAL FACTORS -- Related Agreements - 2001 Stock Incentive Plan."

The foregoing is a brief summary of the material provisions of Mr.
McCain's employment agreement. A copy of a draft of Mr. McCain's employment
agreement, which is in substantially the form that is intended to be entered
into prior to the closing of the merger, is filed as an exhibit to Schedule
13E-3 filed by Specialty Catalog and its affiliates and is incorporated herein
by reference.

Stockholders Agreement

The following is a brief summary of the material provisions of the
stockholders agreement. A copy of the stockholders agreement is filed as an
exhibit to Schedule 13E-3 filed by Specialty Catalog and is incorporated herein
by reference.

Immediately prior to the signing of the merger agreement, on May 4, 2001,
each of the stockholders of Acquisition Corp. entered into the stockholders
agreement. The stockholders agreement provides that the board of directors of
Acquisition Corp. shall consist of six directors and that all parties to the
stockholders agreement will vote all of their shares of Acquisition Corp. to
elect to the board of directors:

o two directors designated by Alexander Enterprise Holding Corp. which
shall initially include Martin Franklin and Eric Hansen,

o two directors, designated by Mr. Naggar together with First Global,
Oracle, Ionic and Three Greens which shall initially include Guy Naggar
and David Cicurel; and

o two directors, mutually designated by each of the designators above
which initially include Mr. Grabowski and Mr. McCain.

Pursuant to the terms of the stockholders agreement, simultaneously with
the closing of the transactions contemplated by the merger agreement and
immediately prior to the merger, the Continuing Stockholders who have executed
subscription agreements shall purchase shares of common stock of Acquisition
Corp. by (i) contributing to Acquisition Corp., any or all of their shares of
our common stock, owned by each stockholder, (ii) making an additional cash
contribution to Acquisition Corp.; or (iii) a combination of (i) and (ii)
above, in accordance with the terms and conditions of a subscription agreement,
to be entered into by Specialty Catalog and each of the respective stockholders
of Acquisition Corp. See "SPECIAL FACTORS -- Related Agreements - Subscriptions
Agreements" below.

The stockholders agreement also provides for restrictions on the transfer
of shares, "take-along" obligations, "come-along" rights, pre-emptive rights
and rights of first offer with respect to the securities of Acquisition Corp.

Upon consummation of the merger, the stockholders agreement shall survive
and remain in full force and effect as the stockholders agreement of Specialty
Catalog.

Subscription Agreements

Certain of the Continuing Stockholders entered into a subscription
agreement with Acquisition Corp. for a number of shares of Acquisition Corp.
Pursuant to the terms of their respective subscription agreements, the
Continuing Stockholders who have executed subscription agreements have agreed
to contribute, and LEG Partners III is likely to contribute, immediately prior
to the closing of the merger, the number of shares of common stock of Specialty
Catalog indicated in the table set forth below to Acquisition Corp. in exchange
for the number of shares of common stock of Acquisition Corp. indicated in the
table set forth below

In addition, the subscription agreements entered into by each of Mr.
Naggar and Alexander provide that, immediately prior to the closing of the
merger, Mr. Naggar and Alexander shall purchase from Acquisition Corp. such
number of shares of Acquisition Corp. indicated in the table set forth below,
for the aggregate cash purchase price as indicated in the table set forth
below. See "AMOUNT AND SOURCE OF FUNDS AND FINANCING OF THE MERGER -- Equity
Contributions."

NUMBER OF NUMBER OF
SHARES OF SHARES OF PURCHASE NUMBER OF
SPECIALTY ACQUISITION PRICE OF SHARES OF
CATALOG CORP. ADDITIONAL ACQUISITION TOTAL NUMBER
CONTRIBUTED TO ACQUIRED SHARES OF CORP. OF SUBSCRIBED
ACQUISITION PURSUANT TO ACQUISITION ACQUIRED BY SHARES OF
CORP. CONTRIBUTION CORP. PURCHASE ACQUISITION CORP.
---------------- -------------- ------------- ------------- ------------------

Alexander Enterprise Holdings
Corp. (1) ............................ 279,700 279,667 $1,473,501 392,934 672,634(1)
Guy Naggar (2) ........................ 401,667 401,645 $ 199,268 53,138 454,805(2)
First Global Holdings
Limited (3) .......................... 244,655 244,642 - - 244,655(3)
Oracle Investments and Holdings (3).... 244,656 244,643 - - 244,656(3)
Ionic Holdings LDC (3) ................ 244,655 244,642 - - 244,655(3)
Three Greens Holdings Limited (4) ..... 98,376 98,370 - - 98,376(4)
Martin Franklin ....................... 109,892 109,892 - - 109,892
The David Cicurel Settlement .......... 12,659 12,659 - - 12,659
LEG Partners III SBIC, L.P. ........... 190,215 190,215 - - 190,215
Wynnefield Partners Small Cap
Value, L.P. .......................... 65,190 65,190 - - 65,190
Wynnefield Partners Small Cap
Value, L.P. I ........................ 78,287 78,287 - - 78,287
Wynnefield Partners Small Cap Value
Offshore Fund, Ltd. .................. 32,826 32,826 - - 32,826

----------
(1) Pursuant to the stockholders agreement, Alexander also holds 33 shares of
common stock of Acquisition Corp. prior to entering into its subscription
agreement.

(2) Pursuant to the stockholders agreement, Mr. Naggar also holds 22 shares
of common stock of Acquisition Corp. prior to entering into its
subscription agreement.

(3) Pursuant to the stockholders agreement, each of First Global, Oracle, and
Ionic also hold 13 shares of common stock of Acquisition Corp. prior to
entering into its subscription agreement.

(4) Pursuant to the stockholders agreement, Three Greens also holds 6 shares
of common stock of Acquisition Corp. prior to entering into its
subscription agreement.

Among other things, each of the Continuing Stockholders who have executed
subscription agreements also agreed (i) to certain voting and transfer
restrictions with respect to the portion of their shares of Specialty Catalog,
and (ii) to vote all of their shares of Specialty Catalog in favor of the
merger and the merger agreement. See "SUMMARY TERM SHEET -- Required Vote,"
"QUESTIONS AND ANSWERS ABOUT THE MERGER -- What Vote is Required," and "SUMMARY
-- Information Concerning the Meeting - Voting Requirements."

The foregoing is a brief summary of the material provisions of the
subscription agreements. A copy of each of Mr. Naggar and Alexander's
subscription agreement is filed as an exhibit to the Schedule 13E-3 filed by
Specialty Catalog and is incorporated herein by reference. A form of the other
Continuing Stockholders' subscription agreement is filed as an exhibit to the
Schedule 13E-3 filed by Specialty Catalog and is incorporated herein by
reference.

Stock Option Exercise Agreements

Under stock option exercise agreements entered into with Specialty
Catalog, each of the employees, officers, and directors listed below will, at
the time of the merger and pursuant to options granted under our 2000 Stock
Incentive Plan, purchase the number of shares of common stock of Specialty
Catalog listed below, payment for which shall be made in whole with shares of
common stock of Specialty Catalog obtained through the exercise of such options
and surrendered in lieu of the payment of cash for such exercise.

NUMBER OF
NUMBER OF ACQUIRED
OPTIONS NUMBER OF AGGREGATE NUMBER OF VALUE OF SHARES OF
EXCHANGED TOTAL OPTIONS EXERCISE OPTIONS OPTIONS SPECIALTY
OPTIONEE FOR CASH EXERCISED PRICE SURRENDERED SURRENDERED CATALOG
------------------------------ ----------- --------------- ---------------- ------------- ---------------- ----------

Joseph Grabowski (1) ......... 0 250,000 $ 625,000.00 166,667 $ 208,333.75 83,333
Richard Lipton ............... 10,000 20,000 $ 50,000.00 13,333 $ 16,666.25 6,667
Thomas McCain ................ 6,667 13,333 $ 33,332.50 8,889 $ 11,111.25 4,444
Stuart Rose .................. 10,000 20,000 $ 50,000.00 13,333 $ 16,666.25 6,667
Colleen Cheney ............... 3,333 6,667 $ 16,667.50 4,445 $ 5,556.25 2,222
Bradford Bishop .............. 3,333 6,667 $ 16,667.50 4,445 $ 5,556.25 2,222
Jan Santolla ................. 3,333 6,667 $ 16,667.50 4,445 $ 5,556.25 2,222
Richard Harris ............... 5,000 2,500 $ 5,625.00 1,500 $ 2,250.00 1,000
Guy Naggar ................... 0 10,000 $ 25,000.00 6,667 $ 8333.75 3,333
David Cicurel ................ 0 10,000 $ 25,000.00 6,667 $ 8333.75 3,333
Martin Franklin .............. 0 50,000 $ 125,000.00 33,333 $ 41,666.25 16,667

----------
(1) The shares purchased by Mr. Grabowski will be fully vested and not
subject to forfeiture.

The stock option exercise agreements (other than the agreement with Mr.
Grabowski) also provide that the purchased shares shall vest in accordance with
a vesting schedule set forth therein. Unvested shares are subject to forfeiture
upon the option holder's termination of employment with Specialty Catalog. The
option holders have also agreed to become a party to, and be bound by the terms
and provisions of, the stockholders agreement.

The foregoing is a brief summary of the material provisions of the stock
option exercise agreements, a draft of the form of which is filed as an exhibit
to the Schedule 13E-3 filed by Specialty Catalog and is incorporated herein by
reference. A draft of the form of Mr. Grabowski's stock option exercise
agreement is also filed as an exhibit to the Schedule 13E-3 filed by Specialty
Catalog and is incorporated herein by reference.

Option Agreements

Certain officers and employees of Specialty Catalog or any of its
subsidiaries will be eligible to participate in the 2001 Stock Incentive Plan
pursuant to which the compensation committee of the board of directors of
Specialty Catalog will be authorized to grant options to acquire up to
approximately 10% of the outstanding capital stock of Specialty Catalog after
the closing of the merger. See "SPECIAL FACTORS -- Related Agreements - 2001
Stock Incentive Plan."

It is expected that upon the consummation of the merger, each of our
employees listed below will enter into stock option agreements to purchase
shares of Specialty Catalog at an exercise price of $3.75, subject to certain
vesting requirements specified in their option agreement. The options will be
granted pursuant to the 2001 Stock Incentive Plan. For information concerning
the 2001 Stock Incentive Plan, please read "SPECIAL FACTORS -- Related
Agreements - 2001 Stock Incentive Plan."

OPTIONEE NUMBER OF OPTIONS
--------------------------------------- ------------------

Joseph Grabowski .................... 54,135
Richard Lipton ...................... 20,855
Thomas McCain ....................... 23,049
Stuart Rose ......................... 3,333
Colleen Cheney ...................... 7,778
Bradford Bishop ..................... 7,778

The foregoing is a brief summary of the material provisions of the option
agreements, the form of which is filed as an exhibit to the Schedule 13E-3
filed by Specialty Catalog and is incorporated herein by reference.

In addition, in accordance with the terms of the amendment to Mr.
Grabowski's employment agreement, Mr. Grabowski's option agreement contains
additional provisions regarding vesting. The vesting of options granted to Mr.
Grabowski under the 2001 Stock Incentive Plan shall be accelerated and become
immediately exercisable upon certain events including (i) a "change of control"
of Specialty Catalog or (ii) the termination of Mr. Grabowski's employment by
Specialty Catalog for any reason other than his death or disability or for
"cause." See "SPECIAL FACTORS -- Related Agreements -Employment Agreements" and
"SPECIAL FACTORS -- Related Agreements - 2001 Stock Incentive Plan."

A draft of the form of Mr. Grabowski's option agreement is filed as an
exhibit to the Schedule 13E-3 filed by Specialty Catalog and is incorporated
herein by reference.

2001 Stock Incentive Plan

Administration and Eligibility. The Specialty Catalog Corp. 2001 Stock
Incentive Plan authorizes the issuance of a number of shares representing
approximately 10% of the issued and outstanding capital stock of Specialty
Catalog at the closing of the merger upon the exercise of stock options or in
connection with the issuance of restricted stock and stock bonuses. The 2001
Stock Incentive Plan authorizes the granting of stock options, restricted stock
and stock bonuses to employees, officers, directors, consultants, independent
contractors and advisors of Specialty Catalog and its parents, affiliates, and
subsidiaries provided such consultants, independent contractors and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction.

The 2001 Stock Incentive Plan provides for its administration by either a
committee consisting solely of two or more outside directors or the Board of
Directors (the "Administrator"). In general, the Administrator, in its sole
discretion, determines which eligible employees, officers, directors,
consultants, independent contractors and advisors of Specialty Catalog and its
subsidiaries may participate in the 2001 Stock Incentive Plan and the type,
extent and terms of the equity-based awards to be granted to them. The 2001
Stock Incentive Plan provides for the grant of both incentive stock options
("ISOs") that qualify under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and non-qualified stock options ("NQSOs"). ISOs may be
granted only to employees of Specialty Catalog or of a parent or subsidiary of
Specialty Catalog. NQSOs (and all other awards other than ISOs) may be granted
to employees, officers, directors, consultants, independent contractors and
advisors that render bona fide services not in connection with the offer and
sale of securities in a capital-raising transaction. The exercise price of ISOs
must be at least equal to the fair market value of the Specialty Catalog common
stock on the date of grant. The exercise price of ISOs granted to 10%
shareholders must be at least equal to 110% of that value. The exercise price
of NQSOs may be above or below the fair market value of the Specialty Catalog
common stock on the date of grant. The maximum term of options granted under
the 2001 Stock Incentive Plan is ten years. Awards granted under the 2001 Stock
Incentive Plan may not be transferred in any manner other than by will or by
the laws of descent and distribution, except as determined by the
Administrator, and may be exercised during the lifetime of the optionee only by
the optionee (unless otherwise determined by the Administrator and set forth in
the award agreement with respect to awards that are NQSOs). Options granted
under the 2001 Stock Incentive Plan generally expire three months after the
termination of the optionee's service to Specialty Catalog or a parent,
affiliate, or subsidiary of Specialty Catalog, except in the case of death or
disability, in which case the options generally may be exercised up to 6 months
following the date of death or termination of service. Options will generally
terminate immediately upon termination for cause.

Restricted Stock. The Administrator may make grants of restricted stock
for cash or other consideration, as the Administrator determines. The number of
shares of Common Stock granted to each grantee will be determined by the
Administrator. Grants of restricted stock will be made subject to such
restrictions and conditions as the Administrator may determine in its sole
discretion, including periods of restriction on transferability during which
time the grant may be required to be deposited with an escrow agent, if the
Administrator so determines.

Other. Among other things, the 2001 Stock Incentive Plan also provides for
awards of stock bonuses for past or future services rendered to Specialty
Catalog.

The foregoing is a brief summary of the material provisions of the 2001
Stock Incentive Plan. A draft of the 2001 Stock Incentive Plan is filed as an
exhibit to the Schedule 13E-3 filed by Specialty Catalog and is incorporated
herein by reference.

Engagement of Marlin Holdings, LLC

On February 16, 2001, Specialty Catalog engaged Marlin Holdings, LLC
("Marlin") to assist Specialty Catalog with the structure, financing and
coordination of any management buyout or other privatization transaction. The
agreement with Marlin provides for reimbursement of expenses incurred by Marlin
on any such endeavors, and payment of $250,000 upon closing of a transaction,
subject to downward adjustment as provided in the agreement. Martin Franklin, a
director of Specialty Catalog, is Chairman and Chief Executive Officer of
Marlin.

The foregoing is a brief summary of the material provisions of the Marlin
engagement letter. This summary is qualified in its entirety with reference to
the Marlin engagement letter, a copy of which is filed as an exhibit to
Schedule 13E-3 filed by Specialty Catalog and incorporated herein by reference.

Rights Agreement Amendment

On April 11, 2000, the board of directors of Specialty Catalog adopted a
stockholder rights plan pursuant to a rights agreement dated as of April 11,
2000, between Specialty Catalog and Continental Stock Transfer and Trust
Company, as rights agent. The rights agreement is effective as of April 11,
2000 for all shares of common stock of Specialty Catalog outstanding on such
date and for certain shares of common stock issued thereafter. Pursuant to the
rights agreement, at any time a person (other than an "exempt person") becomes
the beneficial owner of 15% or more of Specialty Catalog's common stock, a
"right" is exercisable by the registered holder of a right certificate to
purchase1/1000th of a share of series A preferred stock of Specialty Catalog,
subject to adjustment, at an exercise price per 1/1000th of a share of series A
preferred stock of $15, subject to adjustment. Each 1/1000th of a share of
series A preferred stock will have economic attributes (i.e., participation in
dividends and voting rights) substantially equivalent to one whole share of the
common stock of Specialty Catalog. The rights expire on the tenth anniversary
of the date of the rights agreement unless earlier redeemed or exchanged by
Specialty Catalog as provided in the rights agreement.

Prior to the execution of the merger agreement, Specialty Catalog entered
into an amendment to the rights agreement. In accordance with the amendment,
the definition of "exempt person" was amended to include any person or persons,
or persons later joining such person or group of persons, who, prior to the
time they become the beneficial owner of 15% or more of Specialty Catalog's
common stock, receives the approval of the board of directors of Specialty
Catalog for the underlying transaction or transactions which results in the
beneficial ownership of 15% or more of Specialty Catalog's common stock. The
Continuing Stockholders are "exempt persons" because the merger agreement and
the transactions contemplated thereby have received the approval of our board
if directors prior to the time the Continuing Stockholders become the
beneficial owner of more than 15% of Specialty Catalog's common stock as a
result of such transactions.

The foregoing is a brief summary of the material provisions of each of the
rights agreement and the amendment to the rights agreement. The amendment to
the rights agreement is filed as an exhibit to the Schedule 13E-3 filed by
Specialty Catalog and is incorporated herein by reference.

ESTIMATED FEES AND EXPENSES

Estimated fees and expenses to be incurred by Specialty Catalog upon
consummation of the merger are approximately as follows:

Financing Fees and Expenses ........................... $ 241,875
Advisory Fees and Expenses ............................ 215,000
Legal, Accounting and Consulting Fees and Expenses
Sullivan & Cromwell .................................. 100,000
Kane Kessler ......................................... 310,680
Management Bonus ...................................... 100,000
Directors and Officers' Insurance ..................... 46,000
Depositary and Paying Agent Fees and Expenses ......... 10,000
SEC Filing Fee ........................................ 2,445
Printing, Mailing and Miscellaneous Costs ............. 47,000
----------
Total .............................................. $1,073,000
==========

Specialty Catalog, as the surviving company, will be responsible for all of
the foregoing fees and expenses if the merger occurs. If the merger is not
consummated, each of Specialty Catalog, on the one hand, and Acquisition Corp.,
on the other, will pay its own fees and expenses, provided that Specialty
Catalog will be obligated under certain circumstances to reimburse Acquisition
Corp. for its expenses. See "SUMMARY OF THE THE MERGER AGREEMENT -- Termination
Fee and Expenses."

PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS

No provision has been made to grant unaffiliated stockholders of Specialty
catalog (which stockholders include all of Specialty Catalog's stockholders
other than Acquisition Corp. and its current and future stockholders) access to
the corporate files of Specialty Catalog or any other party to the merger or to
obtain counsel or appraisal services at the expense of Specialty Catalog or any
other such party.

SUMMARY OF THE MERGER AGREEMENT

The following describes the material terms of the merger agreement and
amendment no. 1 to the merger agreement. The full text of each of the merger
agreement and amendment no. 1 to the merger agreement is attached to this proxy
statement as Appendix A and is incorporated herein by reference. We encourage
you to read the entire merger agreement. It is the legal document that governs
the merger.

Merger Agreement

Effective Time of the Merger. The merger agreement provides that the
closing of the merger will take place as soon as practicable after the
satisfaction or waiver of the conditions to the merger. At the closing, the
parties will file the necessary documents with the Secretary of State of the
State of Delaware to complete the merger. We expect that, if all conditions to
the merger have been satisfied or waived, the effective time will occur in the
summer of the year 2001.

General. The merger agreement provides that, subject to satisfaction of
several conditions, Acquisition Corp. will be merged with and into Specialty
Catalog, and that following the merger, the separate existence of Acquisition
Corp. will cease and Specialty Catalog will continue as the surviving
corporation. At the effective time, and subject to the terms and conditions set
forth in the merger agreement, each of the following will occur:

o the stockholders of Specialty Catalog will receive $3.75 in cash,
without interest, for each share of Specialty Catalog common stock that
they own, other than (i) shares owned by Acquisition Corp. and (ii)
shares owned by stockholders who have perfected their dissenters'
appraisal rights. Shares held in the treasury of Specialty Catalog will
be canceled in the merger;

o each outstanding, unexercised option, warrant or other right to purchase
Specialty Catalog's common stock issued pursuant to the 1996 Stock
Incentive Plan, as amended, and the 2000 Stock Incentive Plan will be
canceled and converted into consideration of a cash payment equal to the
difference between $3.75 per share and the exercise price of the option
if the exercise price is less than $3.75 per share, less any required
withholding taxes; and

o Specialty Catalog common stock will no longer be publicly traded.

Surrender and Exchange of Stock Certificates. Prior to the effective time
of the merger, Acquisition Corp. will deposit with an exchange agent, cash
equal to the amount to be paid to holders of Specialty Catalog common stock as
a result of the merger. Promptly after the effective time of the merger, the
exchange agent will send to each record holder of Specialty Catalog common
stock instructions how to exchange such holder's Specialty Catalog common stock
certificate for $3.75 in cash. Upon surrender to the exchange agent of an
outstanding certificate or certificates which represent Specialty Catalog
common stock and acceptance of such certificate or certificates by the exchange
agent, the exchange agent will deliver to the holder of such certificate or
certificates the amount of merger consideration owed to the holder. No interest
will be paid or accrue on any cash payable to any holder of Specialty Catalog
common stock.

Any portion of the merger consideration payable to holders of Specialty
Catalog common stock which remains undistributed for 180 days after the
effective time shall be delivered to the surviving corporation. After that
period of time, any holder of Specialty Catalog common stock who has not
previously exchanged his certificates may only look to the surviving
corporation and only as a general creditor for payment of that portion of the
merger consideration owed to him under the merger agreement.

If you do not have your Specialty Catalog common stock certificate, you
may make an affidavit of that fact. In addition, the surviving corporation may
require that you indemnify it against any claim that may be made against it or
Acquisition Corp. with respect to the missing stock certificate. Upon receipt
of the affidavit and any required indemnity, the exchange agent will issue the
merger consideration payable to you.

Stock Option Plan and Related Matters. Specialty Catalog has agreed to
effect the cancellation at the effective time of all outstanding, unexercised
options, warrants or other rights to purchase Specialty Catalog's common stock
issued pursuant to the 1996 Stock Incentive Plan, as amended, and the 2000
Stock Incentive Plan in exchange for a cash payment. For each canceled option,
warrant, or other right to purchase common stock, the holder will receive a
cash payment equal to the difference between $3.75 per share and the exercise
price of the option if the exercise price is less than $3.75 per share, less
any required withholding taxes. Upon Acquisition Corp.'s request, we must take
all necessary action to terminate our current employee stock option plans, the
1996 Stock Incentive Plan and the 2000 Stock Incentive Plan, as of the
effective time of the merger.

Representations and Warranties. The merger agreement contains customary
representations and warranties of Specialty Catalog and its subsidiaries
relating to various aspects of its business and financial statements and other
matters, including among other things:

o its organization, qualification, standing and power,

o its certificate of incorporation, bylaws and stock transfer records,

o its capital structure,

o its subsidiaries,

o its authority to enter into and the validity and effectiveness of the
Merger Agreement,

o the absence of conflicts, violations or defaults under its certificate
of incorporation, bylaws and certain other agreements in connection with
the merger,

o the consents and approvals required of certain governmental entities
relating to the merger,

o the documents and reports filed with the Securities and Exchange
Commission and the accuracy and completeness of the information contained
therein,

o the absence of defaults under its certificate of incorporation, bylaws
and material contracts,

o its compliance with applicable laws,

o the absence of certain changes since December 30, 2000,

o the absence of undisclosed liabilities,

o any litigation or other third-party claims relating to the merger or the
transactions contemplated thereby,

o this proxy statement and the Schedule 13E-3 filed with the S.E.C. and
the accuracy and completeness of the information contained herein and
therein,

o environmental matters,

o the inapplicability or waiver of any anti-takeover laws,

o the determinations of the special committee and the board of directors
and the fairness of the merger, and

o the identity of its financial advisor.

The merger agreement also contains customary representations and
warranties of Acquisition Corp. relating to various aspects of their
businesses, including among other things:

o its organization, qualification, standing and power,

o its authority to enter into and the validity and effectiveness of the
merger agreement,

o the absence of conflicts, violations or defaults under their
organizational documents and certain other agreements in connection with
the merger,

o the absence of required consents and approvals of certain governmental
entities relating to the merger,

o the vote of the Board of Directors and stockholders of Acquisition Corp.
in favor of the merger,

o its payment of any brokers, finders or investment banker fees, and

o the accuracy and completeness of the information contained in the
Schedule 13E-3 filed herewith.

The representations and warranties expire at the effective time of the
merger, or upon the termination of the merger agreement in accordance with its
terms, unless waived earlier by either party.

Conduct of Business Prior to the Merger. Specialty Catalog has agreed that
prior to the merger it will operate its business in the ordinary course
consistent with past practices and will use its reasonable efforts to preserve
intact its business organization, retain the services of its current officers
and employees, maintain satisfactory relationships with third parties and
maintain its insurance coverage.

In addition, the merger agreement places specific restrictions on the
ability of Specialty Catalog and its subsidiaries to:

o amend its certificate of incorporation or bylaws (or other charter
documents);

o authorize for issuance, issue, sell, deliver, or pledge any capital
stock, debt or other securities convertible into capital stock or
equivalents, or amend any of the terms of the foregoing, other than the
issuance of Specialty Catalog common stock upon the exercise of
outstanding rights under its stock option plans;

o except for the issuance of Specialty Catalog common stock upon the
exercise of options or the repurchase of common stock to the extent
required under existing employee stock repurchase agreements or the
cancellation of non-vested options of terminated employees:

o split, combine or reclassify any shares of Specialty Catalog capital
stock, or authorize or propose the issuance or authorization of any
other securities in respect of, in lieu of, or in substitution for
shares of Specialty Catalog capital stock, or declare, set aside or
pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of Specialty Catalog
capital stock, adopt or approve any rights plan, or repurchase,
redeem or otherwise acquire any of Specialty Catalog's securities or
its subsidiaries' securities, or

o declare or pay any dividend of any kind, make any payment of cash or
other property to stockholders or to terminate, cancel or otherwise
settle any outstanding options under the Specialty Catalog stock
option plan;

o issue any new options or equivalent instruments of any kind;

o without prior consultation with Acquisition Corp., commence any
litigation or arbitration other than in accordance with past practice or
settle any litigation or arbitration involving payments by Specialty
Catalog of more than $50,000, or if as part of such settlement, agree to
any restrictions on the operations of Specialty Catalog or its
subsidiaries;

o waive, release or amend its rights under any confidentiality,
"standstill" or similar agreement that Specialty Catalog entered into in
connection with its consideration of a potential strategic transaction;
provided, however, that Specialty Catalog may waive, release or amend its
rights under any such confidentiality, "standstill" or similar agreement
if the board of directors of Specialty Catalog determines, based on the
advice of independent legal counsel, that failure to do so would be
reasonably likely to constitute a breach of Specialty Catalog's duties to
its stockholders; and

o agree to take any actions prohibited by the merger agreement.

No Solicitation. In the merger agreement, Specialty Catalog has agreed
that:

o it will not, and will not authorize or permit any of its subsidiaries or
any of its directors, officers, employees or other representatives
(including all of its advisors) to, directly or indirectly, solicit,

initiate, request or take any other action to facilitate (including by
way of providing non-public information) any inquiries or the making of
any Acquisition Proposal (as defined below) or participate in any
discussions or negotiations regarding any Acquisition Proposal;

o it will immediately communicate to Acquisition Corp. orally and in
writing any request for non-public information, any Acquisition Proposal,
and any decision by Specialty Catalog to furnish information regarding
Specialty Catalog and its subsidiaries to a third party who has made an
Acquisition Proposal and plans to participate in discussions regarding
the Acquisition Proposal, including the material proposed terms of the
Acquisition Proposal and the identity of the third party, and subject to
certain specified confidentiality obligations, will keep Acquisition
Corp. reasonably informed of the status of such request or Acquisition
Proposal and will provide updated information with respect to the
material terms and the third party upon request by Acquisition Corp.; and

o it will communicate to Acquisition Corp., orally and in writing, at
least 24 hours (but notice given on a non-business day, or after 6:00
p.m. on a business day, takes effect on the first business day
thereafter) prior to entering into an acquisition agreement related to a
Superior Proposal (as defined below), the identity of the third party and
the material proposed terms of the Superior Proposal, and, subject to
certain specified confidentiality obligations, will provide updated
information with respect to such third party and the material proposed
terms of such Superior Proposal upon request by Acquisition Corp.

However, the merger agreement does not prohibit:

o the Specialty Catalog board of directors from determining, in good
faith, after consulting with outside counsel or its financial advisor,
that in order to act in a manner consistent with its fiduciary duties to
the Specialty Catalog stockholders under applicable law, that Specialty
Catalog may, following receipt from a third party of an Acquisition
Proposal that may lead to a Superior Proposal:

o furnish information about Specialty Catalog and its subsidiaries
pursuant to a confidentiality agreement with such third party which
contains certain terms specified in the merger agreement, and

o participate in discussions or negotiations regarding the Acquisition
Proposal with the party making the Acquisition Proposal; or

o withdraw, modify, or propose publicly to withdraw or modify, its
approval or recommendation of the merger agreement and the merger,

o approve or recommend, or propose publicly to approve or recommend, a
Superior Proposal, or

o cause Specialty Catalog to enter into an agreement related to a
Superior Proposal and terminate the merger agreement and accept the
Superior Proposal.

The term "Acquisition Proposal" means any inquiries or the making of any
proposal or offer from any third party other than Acquisition Corp. or its
affiliates regarding any merger, consolidation, share exchange,
recapitalization, sale of substantial assets (other than in the ordinary course
of business), sale or purchase of (or right to sell or purchase) shares of
capital stock (other than pursuant to the exercise of stock options outstanding
on the date of the Merger Agreement) tender offer or similar transactions
involving Specialty Catalog or any of its subsidiaries.

The term "Superior Proposal" means any Acquisition Proposal that the
Specialty Catalog board of directors determines in good faith (after
consultation with and based upon the advise of outside counsel or its financial
advisor) to be of a higher price per share and more favorable than the merger.

Conditions to the Merger. The respective obligations of each party to
complete the merger are subject to the satisfaction prior to the effective time
of the following conditions:

o adoption of the merger agreement and the merger by the affirmative vote
of the holders of a majority of shares of Specialty Catalog common stock;

o no temporary restraining order, preliminary or permanent injunction,
judgment or other order, decree or ruling, nor any statute, rule,
regulation, SEC stop order or other order preventing the consummation of
the merger will be in effect; and

o upon the written request of either Acquisition Corp., or Specialty
Catalog, Specialty Catalog shall deliver to the Acquisition Corp. or the
special committee, (i) a pro forma balance sheet of Specialty Catalog, on
a consolidated basis, as of the effective time of the merger (and
reflecting any debt incurred by the Specialty Catalog to finance the
merger), (ii) a Solvency Certificate regarding solvency matters of
Specialty Catalog, and (iii) projections for Specialty Catalog's
operations, on a consolidated basis, for the period covered by the
solvency certificate.

The obligation of Acquisition Corp. to effect the merger is further
subject to the following conditions:

o the receipt of cash proceeds from debt and equity financings sufficient
to consummate the transactions contemplated by this Agreement;

o the representations and warranties of Specialty Catalog and its
subsidiaries set forth in the merger agreement will be true and correct
in all material respects both as of the date of the merger agreement and
as of the closing date of the merger, except for any representations and
warranties that address matters only as of a particular date (which shall
remain true and correct as of such date);

o Specialty Catalog will have performed and complied, individually or in
the aggregate, with the covenants required to be performed by it under
the merger agreement at or prior to the closing date;

o there shall not have occurred any event or condition, or series of
events or conditions, that has had or would reasonably be expected to
have a material adverse effect on the business, properties, assets,
results of operations or financial condition of Specialty Catalog and its
subsidiaries taken as a whole;

o Specialty Catalog will have obtained consent to the merger from certain
third parties necessary to consummate the merger;

o the Rights Plan of Specialty Catalog will have been terminated at
Acquisition Corp.'s reasonable satisfaction; and

o Specialty Catalog stockholders holding voting stock representing more
than 5% of its outstanding stock will not have exercised their
dissenters' rights.

The obligation of Specialty Catalog to effect the merger is further
subject to the following conditions:

o the representations and warranties of Acquisition Corp. set forth in the
merger agreement will be true and correct in all material respects both
as of the date of the merger agreement and as of the closing date of the
merger, except for any representations and warranties that address
matters only as of a particular date (which shall remain true and correct
as of such particular date);

o Acquisition Corp. will have performed and complied in all material
respects with the covenants required to be performed by it under the
merger agreement at or prior to the closing date; and

o Acquisition Corp. will have deposited the deposit amount with the
exchange agent to be held in trust for the benefit of the holders of
certificates of Specialty Catalog common stock.

Termination. The merger agreement may be terminated at any time prior to
the merger as follows:

o by mutual written consent of the boards of directors of Specialty
Catalog and Acquisition Corp.;

o by either Specialty Catalog or Acquisition Corp. if any court of
competent jurisdiction in the United States or other governmental entity
issues a final and non-appealable order, decree or ruling, or takes any
other action restraining, enjoining or otherwise prohibiting the merger;

o by either Specialty Catalog or Acquisition Corp. if there has been a
material breach by the other party of any representation, warranty,
covenant or agreement contained in the merger agreement, unless the
breach is cured within 20 days after the giving of written notice of the
breach;

o by either Specialty Catalog or Acquisition Corp., if Specialty Catalog's
board of directors has withdrawn or modified, in any manner which is
adverse to Acquisition Corp., its recommendation or approval of the
merger agreement and the merger, or has approved an alternative
acquisition proposal, or has failed to endorse the merger with
Acquisition Corp. in the proxy statement or publicly resolved to do any
of the foregoing;

o by Acquisition Corp. if Specialty Catalog enters into an acquisition
agreement relating to an Acquisition Proposal, or if there has been a
material breach by Specialty Catalog of any covenant or agreement set
forth in merger, which breach arises primarily from the actions taken, or
the failure to act, by the Special Committee, unless cured within 20 days
after the giving of written notice of the material breach;

o by Specialty Catalog, if it enters into an acquisition agreement
relating to an Acquisition Proposal provided Specialty Catalog has made
all regulatory filings pursuant to the merger; or

o by either Specialty Catalog or Acquisition Corp. if the effective time
has not occurred by August 31, 2001.

o Termination Fees and Expenses. Whether or not the merger is consummated,
most expenses incurred in connection with the merger agreement and the
merger will be paid by the party incurring those expenses. In the event
of the termination of the merger agreement, additional expenses outlined
below will be paid by the corresponding party.

o Specialty Catalog will reimburse Acquisition Corp. for all its
reasonable out-of-pocket expenses incurred in connection with the merger
and the consummation of the transactions contemplated by the merger
(including, reasonable attorneys' fees and disbursements, depository fees
and expenses, fees payable to lenders, the fees of accountants and
financial advisors, and filing fees and printing costs) as liquidated
damages if the merger agreement is terminated:

o by Acquisition Corp. if Specialty Catalog enters into an acquisition
agreement relating to an Acquisition Proposal, or if there has been a
material breach by Specialty Catalog of any covenant or agreement set
forth in merger, which breach arises primarily from the actions taken, or
the failure to act, by the special committee, cured within 20 days after
the giving of written notice of the material breach, or

o by Specialty Catalog, if it enters into an acquisition agreement
relating to an Acquisition Proposal provided Specialty Catalog has made
all regulatory filings pursuant to the merger.

Acquisition Corp. is entitled to reimbursement in an amount up to
$400,000.00; provided, however, that the limitation of $400,000 shall not be
applicable in the event that Specialty Catalog consummates an Acquisition
Proposal that was inquired or made prior to the termination of the merger.
However, in the event that at the special meeting relating to the merger, the
merger and the merger agreement are not approved and adopted by the affirmative
vote of a majority of the shares held by the stockholders of Specialty Catalog,
Specialty Catalog shall not be obligated to reimburse Acquisition Corp. for any
expenses.

Indemnification. The merger agreement provides that, for a period of six
years after the effective time, the surviving corporation will indemnify the
present and former officers, directors, employees and agents of Specialty
Catalog from liabilities arising out of actions or omissions in their capacity
as such prior to or at the effective time of the merger, to the full extent
provided for in Specialty Catalog's certificate of incorporation and by-laws.
Furthermore, none of these documents will be amended to limit

the indemnity rights of the above persons. In addition, the surviving entity
will maintain directors' and officers' insurance coverage for six years after
the effective time on terms no less favorable to such indemnified parties than
existing insurance coverage, but the surviving corporation will not be required
to pay an annual premium in excess of 150% of the last premium paid prior to
the date of the merger agreement.

Amendment. The merger agreement may be amended, modified or supplemented,
only by written agreement of Acquisition Corp. and Specialty Catalog at any
time prior to the effective time. However, after the required Specialty Catalog
stockholder approval, no amendment may be made without further approval by the
stockholders of Specialty Catalog to the extent such approval is required by
law. Any amendment or modification of the merger agreement must be approved by
the special committee.

Waiver. At any time prior to the effective time, whether before or after
the special meeting, by written instrument, Acquisition Corp. or Specialty
Catalog may extend the time for performance of any of the obligations or other
acts of the other party or waive compliance with any of the agreements of the
other party or with any conditions to its own obligations. However, any waiver
by Specialty Catalog must be approved by the special committee. The
determination to extend or waive a condition to closing of the merger will be
based upon the facts and circumstances of the particular situation. However, we
would only expect to resolicit stockholders' votes in the event there is a
change in the form, timing, or amount of the merger consideration. At this
time, we are unaware of any conditions that will not be satisfied prior to
closing.

Amendment No. 1 to the Merger Agreement

The provision that the merger agreement may be terminated at any time
prior to the merger by either Specialty Catalog or Acquisition Corp. if the
effective time has not occurred by August 31, 2001 was amended by amendment
no. 1 to the merger agreement. The merger agreement, as amended, provides that
Specialty Catalog or Acquisition Corp. may terminate the merger agreement if the
effective time shall not have occurred on or before the earlier of (i) November
15, 2001 or (ii) four business days after the date of the special meeting
indicated in this proxy statement.

INFORMATION ABOUT THE TRANSACTION PARTICIPANTS

THE CONTINUING STOCKHOLDERS

The Continuing Stockholders are Joseph Grabowski, Specialty Catalog's
President and Chief Executive Officer, Thomas McCain, Specialty Catalog's
Senior Vice President and Chief Financial Officer, Acquisition Corp. and the
stockholders of Acquisition Corp., which currently includes Mr. Naggar, who is
a member of Specialty Catalog's board of directors, First Global, Oracle,
Ionic, Three Greens, and Alexander and, upon consummation of the transactions
contemplated by the subscription agreements which shall occur prior to the
merger, will include Martin Franklin, who is a member of Specialty Catalog's
board of directors, The David Cicurel Settlement, LEG Partners III, LEG
Partners Debenture, Wynnefield Partners, Wynnefield Partners I, and Wynnefield
Offshore.

Acquisition Corp. Specialty Acquisition Corp. is a Delaware corporation
formed at the direction of Mr. Guy Naggar, a director of the Specialty Catalog,
for the purpose of merging with and into the Specialty Catalog.

Guy Naggar, an Italian citizen, has been Chairman of Dawnay, Day & Co.
Limited, a UK investment bank founded in 1928, which is a member of the London
Investment Banking Association, since 1981. Immediately prior to becoming
Chairman of Dawnay, Day & Co. Limited, Mr. Naggar was a Director of the
Charterhouse Group Plc and Deputy Chairman of its subsidiary, Charterhouse
Bank. Mr. Naggar has been a Director of Paramount Plc, a UK listed company
since May 3, 2001 and he is a board member of various other private companies.

First Global, Oracle, Ionic, and Three Greens. First Global Holdings
Limited, Three Greens Holdings Limited, and Oracle Investments and Holdings
Limited are entities formed under the laws of the

British Virgin Islands, whose principal business is investments. Ionic Holdings
LDC is an entity organized under the laws of the Cayman Islands. The Marion
Naggar's Children's Settlement (the "Marion Trust") and the GA Naggar 1982
Settlement (the "GA Naggar Trust") are trusts organized under the laws of
England and Wales. The Marion Trust was formed for the benefit of Marion
Naggar's children. Marion Naggar, Mr. Naggar's wife, is not a beneficiary of
the Marion Naggar Trust. The GA Naggar Trust was formed for the benefit of Guy
Naggar, Marion Naggar, and Mr. and Mrs. Naggar's children. The Marion Trust is
the sole stockholder of each of First Global, Oracle and Ionic. The GA Naggar
Trust is the sole stockholder of Three Greens. Abacus (C.I.) Limited and Abacus
Trustees (Jersey) Limited, both entities organized under the laws of Jersey,
are the trustees of each of the trusts and have the authority to appoint the
directors of First Global, Oracle, Three Greens, and Ionic.

Alexander. Alexander Enterprise Holding Corp. is a private investment
company formed under the laws of the British Virgin Islands. Nicolas Berggruen,
investment advisor to Alexander, is also the president of Alpha Investment
Management LLC, a registered investment adviser based in New York, New York. He
previously worked for the real estate arm of Bass Brothers Enterprise, a family
held investment company. He later joined Jacobson & Co., a firm that
specialized in leveraged buyouts, and was a principal at that firm until 1987.
Mr. Berggruen received a Bachelor of Science in Finance and International
Business from New York University in 1981.

The David Cicurel Settlement. The David Cicurel Settlement was formed by
David Cicurel. Abacus (CI) Limited is the sole trustee of The David Cicurel
Settlement. David E. Cicurel has served as one of our directors since June
1999. Mr. Cicurel is a consultant with substantial experience in restructuring
both publicly-held and privately-held companies. He restructured and took
private Continental Foods plc., a snack foods company that was listed on the
International Stock Exchange. He also restructured International Communication
& Data plc., a U.K. listed consumer database company. He is also an outside
director of Dawnay Day & Co. Limited, a U.K. investment bank.

Martin E. Franklin. Martin E. Franklin has served as one of our directors
since November 1994. Mr. Franklin has been Chairman and Chief Executive Officer
of Marlin Holdings, LLC and the general partner of Marlin Capital, L.P., a
private investment firm since October 1996. From February 1997 through February
2000, Mr. Franklin served as Chairman of the Board of Directors of Bolle Inc.,
an AMEX company, which is a manufacturer, marketer and distributor of premium
eyewear. From May 1996 until March 1998, Mr. Franklin served as Chairman and
Chief Executive Officer of Lumen Technologies, Inc., a NYSE company, which is a
manufacturer and distributor of specialty lighting equipment, and served as
Executive Chairman of Lumen Technologies, Inc. from March 1998 until December
1998. Mr. Franklin was Chairman of the Board and Chief Executive Officer of
Lumen's predecessor, Benson Eyecare Corporation, from October 1992 to May 1996
and President of Benson Eyecare Corporation from November 1993 until May 1996.
Mr. Franklin was non-executive Chairman and a director of Eyecare Products plc,
a London Stock Exchange Company, from December 1993 until February 1999. Mr.
Franklin has served as a director of Corporate Express, Inc., a Nasdaq listed
company from March 1999 through November 1999. Mr. Franklin also serves on the
boards of a number of privately held companies and charitable organizations.
Mr. Franklin received a B.A. in Political Science from the University of
Pennsylvania in 1986.

Joseph Grabowski. Joseph Grabowski has been Chief Executive Officer of
Specialty Catalog since July 1, 2000 and has been President of Specialty
Catalog since May 8, 2000. Prior to joining Specialty Catalog, Mr. Grabowski
was president and chief executive officer of Carol Wright Gifts, a general
merchandise and specialty product catalog company. From January 1996 to
September 1997, Mr. Grabowski was president and chief executive officer of
Brownstone Studios, a women's apparel catalog company. Mr. Grabowski's previous
experience in direct marketing and catalog retailing includes senior-level
positions at Haband, J. Crew, Inc. and Doubleday and Co. Mr. Grabowski received
his BA degree in Economics and his MBA degree from Rutgers University.

Thomas McCain. Thomas McCain has been Senior Vice President and Chief
Financial Officer of Specialty Catalog since June 1999. From October 1998 to
June 1999, Mr. McCain was Senior Vice President of Finance and Chief Financial
Officer of Paul Harris Stores, Inc. Prior to October 1998, Mr.

McCain was employed by Edison Brothers Stores, Inc., for more than five years,
as Vice President and Controller, Vice President of Tax and Financial
Reporting, Vice President of Tax and Treasury, Vice President of Tax and
Assistant Treasurer prior to May 1996. He graduated with a BS degree from
Southeast Missouri State University and received his MBA degree from the John
M. Olin School of Business at Washington University in St. Louis.

Wynnefield. Wynnefield Partners and Wynnefield Partners I, each a Delaware
limited partnership, and Wynnefield Offshore, a Cayman Islands corporation, are
private investment companies. Wynnefield Capital Management, LLC, a New York
limited liability company, is the general partner of Wynnefield Partners and
Wynnefield Partners I and Wynnefield Capital, Inc., a Delaware corporation, is
the investment manager of the Wynnefield Offshore. Nelson Obus and Joshua
Landes are the managing members of Wynnefield Capital Management, LLC and the
principal executive officers of Wynnefield Capital, Inc.

LEG Partners III and LEG Partners Debenture. LEG Partners III SBIC, L.P.
and LEG Partners Debenture SBIC, L.P. are privately owned investment
partnerships which are in the business of acquiring for investment and trading
purposes, securities and other financial instruments. Golub PS-GP, LLC, a
Delaware limited liability company, is the general partner of LEG Partners III.
Golub Debenture GP, LLC, a Delaware limited liability company, is the general
partner of LEG Partners Debenture. Golub Associates Incorporated, a Delaware
corporation, provides administrative and operational services to LEG Partners
III and LEG Partners Debenture. Lawrence E. Golub is the managing member of
Golub PS-GP, LLC and the president of Golub Associates Incorporated. LEG
Partners Debenture is an affiliate of Golub Associates Incorporated.

During the last five years, none of the Continuing Stockholders has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors). During the last five years, none of the Continuing Stockholders
was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which any person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.

SPECIALTY CATALOG

Specialty Catalog Corp. is a Delaware corporation that targets niche
consumer product categories, primarily via direct marketing. SC Direct, our
principal operating subsidiary in the United States ("SC Direct"), is the US's
leading retailer of women's wigs and hairpieces. Daxbourne International
Limited, a subsidiary of SC Direct, is a leading United Kingdom retailer and
wholesaler of women's wigs and hairpieces. SC Publishing, another subsidiary of
SC Direct, provides continuing education courses, seminars, and conferences to
nurses and other health care professionals.

This Proxy Statement is accompanied by a copy of our Annual Report to
stockholders for the year ended December 30, 2000 and our Quarterly Report on
Form 10-Q for the period ended June 30, 2001, which contains important
information about Specialty Catalog.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table and footnotes sets forth certain information regarding
the beneficial ownership of the Specialty Catalog common stock as of September
25, 2001, by: (i) each person known by Specialty Catalog to own beneficially
five per cent or more of the Common Stock, (ii) each of Specialty Catalog's
directors, (iii) each of the executive officers named in the Summary
Compensation Table and (iv) all directors and executive officers as a group.
Specialty Catalog believes that each of the beneficial owners of the common
stock listed in the table, based on information furnished by such owner, has
sole investment and voting power with respect to such shares, except as may be
otherwise noted in the footnotes hereto. Unless otherwise indicated, the
address of each person named in the table below is c/o Specialty Catalog Corp.,
21 Bristol Drive, South Easton, MA 02375.

NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENTAGE (1)
--------------------------------------------------- -------------------- ---------------

Joseph Grabowski .................................. 94,333(2) 2.1%
Thomas K. McCain .................................. 44,934(3) 1.0%
David E. Cicurel .................................. 44,444(4) 1.0%
David Cicurel Investments Limited
14 New Burlington Street
London, England W1X 1FF
Martin E. Franklin ................................ 368,955(5) 8.5%
Marlin Holdings, Inc.
555 Theodore Fremd Avenue
Rye, New York 10580
Samuel L. Katz .................................... 98,008(6) 2.2%
Cendant Corporation
9 West 57th Street
New York, New York 10019
David L. Moore .................................... 0 *
Sonostar Ventures, LLC
2 Executive Drive, Suite 900
Fort Lee, NJ 07024
Guy Naggar ........................................ 409,100(7) 9.4%
Dawnay, Day & Co., Ltd.
15 Grosvenor Gardens
London, England SW1W 0BD
Steven L. Bock .................................... 425,160(8) 9.0%
10 Graystone Lane
Weston, MA 02193
LEG Partners III SBIC, L.P ........................ 602,689(9) 13.9%
555 Madison Ave. 30th Floor
New York, New York 10022
Alexander Enterprise Holding Corp ................. 279,700(10) 6.4%
499 Park Avenue
New York, New York 10022
Marion Naggar's Children Settlement Trust ......... 733,966(11) 16.9%
Abacus (CI) Limited. ............................. 733,966(11) 16.9%
Abacus Trustees (Jersey) Limited ................. 733,966(11) 16.9%
First Global Holdings Limited .................... 244,655(11) 5.6%
Geneva Place, 2nd Floor
Wickham's Cay
Road Town
Tortola
British Virgin Islands
Oracle Investments & Holdings Limited ............ 244,656(11) 5.6%
Geneva Place, 2nd Floor
Wickham's Cay
Road Town
Tortola
British Virgin Islands
Ionic Holdings LDC ............................... 244,655(11) 5.6%
First Home Tower
British American Center
George Town, Grand Cayman
Cayman Islands
GA Naggar 1982 Settlement ......................... 98,376(11) 2.3%

NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENTAGE (1)
--------------------------------------------------------------------- -------------------- ---------------

Three Greens Holdings Limited ...................................... 98,376(11) 2.3%
Geneva Place, 2nd Floor
Wickham's Cay
Road Town
Tortola
British Virgin Islands
Wynnefield Partners Small Cap Value, L.P. ........................... 206,549(12) 13.9%
450 Seventh Avenue, Suite 509
New York, New York 10123
Wynnefield Partners Small Cap Value, L.P.I .......................... 248,050(12) 5.7%
450 Seventh Avenue, Suite 509
New York, New York 10123
Wynnefield Small Cap Value Offshore Fund, Ltd. ...................... 104,008(12) 2.4%
450 Seventh Avenue, Suite 509
New York, New York 10123
All executive officers and directors as a group (7 persons) ......... 1,046,441(13) 23.4%

----------
* Indicates less than 1%

(1) Applicable percentage of ownership is based upon 4,337,886 shares
outstanding. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission (the "SEC" or
"Commission") and generally includes voting and investment power with
respect to securities. Shares of common stock issued upon the exercise of
options and warrants currently exercisable or exercisable within 60 days
are deemed outstanding for computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding
for computing the percentage ownership of any other person.

(2) Includes 83,333 shares of common stock underlying stock options under the
2000 Stock Incentive Plan (the "2000 Plan") that are exercisable June 22,
2001 at a price of $2.50 per share.

(3) Includes 13,334 shares of common stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per
share. Includes 20,000 shares of common stock underlying stock options
under the 1996 Stock Incentive Plan (the "1996 Plan") that are
exercisable June 21, 2001 at a price of $6.50 per share. Includes 1,600
shares held in trust for Mr. McCain's son, with respect to which he
disclaims beneficial ownership.

(4) Includes 40,111 shares of common stock held by The David Cicurel
Settlement. Includes 1,000 shares of common stock underlying stock
options under the 1996 Plan that are exercisable at a price of $6.50 per
share. Includes 3,333 shares of common stock underlying stock options
under the 2000 Plan that are exercisable at a price of $2.50 per share.

(5) Includes 16,667 shares of common stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per
share. Includes 200 shares of common stock underlying stock options
issued under the 1996 Plan that are exercisable at a price of $6.50 per
share. Includes 15,000 shares held in trust for Mr. Franklin's minor
children with respect to which he disclaims beneficial ownership.

(6) Includes 3,333 shares of common stock underlying stock options under the
2000 Plan that are exercisable June 22, 2001 at a price of $2.50 per
share. Includes 200 shares of common stock underlying stock options
issued under the 1996 Plan that are exercisable at a price of $6.50 per
share.

(7) Includes 4,100 shares of common stock underlying stock options issued
under the 1996 Plan that are exercisable at a price of $6.50 per share.
Includes 3,333 shares of common stock underlying stock options under the
2000 Plan that are exercisable at a price of $2.50 per share.

(8) Includes 310,226 shares of common stock underlying stock options which
became exercisable upon

the consummation of Specialty Catalog's initial public offering at a price
of $0.3072 per share; and 75,000 shares of common stock underlying stock
options which became exercisable upon his termination from Specialty
Catalog at a price of $5.33 per share.

(9) LEG Partners III beneficially owns the 602,689 shares. Golub Associates
Incorporated provides administrative and operational services to LEG
Partners III. Golub PS-GP, LLC is the general partner of LEG Partners
III. Lawrence E. Golub is the managing member of Golub PS-GP, LLC and the
president of Golub Associates Incorporated. Each of LEG Partners III,
Golub PS-GP, LLC and Lawrence E. Golub may be deemed the beneficial owner
of the 602,689 shares.

(10) Nicolas Berggruen, in his capacity as investment advisor, may be deemed
to beneficially own 279,700 shares which are held of record by Alexander,
a British Virgin Islands corporation. Alexander has the right to receive,
or the power to direct the receipt of, dividends from, or the proceeds
from the sale of, such securities.

(11) Of the 733,966 total shares reported as beneficially owned by the Marion
Trust, First Global owns beneficially 244,655 of such shares, Oracle owns
beneficially 244,656 of such shares and Ionic owns beneficially 244,655
of such shares. Marion Naggar is the spouse of Guy Naggar, a director and
beneficial stockholder of Specialty Catalog. The Marion Trust is the sole
shareholder of each of Oracle, First Global and Ionic. Of the 98,376
total shares reported as beneficially owned by the GA Naggar Trust, Three
Greens owns beneficially 98,376 of such shares. The Naggar Trust was
formed for the benefit of Guy Naggar, Marion Naggar, and Mr. And Mrs.
Naggar's children and is the sole shareholder of Three Greens. Abacus
(CI) Limited and Abacus Trustees (Jersey) Limited are the trustees of
each trust and share power over the activities of each trust. Abacus (CI)
Limited and Abacus Trustees (Jersey) Limited have no direct voting or
dispositive power over shares held by either trust, but have the power to
direct the trusts to appoint directors of Oracle, First Global, Three
Greens, and Ionic and accordingly may be deemed to be the beneficial
owners of shares owned by each of Oracle, First Global, Three Greens, and
Ionic. Abacus (CI) Limited and Abacus Trustees (Jersey) Limited serve as
trustees in a fiduciary capacity and disclaim any beneficial ownership
over any shares held by the trusts. First Global disclaims beneficial
ownership of the shares owned by Oracle, Three Greens and Ionic. Oracle
disclaims beneficial ownership of the shares owned by First Global, Three
Greens and Ionic. Ionic disclaims beneficial ownership of the shares
owned by First Global, Three Greens, and Oracle. Three Greens disclaims
beneficial ownership of the shares owned by First Global, Oracle, and
Ionic.

(12) Wynnefield Partners, in its capacity as investment advisor, may be deemed
to beneficially own 206,549 shares that are held of record by its
clients. Those clients have the right to receive, or the power to direct
the receipt of, dividends from, or the proceeds from the sale of, such
securities. Wynnefield Partners, in its capacity as investment advisor,
may be deemed to beneficially own 248,050 shares that are held of record
by its clients. Those clients have the right to receive, or the power to
direct the receipt of, dividends from, or the proceeds from the sale of,
such securities. Wynnefield Offshore, in its capacity as investment
advisor, may be deemed to beneficially own 104,008 shares that are held
of record by its clients. Those clients have the right to receive, or the
power to direct the receipt of, dividends from, or the proceeds from the
sale of, such securities. Wynnefield Partners disclaims beneficial
ownership of the shares that may be deemed to be beneficially owned by
Wynnefield Partners I and Wynnefield Offshore, respectively. Wynnefield
Partners I disclaims beneficial ownership of the shares that may be
deemed to be beneficially owned by Wynnefield Partners and Wynnefield
Offshore, respectively. Wynnefield Offshore disclaims beneficial
ownership of the shares which may be deemed to be beneficially owned by
Wynnefield Partners and Wynnefield Partners I, respectively.

(13) Includes 143,300 shares of common stock underlying stock options that are
currently exercisable.

TRANSACTIONS IN SHARES OF COMMON STOCK BY CERTAIN PERSONS

There were no transactions in shares of Specialty Catalog common stock
that were effected during the past 60 days by Specialty Catalog, Acquisition
Corp., the Continuing Stockholders, or any of their

respective subsidiaries, directors, executive officers or controlling persons,
other than the purchase of 7,000 shares of common stock made in a market
transaction by Alexander Enterprise Holding Corp. on March 21, 2001, for the
aggregate purchase price of approximately $14,875.

CERTAIN PURCHASES OF SPECIALTY CATALOG COMMON STOCK

The following purchases of Specialty Catalog common stock were made by
Specialty Catalog, the Continuing Stockholders, or any of their respective
subsidiaries, directors, executive officers or controlling persons, since May
17, 1999:

(1) Guy Naggar. On August 25, 2000, your board of directors granted to
Mr. Naggar options to purchase 10,000 shares of our common stock.

(2) Three Greens. On March 20, 2000, New Henley Overseas Investments Inc.
("New Henley"), a Panamanian company, transferred 98,376 shares of our
common stock to Three Greens for a total purchase price of
$288,979.50. The sole shareholder of each of New Henley and Three
Greens is the GA Naggar 1982 Trust.

(3) No purchases of our common stock were made by Alexander in 1999.
Alexander made the following purchases of our common stock in 2000:
March 16: 40,000 shares; March 17: 20,000 shares; March 20: 30,000
shares; March 30: 1,600 shares; April 4: 8,400 shares; April 12: 500
shares; April 13: 600 shares; April 14: 11,000 shares; May 22: 500
shares; May 25: 7,400 shares; September 5: 50,000 shares; September
29: 16,700 shares; October 3: 2,700 shares; October 4: 25,200 shares;
October 11: 2,800 shares; October 13: 12,900 shares; November 28: 500
shares; November 29: 9,500 shares; November 30: 4,000 shares; December
14: 500 shares; December 15, 1,500 shares; December 18: 1,500 shares;
and December 19: 1,600 shares. Alexander has made the following
purchases of our common stock in 2001: January 9: 5,500 shares;
January 10: 6,600 shares; January 11: 7,900 shares; January 29: 600
shares; January 31: 2,000 shares; February 7: 700 shares; and March
21: 7,000 shares. All shares of our common stock purchased by
Alexander were purchased with the working capital of Alexander.

RECENT DEVELOPMENTS

On May 8, 2001, one of our subsidiaries, SC Publishing, Inc., sold our
home study Continuing Professional Education program for certified public
accountants under the "Western Schools" registered trade name to the California
Certified Public Accountants Education Foundation for the aggregate
consideration of approximately $150,000.

LEGAL PROCEEDINGS

We are, from time to time, a party to routine litigation arising in the
normal course of business. At the present time, we are not involved in any
litigation, nor are we aware of any potential litigation.

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

INDEPENDENT AUDITORS

Specialty Catalog's consolidated financial statements as of December 30,
2000, January 1, 2000, and January 2, 1999 and for the three fiscal years ended
December 30, 2000, January 1, 2000, and January 2, 1999, incorporated by
reference into this proxy statement, have been audited by Deloitte & Touche
LLP,

independent public accountants, as stated in their report with respect thereto.
It is expected that representatives of Deloitte & Touche LLP will be present at
the special meeting, both to respond to appropriate questions of stockholders
of Specialty Catalog and to make a statement if they desire.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

This proxy statement incorporates by reference the documents listed below
that Specialty Catalog has previously filed with the SEC (SEC file number
0-21499). The documents contain important information about Specialty Catalog
and its financial condition. Because there is no safe harbor for
forward-looking statements under the Private Securities Litigation Reform Act
of 1995 in connection with a going-private transaction such as the proposed
merger, the documents incorporated by reference herein are incorporated
exclusive of the language claiming the safe harbor.

(1) Specialty Catalog's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 30, 2000;

(2) Specialty Catalog's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2001.

(3) Specialty Catalog's Current Report on Form 8-K dated May 7, 2001.

STOCKHOLDER PROPOSALS FOR PRESENTATION AT THE 2001 ANNUAL MEETING

Specialty Catalog will hold its 2001 annual meeting of Specialty Catalog
stockholders only if the merger is not consummated. In the event that the 2001
annual meeting is held, stockholders wishing to submit a proposal to be
considered for inclusion in the proxy material for Specialty Catalog 2001
annual meeting must send it to the Corporate Secretary, Specialty Catalog 21
Bristol Drive, South Easton, MA 02375, not later than October 25, 2001 to be
eligible for inclusion in the proxy statement distributed by Specialty Catalog
in connection with its annual meeting. The annual meeting of stockholders, if
it is held, will be held on a day in the period from November 13 through
December 13, 2001.

OTHER MATTERS

The board of directors of Specialty Catalog knows of no other matters to
be presented at the special meeting. However, if any other matters properly
come before the special meeting, the persons named in the enclosed proxy will
vote on such matters in accordance with their best judgment.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly, and current reports, proxy statements, and
other information with the SEC. You may read and copy any reports, statements,
or other information that we filed at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our public filings are also available to the public from commercial document
retrieval services and at the Internet World Wide Website maintained by the SEC
at http://www.sec.gov. The SEC allows us to "incorporate by reference"
information into this document, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be a part of
this document, except for any information superseded by information contained
directly in this document. This document incorporates by reference certain
documents that we have previously filed with the SEC. These documents contain
important business information about Specialty Catalog and its financial
condition.

With the exception of our Current Report on Form 8-K dated May 7, 2001 in
which we only announced that we entered into the merger agreement, we have sent
to you all of the documents incorporated by reference, but you can obtain any
of them through us or the SEC or the SEC's Internet World Wide Web site
described above. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this document or the Schedule 13E-3 filed with the
SEC with respect to the merger. Stockholders may obtain documents incorporated
by reference in this document upon written or oral request to the following
address or telephone number: Specialty Catalog Corp., 21 Bristol Drive, South
Easton, MA 02375, Attention: Thomas McCain, Corporate Secretary.

We will send any document so requested to the requesting stockholder by
first class mail or other equally prompt means within one day of receiving such
request.

We have filed a Schedule 13E-3 with the SEC with respect to the merger. As
permitted by the SEC, this proxy statement omits certain information contained
in the Schedule 13E-3. The Schedule 13E-3, including any amendments and
exhibits filed or incorporated by reference as a part thereof, is available for
inspection or copying as set forth above. Statements contained in this proxy
statement or in any document incorporated herein by reference as to the
contents of any contract or other document referred to herein or therein are
not necessarily complete and in each instance reference is made to such
contract or other document filed as an exhibit to the Schedule 13E-3 or such
other document, and each such statement shall be deemed qualified in its
entirety by such reference.

If you would like to request documents from the company, please do so at
least five business days before the date of the special meeting in order to
receive timely delivery of such documents prior to the special meeting.

You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the special meeting. The
company has not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated
, 2001. You should not assume that the information contained
in this document is accurate as of any date other than that date, and the
mailing of this document to stockholders does not create any implication to the
contrary.

By Order of the Board of Directors

----------------------------------------
Thomas McCain, Senior Vice President,

Chief Financial Officer and Secretary

South Easton, Massachusetts
Dated: , 2001

Appendices

Appendix A--Agreement and Plan of Recapitalization and Merger
Appendix B--Opinion of Burnham Securities Inc.
Appendix C--Section 262 of the Delaware General Corporation Law

ANNEX A

AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER

BY AND BETWEEN

SPECIALTY ACQUISITION CORP.

AND

SPECIALTY CATALOG CORP.

DATED MAY 4, 2001

TABLE OF CONTENTS

TABLE OF DEFINED TERMS .......................................................... A-1
AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER ............................... A-3
RECITALS ........................................................................ A-3
ARTICLE I ....................................................................... A-3
THE MERGER ...................................................................... A-3
1.1 The Merger ............................................................... A-3
1.2 Company Action ........................................................... A-4
1.3 Effects of the Recapitalization and Merger ............................... A-4
1.4 Consummation of the Recapitalization and Merger .......................... A-4
1.5 Certificate of Incorporation; Bylaws; Directors and Officers ............. A-4
1.6 Conversion of Securities ................................................. A-4
1.7 Company Stock Options .................................................... A-5
1.8 Dissenting Shares ........................................................ A-5
1.9 Exchange of Certificates ................................................. A-6
1.10 Supplementary Action ..................................................... A-7
1.11 Lost, Stolen or Destroyed Company Certificates ........................... A-7
ARTICLE II ...................................................................... A-7
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................................... A-7
2.1 Organization and Qualification ........................................... A-7
2.2 Certificate of Incorporation; Bylaws; and Stock Transfer Records ......... A-7
2.3 Capitalization of the Company ............................................ A-8
2.4 Corporate Power, Authorization and Enforceability ........................ A-8
2.5 No Conflict; Required Filings and Consents ............................... A-8
2.6 SEC Reports; Financial Statements ........................................ A-9
2.7 No Default; Violation; Dispute ........................................... A-10
2.8 Compliance with Law ...................................................... A-10
2.9 Absence of Certain Changes ............................................... A-10
2.10 No Undisclosed Liabilities ............................................... A-10
2.11 Litigation; Claims ....................................................... A-11
2.12 INTENTIONALLY OMITTED .................................................... A-11
2.13 Disclosure Documents ..................................................... A-11
2.14 INTENTIONALLY OMITTED .................................................... A-11
2.15 Environmental Matters .................................................... A-11
2.16 Takeover Laws ............................................................ A-12
2.17 Board Recommendation; Fairness Opinion ................................... A-12
2.18 INTENTIONALLY OMITTED .................................................... A-12
2.19 Brokers and Finders ...................................................... A-12
ARTICLE III ..................................................................... A-12
REPRESENTATIONS AND WARRANTIES OF PURCHASER ..................................... A-12
3.1 Organization and Qualification ........................................... A-12
3.2 Corporate Power, Authorization and Enforceability ........................ A-13
3.3 No Conflict; Required Filings and Consents ............................... A-13
3.4 Board and Stockholder Approval ........................................... A-13
3.5 Brokers and Finders ...................................................... A-13
3.6 Disclosure Documents ..................................................... A-13
ARTICLE IV COVENANTS ............................................................ A-14
4.1 Conduct of Business by the Company ....................................... A-14
4.2 Access to Information; Confidentiality ................................... A-15
4.3 Preparation of Proxy Statement; Stockholders Meeting; Schedule 13E-3 ..... A-16

A-i

4.4 Regulatory Filings .............................................. A-17
4.5 Acquisition Proposals ........................................... A-17
4.6 Public Announcements ............................................ A-18
4.7 Notification of Certain Matters ................................. A-18
4.8 Officers' and Directors' Indemnification; Insurance ............. A-18
4.9 Additional Agreements ........................................... A-19
4.10 Company Indebtedness ............................................ A-19
4.11 Other Actions by the Company ................................... A-20
4.12 Litigation Cooperation ......................................... A-20
4.13 Future Filings ................................................. A-20
4.14 Board Action Relating to Stock Option Plans .................... A-20
4.15 Knowledge of Inaccuracies ...................................... A-20
4.16 Financing Matters .............................................. A-20
4.17 Voting ......................................................... A-21
4.18 Exemption from Liability Under Section 16(B) ................... A-21
4.19 Delisting ...................................................... A-21
ARTICLE V .............................................................. A-21
CONDITIONS OF MERGER ................................................... A-21
5.1 Conditions to the Obligations of Each Party to Effect the Merger A-21
5.2 Conditions Precedent to Purchaser's Obligations ................. A-22
5.3 Conditions to Obligations of the Company ........................ A-22
ARTICLE VI ............................................................. A-23
TERMINATION, AMENDMENT AND WAIVER ...................................... A-23
6.1 Termination ..................................................... A-23
6.2 Procedure and Effect of Termination ............................. A-23
6.3 Expenses ........................................................ A-24
6.4 Amendment ....................................................... A-24
6.5 Waiver .......................................................... A-24
6.6 Termination Decisions by the Company ............................ A-24
ARTICLE VII DEFINITIONS ................................................ A-24
ARTICLE VIII MISCELLANEOUS ............................................. A-25
8.1 Severability .................................................... A-25
8.2 Notices ......................................................... A-26
8.3 Headings ........................................................ A-26
8.4 Representations and Warranties, etc ............................. A-26
8.5 Miscellaneous ................................................... A-26
8.6 Attorneys Fees .................................................. A-27
8.7 Governing Law ................................................... A-27
8.8 Jurisdiction and Venue .......................................... A-27
8.9 Binding Effect .................................................. A-27
8.10 Assignment ...................................................... A-27
8.11 Further Assurances .............................................. A-27
8.12 Publicity ....................................................... A-27

A-ii

TABLE OF DEFINED TERMS

SECTION
--------------------

2000 10-K ............................. 2.3 (b)
Acquisition Proposal .................. 4.5 (a)
Affiliate ............................. Article VII
Agreement ............................. Introduction
Board ................................. Recitals
Board of Directors .................... Recitals
CERCLA ................................ 2.15(a)
Certificate ........................... 1.6 (a)
Closing ............................... 1.4
Closing Date .......................... 1.4
Commitments ........................... 4.16
Common Stock .......................... Recitals
Company ............................... Introduction
Company Acquisition Agreement ......... 4.5 (a)
Company Disclosure Documents .......... 2.13(a)
Company Disclosure Letter ............. 1.7
Company Notice ........................ 4.5 (b)
Company Proxy Statement ............... 4.3 (b)
Company Requisite Vote ................ 2.4
Company Rights Plan ................... Article VII
Company Stock Option Plan ............. 1.7
Confidential Information .............. 4.2(d). 4.2(b)
Constituent Corporations .............. 1.3
D&O Insurance ......................... 4.8 (f)
Deposit Amount ........................ 1.9 (a)
DGCL .................................. 1.1
Dissenting Shares ..................... 1.8
Dissenting Stockholder ................ 1.8
Effective Time ........................ 1.4
Eligible Shares ....................... 1.7
Engagement Letter ..................... 2.19
Environmental Laws .................... 2.15(a)
Exchange Act .......................... 2.5 (b)
Exchange Agent ........................ 1.9 (a)
Expenses .............................. 6.3 (b)
Fairness Opinion ...................... 2.17(b)
Financial Advisor ..................... Recitals
Financial Statements .................. 2.6
Financing Condition ................... 5.2 (a)
GAAP .................................. 2.6
Golub Engagement Letter ............... 4.16(c)
Governmental Entities ................. 2.5 (b)
Hazardous Substances .................. 2.15(b)
HSR Act ............................... 2.5 (b)
Indebtedness .......................... Article VII
Lending Sources ....................... 4.16(a)
Material Adverse Effect ............... Article V

A-1

SECTION
------------------

Maximum Premium ........................ 4.8 (f)
Merger ................................. 1.1
Option ................................. 1.7
Per Share Merger Consideration ......... 1.6 (a)
Permitted Investments .................. 1.9 (a)
Person ................................. Article VII
Preliminary Proxy Statement ............ 4.3 (b)
Purchaser .............................. Introduction
Purchaser Disclosure Documents ......... 3.6 (a)
RCRA ................................... 2.15(a)
Regulatory Consents .................... 2.5 (b)
Representatives ........................ 4.2 (a)
Rights Plan ............................ 2.3 (a)
SARA ................................... 2.15(a)
Schedule 13E-3 ......................... 4.3 (b)
SEC .................................... 2.6
SEC Reports ............................ 2.6
Securities Act ......................... 2.6
Shares ................................. 1.6 (a)
Special Committee ...................... Recitals
Subsidiary ............................. Article VII
Superior Proposal ...................... 4.5 (a)
Surviving Corporation .................. 1.1
Tax or Taxes ........................... Article VII

A-2

AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER

THIS AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER (the "Agreement")
is made and entered into as of this 4th day of May, 2001, by and between
SPECIALTY ACQUISITION CORP., a Delaware corporation ("Purchaser"), and
SPECIALTY CATOLOG CORP., a Delaware corporation (the "Company").

RECITALS

WHEREAS, Purchaser desires to acquire the entire equity interest in the
Company and to provide for the payment of $3.75 per share in cash for all
shares of the common stock, par value $.01 per share, of the Company (the
"Common Stock") not held by Purchaser; and

WHEREAS, the stockholders of Purchaser intend to contribute shares of
Common Stock held by them to the Purchaser and to acquire in exchange therefor
common stock of the Purchaser; and

WHEREAS, the Special Committee (the "Special Committee") of the Board of
Directors of the Company (the "Board of Directors" or the "Board") has approved
this Agreement, determined that this Agreement, the Merger and the other
transactions contemplated hereby are fair to, advisable, and in the best
interests of, the Company's stockholders (other than the Purchaser and its
current and future stockholders) and adopted the Merger as set forth herein and
has recommended approval of the Merger and adoption of the Agreement by the
Board of Directors and the stockholders of the Company;

WHEREAS, the Special Committee has received the opinion of Burnham
Securities Inc. (the "Financial Advisor"), dated as of the date of this
Agreement, to the effect that, based on, and subject to, the various
assumptions and qualifications set forth therein, as of the date of such
opinion, the Per Share Merger Consideration (as hereinafter defined) to be
received by the holders of the Common Stock (other than the Purchaser and its
current and future stockholders) pursuant to the Merger (as hereinafter
defined) is fair from a financial point of view to such holders;

WHEREAS, the Board of Directors, after receiving the recommendation of the
Special Committee, has approved this Agreement, determined that this Agreement,
the Merger and the other transactions contemplated hereby are fair to,
advisable and in the best interests of the Company's stockholders (other than
the Purchaser and its current and future stockholders) and has adopted the
Merger as set forth herein and has recommended approval of the Merger and
adoption of this Agreement by the stockholders of the Company;

WHEREAS, the Board of Directors of the Purchaser has approved this
Agreement, determined that this Agreement, the Merger and the other
transactions contemplated hereby are fair to, advisable and in the best
interests of the Purchaser's stockholders and adopted the Merger as set forth
herein and has recommended approval of the Merger and adoption of this
Agreement by the stockholders of the Company; and

WHEREAS, the stockholders of Purchaser have, by unanimous written consent,
approved the Merger and adoption of this Agreement by the Purchaser;

NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Company hereby
agree as follows:

ARTICLE I
THE MERGER

1.1 The Merger.

At the Effective Time (as defined in Section 1.4 hereof), in accordance
with this Agreement and Section 251 of the Delaware General Corporation Law
(the "DGCL"), Purchaser shall be merged with and into the Company, the separate
existence of the Purchaser (except as may be continued by operation of law)
shall cease, and the Company shall continue as the surviving corporation under
the corporate

A-3

name it possesses immediately prior to the Effective Time (the "Merger"). The
Company after the Merger sometimes is referred to hereinafter as the Surviving
Corporation (the "Surviving Corporation").

1.2 Company Action.

The Company hereby consents to the Merger and represents that each of the
Special Committee and the Board of Directors, upon the recommendation of the
Special Committee, each at meetings duly called and held, have (i) determined,
that this Agreement, the Merger and the other transactions contemplated hereby
are fair to, advisable and in the best interests of the Company's stockholders
(other than Purchaser and its current and future stockholders), (ii) approved
this Agreement, and the transactions contemplated hereby, including the Merger,
which approvals, and prior actions taken by such Board immediately prior to the
execution of this Agreement, are sufficient to render entirely inapplicable to
the Merger and Purchaser and its Affiliates, as of the date hereof, the
provisions of Section 203 of the DGCL, (iii) resolved to recommend approval of
this Agreement and adoption of the Merger by its stockholders and (iv) resolved
to amend the Company Rights Plan (as hereinafter defined) so as to render it
inapplicable to the Merger and Purchaser, or to redeem all of the outstanding
rights under the Company Rights Plan.

1.3 Effects of the Recapitalization and Merger.

At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of this Agreement and as set forth in Section 251 of
the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the rights and property of the Company and
the Purchaser (the "Constituent Corporations") shall vest in the Surviving
Corporation, and all debts and liabilities of the Company and the Purchaser
shall become the debts and liabilities of the Surviving Corporation.

1.4 Consummation of the Recapitalization and Merger.

Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 6.1 hereof,
in the event of, and as soon as is practicable after, the satisfaction or
waiver of the conditions set forth in Article V hereof, the parties hereto will
cause the Merger to be consummated by filing with the Secretary of State of the
State of Delaware, a certificate of merger or other appropriate documents,
executed in accordance with the relevant provisions of the DGCL (the time of
confirmation of such filing or such later time as is specified in such
certificate of merger being the "Effective Time"). Contemporaneous with the
filing referred to in this Section 1.4, a closing (the "Closing") will be held
at the offices of Kane Kessler, P.C., 1350 Avenue of the Americas, New York, NY
10019 or at such other location as the parties may establish for the purpose of
confirming all the foregoing. The date and time of such Closing is referred to
as the "Closing Date."

1.5 Certificate of Incorporation; Bylaws; Directors and Officers.

The Certificate of Incorporation and Bylaws of the Surviving Corporation
shall be the Certificate of Incorporation and Bylaws of the Company, as in
effect immediately prior to the Effective Time, until thereafter amended as
provided therein and under the DGCL. The directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation, and the officers of the Company immediately prior to the Effective
Time will be the initial officers of the Surviving Corporation, in each case
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.

1.6 Conversion of Securities.

At the Effective Time, by virtue of the Merger and without any action on
the part of the Purchaser, the Company, the Surviving Corporation or the holder
of any of the following securities:

(a) Each share of Common Stock, $.01 par value per share of the Company
(the "Shares"), issued and outstanding immediately prior to the Effective
Time (other than Shares to be cancelled pursuant to Section 1.6(b) hereof,
and, subject to Section 1.6(d) and Section 1.8 hereof, any Dissenting
Shares (as hereinafter defined)), shall be cancelled and extinguished and
be automatically converted into and become a right to receive $3.75 per
share in cash (the "Per Share Merger Consideration") upon surrender in the
manner provided in Section 1.9 of the certificate that evidenced the Shares
(the "Certificate").

A-4

(b) Each Share which is issued and held in the treasury of the Company
immediately prior to the Effective Time or issued and outstanding and owned
by the Company or by the Purchaser, shall be cancelled and retired, and no
payment shall be made with respect thereto.

(c) Each share of capital stock of the Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted into capital
stock of the Surviving Corporation with the same rights and terms as
immediately prior to the Merger.

(d) The holders of Dissenting Shares (as hereinafter defined), if any,
shall be entitled to payment for such Shares only to the extent permitted
by and in accordance with the provisions of the DGCL; provided, however,
that if, in accordance with the applicable provisions of the DGCL, any
holder of Dissenting Shares shall forfeit such right to payment of the fair
cash value of such Shares, such Shares shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive the Per Share Merger Consideration
provided in Section 1.6(a), without interest.

1.7 Company Stock Options.

Immediately prior to the Effective Time, and except as may be set forth on
Schedule 1.7 of the Company's Disclosure Letter annexed hereto (the "Company
Disclosure Letter") or otherwise consented to by the Purchaser, each
outstanding, unexercised option, warrant or other right to purchase the
Company's Common Stock (an "Option"), including but not limited to Options to
purchase Shares heretofore granted under each of the Company's 1996 Stock
Incentive Plan, as amended, and the Company's 2000 Stock Incentive Plan
(collectively, the "Company Stock Option Plan"), whether or not exercisable,
shall be cancelled by the Company in consideration of a cash payment, if
applicable, from the Surviving Corporation in an amount equal to the product of
multiplying (a) the excess, if any, of (x) the Per Share Merger Consideration
over (y) the per Share exercise price of such Option, by (b) the number of
Eligible Shares (as defined below) subject to such Option. Such cash payment
shall be net of any required withholding taxes. The term "Eligible Shares"
shall mean the aggregate number of Shares that shall then be subject to
purchase under any option which shall be vested and exercisable as of the
Effective Time. The obligation to make any such cash payment (1) shall be
subject to the obtaining of any necessary consents of optionees to the
cancellation of such Options, in form and substance reasonably satisfactory to
Purchaser, and (2) shall not require any action which violates the Company
Stock Option Plan. Options with an exercise price equal to or greater than the
Per Share Merger Consideration will be cancelled without any consideration. The
Company shall, at Purchaser's request, use its commercially reasonable efforts
to effectuate the provisions of this Section 1.7. From and after the Effective
Time, other than as expressly set forth in this Section 1.7, no holder of an
Option shall have any other rights in respect thereof other than to receive
payment for his or Options as set forth in this Section 1.7. The Company shall,
at Purchaser's request, take all necessary actions to terminate effective as of
the Effective Time the Company Stock Option Plans, stock option agreements and
similar arrangements.

1.8 Dissenting Shares.

Notwithstanding anything in this Agreement to the contrary, Shares issued
and outstanding immediately prior to the Effective Time and held by a holder (a
"Dissenting Stockholder"), if any, who has the right to demand, and who
properly demand, an appraisal of such shares in accordance with Section 262 of
the DGCL or any successor provision ("Dissenting Shares") shall not be
converted into a right to receive the Per Share Merger Consideration unless
such Dissenting Stockholder fails to perfect or otherwise loses or withdraws
such Dissenting Stockholder's right to such appraisal, if any. Provided the
holder of any Dissenting Shares complies with the provisions of the DGCL, such
holder shall have with respect thereto solely the appraisal rights provided
under Section 262 of the DGCL. If, after the Effective Time, such Dissenting
Stockholder fails to perfect or otherwise loses or withdraws any such right to
appraisal, each such share of such Dissenting Stockholder shall be treated as a
share that had been converted as of the Effective Time into the right to
receive the Per Share Merger Consideration in accordance with this Section 1.8.
The Company shall give prompt notice to Purchaser of any demands received by
the Company for appraisal of any Dissenting Shares, and Purchaser shall have
the right to

A-5

participate in and direct all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of
Purchaser, which consent shall not be unreasonably withheld, make any payment
with respect to, or settle or offer to settle, any such demands.

1.9 Exchange of Certificates.

(a) Prior to the Effective Time, a bank or trust company to be designated
by the Purchaser (the "Exchange Agent") shall act as exchange agent in
effecting the exchange of the Per Share Merger Consideration for Certificates
which, prior to the Effective Time, represented Shares entitled to payment
pursuant to Section 1.6 hereof. Prior to the Effective Time, the Purchaser
shall deposit with the Exchange Agent the aggregate Per Share Merger
Consideration necessary to make the payments contemplated hereby on a timely
basis (the "Deposit Amount") in trust for the benefit of the holders of
Certificates. Pending distribution pursuant to this Section 1.9(a) of the
Deposit Amount deposited with the Exchange Agent, the Surviving Corporation may
direct the Exchange Agent to invest such Deposit Amount, provided that such
investments (i) shall be obligations of or guaranteed by the United States of
America, in commercial paper obligations receiving the highest rating from
either Moody's Investors Services, Inc. or Standard & Poor's Ratings Services,
a division of The McGraw Hill Companies, Inc., or in certificates of deposit,
bank repurchase agreements or bankers acceptances of commercial banks with
capital exceeding $500,000,000 (collectively "Permitted Investments") or in
money market funds which are invested solely in Permitted Investments and (ii)
shall have maturities that will not prevent or delay payments to be made
pursuant to this Section 1.9(a). Upon the surrender of each such Certificate
and the issuance and delivery by the Exchange Agent of the Per Share Merger
Consideration in exchange therefor, such Certificate shall forthwith be
cancelled. Until so surrendered and exchanged, each such Certificate (other
than Certificates representing Shares held by the Company or the Purchaser and
by Dissenting Shares) shall represent solely the right to receive the Per Share
Merger Consideration, without interest, multiplied by the number of Shares
represented by such Certificate. Promptly after the Effective Time, the
Exchange Agent shall mail to each record holder of Certificates which
immediately prior to the Effective Time represented Shares a form of letter of
transmittal and instructions for use in surrendering such Certificates and
receiving the Per Share Merger Consideration therefor. Upon the surrender to
the Exchange Agent of such an outstanding Certificate together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder shall receive the Per Share Merger Consideration,
without any interest thereon. If any Per Share Merger Consideration is to be
paid to a name other than the name in which the Certificate representing Shares
surrendered in exchange therefor is registered, it shall be a condition to such
payment or exchange that the Person requesting such payment or exchange shall
pay to the Exchange Agent any transfer or other taxes required by reason of the
payment of such Per Share Merger Consideration to a name other than that of the
registered holder of the Certificate surrendered, or such Person shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of Shares for any Per Share
Merger Consideration delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.

(b) The Surviving Corporation shall not be entitled to the return of any
amount in the possession of the Exchange Agent relating to the transactions
described in this Agreement until the date which is 180 days after the
Effective Time. Thereafter, each holder of a Certificate representing a Share
may surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the Per Share Merger Consideration, without any interest thereon, but
shall have no greater rights against the Surviving Corporation than may be
accorded to general creditors of the Surviving Corporation.

(c) At and after the Effective Time, the holders of Certificates to be
exchanged for the Per Share Merger Consideration pursuant to this Agreement
shall cease to have any rights as stockholders of the Company except for the
right to surrender such holder's Certificates in exchange for payment of the
Per Share Merger Consideration, and after the Effective Time there shall be no
transfers on the stock transfer books of the Surviving Corporation of the
Shares which were outstanding immediately prior to the

A-6

Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Exchange Agent, they shall be cancelled and
exchanged for the Per Share Merger Consideration, as provided in this Article
I, subject to applicable law in the case of Dissenting Shares.

(d) The provisions of this Section 1.9 shall also apply to Dissenting
Shares that lose their status as such, except that the obligations of the
Exchange Agent under this Section 1.9 shall commence on the date of loss of
such status.

1.10 Supplementary Action.

If at any time after the Effective Time, any further assignments or
assurances in law or any other things are necessary or desirable to vest or to
perfect or confirm of record in the Surviving Corporation the title to any
property or rights of either the Company or Purchaser, or otherwise to carry
out the provisions of this Agreement, the officers and directors of the
Surviving Corporation are hereby authorized and empowered, in the name of and
on behalf of the Company and Purchaser, to execute and deliver any and all
things necessary or proper to vest or to perfect or confirm title to such
property or rights in the Surviving Corporation, and otherwise to carry out the
purposes and provisions of this Agreement.

1.11 Lost, Stolen or Destroyed Company Certificates.

In the event any Certificates shall have been lost, stolen or destroyed,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificates, upon making of an affidavit of the fact by the holder thereof,
certificates representing such shares of Company Common Stock to be exchanged
in the manner described in this Article I; provided, however, that Purchaser
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificates to indemnify
Purchaser against any claim that may be made against Purchaser the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Purchaser that:

2.1 Organization and Qualification.

The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Each Subsidiary of the
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The Company and its
Subsidiaries have all requisite corporate power and authority to own, operate
and lease their properties and to carry on their business in all material
respects as it is now being conducted. Each of the Company and its Subsidiaries
is duly qualified as a foreign corporation, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, other than in
jurisdictions where the failure to be so qualified, individually and in the
aggregate, has not had and would not reasonably be expected to have a Material
Adverse Effect. Other than the Company's ownership interest in its
Subsidiaries, and except as set forth on Schedule 2.1 to the Company Disclosure
Letter, the Company has no direct or indirect equity interest in any
partnership, corporation, limited liability company, joint venture, business
association or other entity.

2.2 Certificate of Incorporation; Bylaws; and Stock Transfer Records.

The Company has made available to the Purchaser prior to the date of this
Agreement complete and correct copies of (i) the Certificate of Incorporation
(or other charter document) and By-laws of the Company and each of its
Subsidiaries, and (ii) a shareholder list of each of the Company and each of
its Subsidiaries.

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2.3 Capitalization of the Company.

(a) As of the date of this Agreement, the authorized capital stock of the
Company consists of (i) 1,000,000 shares of Preferred Stock, par value $.01 per
share, of which none are issued and outstanding, and (ii) 10,000,000 shares of
Common Stock, par value $.01 per share, of which 5,239,774 Shares are issued
and 4,337,886 Shares are outstanding. Except for (i) the rights created
pursuant to this Agreement, the Company Stock Option Plan and the Company
Rights Plan and (ii) as set forth in Schedule 1.7 and Schedule 2.3(a) of the
Company Disclosure Letter, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which the Company is a party or
by which it is bound obligating the Company to issue, sell, deliver, repurchase
or redeem or cause to be issued, sold, delivered, repurchased or redeemed any
shares of capital stock of, or equity interests in, the Company. All
outstanding Shares are, and all Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be, duly authorized, validly issued, fully paid
and nonassessable and free of preemptive rights or rights of first refusal.
None of the Company or any of its Subsidiaries is required to redeem,
repurchase or otherwise acquire shares of capital stock of the Company or any
of its Subsidiaries, respectively, as a result of the transactions contemplated
by this Agreement. Except as set forth in Schedule 2.3(a) of the Company
Disclosure Letter or other than the Company Rights Plan, the Company has no
stockholder rights plan or agreement in force providing for the issuance to
holders of Shares of rights to purchase or receive stock, cash or other assets
upon the acquisition or proposed acquisition of Shares by a Person (a "Rights
Plan"), nor has the Company's Board of Directors or stockholders ever adopted a
Rights Plan.

(b) All of the Company's Subsidiaries are listed in Schedule 2.3(b) of the
Company Disclosure Letter. Except as set forth in the Company's Annual Report
on Form 10-K for the fiscal year ended December 30, 2000 (the "2000 10-K") or
Schedule 2.3(b) of the Company Disclosure Letter, the Company owns all of the
outstanding capital stock of its Subsidiaries.

2.4 Corporate Power, Authorization and Enforceability.

The Company has all requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder and to consummate all
the transactions contemplated hereby. The execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors and no
other corporate action on the part of the Company is necessary to authorize
this Agreement or to consummate the transactions contemplated hereby (other
than, with respect to the Merger, the approval and adoption of this Agreement
by stockholders holding a majority of the outstanding Shares entitled to vote
thereon (the "Company Requisite Vote")). This Agreement has been duly executed
and delivered by the Company and is a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to the effect of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the enforceability of creditors'
rights generally and to the effect of general principles of equity which may
limit the availability of remedies (whether in a proceeding at law or in
equity). The Company Requisite Vote is the only vote of the holders of any
class or series of capital stock of the Company necessary to adopt this
Agreement and approve the transactions contemplated hereby, including the
Merger. No other vote or consent of the stockholders of the Company is required
by law, the Certificate of Incorporation or Bylaws of the Company or otherwise
in order for the Company to adopt this Agreement or to approve the transactions
contemplated hereby, including the Merger.

2.5 No Conflict; Required Filings and Consents.

(a) Except as set forth on Schedule 2.5 of the Company Disclosure Letter,
and assuming satisfaction of any applicable requirements referred to in Section
2.5(b) below, the execution and delivery by the Company of this Agreement, the
compliance by the Company with the provisions hereof and the consummation by
the Company of the transactions contemplated hereby:

(A) will not conflict with or violate any statute, law, ordinance, rule,
regulation, order, writ, judgment, award, injunction, decree or ruling
applicable to the Company or any of its Subsidiaries or

A-8

any of their properties, or conflict with, violate or result in any breach
of or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, cancellation or acceleration of, or the loss of a
benefit under, or result in the creation of a lien, security interest,
charge or encumbrance on any of the properties or assets of the Company or
any of its Subsidiaries, including pursuant to (i) the Certificate of
Incorporation (or other charter document) or Bylaws of the Company or any
of its Subsidiaries, or (ii) any contract, lease, agreement, note, bond,
mortgage, indenture, deed of trust, or other instrument or obligation, or
any license, authorization, permit, certificate or other franchise, other
than such conflicts, violations, breaches, defaults, losses, rights of
termination, amendment, cancellation or acceleration, liens, security
interests, charges or encumbrances as to which requisite waivers have been
obtained or which in either case individually or in the aggregate have not
had and would not reasonably be expected to have a Material Adverse Effect;
and

(B) subject to shareholder dissenters' rights, do not and will not
result in any grant of rights to any other party under the Certificate of
Incorporation (or other charter document) or Bylaws of the Company or any
of its Subsidiaries or restrict or impair the ability of the Purchaser or
any of its Subsidiaries to vote, or otherwise exercise the rights of a
stockholder with respect to shares of the Company or any of its
Subsidiaries that may be directly or indirectly acquired or controlled by
them.

(b) Other than in connection with or in compliance with the provisions of
the DGCL, the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the "blue sky" laws of various states, approvals, registrations, permits,
licenses, authorizations, waivers or consents required to be obtained under
applicable state or local laws, including but not limited to NASDAQ rules,
applicable state takeover laws, the premerger notification requirement of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), if applicable to the transactions contemplated hereby, and the filing
and recordation of the Certificate of merger as required under the DGCL
(collectively, "Regulatory Consents"), (i) the Company is not required to
submit any notice, report, registration, declaration or other filing with any
federal, state or local government, court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign
(collectively, "Governmental Entities"), in connection with the execution or
delivery of this Agreement by the Company or the performance by the Company of
its obligations hereunder or the consummation by the Company of the
transactions contemplated by this Agreement and (ii) no waiver, consent,
approval, order or authorization of any Governmental Entity is required to be
obtained in connection with the execution or delivery of this Agreement by the
Company or the performance by the Company of its obligations hereunder or the
consummation by the Company of the transactions contemplated by this Agreement,
other than such notices, reports, registrations, declarations, filings,
waivers, consents, approvals, orders, or authorizations, the absence of which
would not, individually and in the aggregate, subject the Company or its
Subsidiaries to any criminal penalties or otherwise reasonably be expected to
have a Material Adverse Effect.

2.6 SEC Reports; Financial Statements.

The Company has filed all required reports, schedules, forms, statements
and other documents with the Securities and Exchange Commission (the "SEC")
from January 1, 1998 through the date hereof (collectively, the "SEC Reports").
The financial statements contained in the SEC Reports (or incorporated therein
by reference) and the consolidated financial statements of the Company and its
Subsidiaries for the fiscal year ended December 30, 2000 included in the 2000
10-K (collectively, the "Financial Statements"), were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved ("GAAP") (except as may be indicated in the
notes or schedules thereto and except, in the case of the unaudited interim
statements, as may be permitted under Form 10-Q of the Exchange Act) and
present fairly in all material respects the consolidated financial position of
the Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows as of the dates and for
the fiscal periods indicated therein (subject, in the case of unaudited interim
financial statements, to normal year-end adjustments). On the date of filing
thereof, and as of the date hereof, each SEC Report filed with the SEC complied
in all material respects with the then applicable requirements of the Exchange
Act and the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations of the SEC promulgated

A-9

thereunder and do not contain 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, in light of the circumstances under which they were made,
not misleading. None of the Company's Subsidiaries is required to file any
statements or reports with the SEC.

2.7 No Default; Violation; Dispute.

Neither the Company nor any of its Subsidiaries is in default or
violation, and, to the Company's knowledge, no claims exist with respect to
(and no event has occurred which with or without notice, the lapse of time or
the happening or occurrence of any other event would constitute a default or
violation or claim) any term, condition or provision of (i) its Certificate of
Incorporation (or other charter document) or Bylaws, or (ii) except as set
forth in Schedule 2.7 of the Company Disclosure Letter, any contract, lease,
agreement, license, note, bond, employee benefit agreement or plan, arrangement
under which it owns or leases real or personal property, mortgage, indenture,
deed of trust or other instrument or obligation to which the Company or any of
its Subsidiaries is a party or by which the Company or its Subsidiaries or any
of their properties or assets may be bound (nor to the knowledge of the Company
is any other party thereto in breach thereof or default thereunder), except in
the case of this clause (ii) for any defaults, violations or claims that
individually and in the aggregate would not have a Material Adverse Effect.

2.8 Compliance with Law.

Except as set forth in Schedule 2.8 of the Company Disclosure Letter, each
of the Company and its Subsidiaries is in compliance, and has conducted its
respective businesses so as to comply with, all statutes, laws, ordinances,
rules, regulations, permits and approvals applicable to its operations, except
for violations which, individually and in the aggregate, do not and insofar as
reasonably can be foreseen in the future would not have a Material Adverse
Effect. Except as disclosed in the SEC Reports, as of the date hereof no
investigation or review by any Governmental Entity with respect to the Company,
any of its Subsidiaries or any property owned or leased by the Company or any
of its Subsidiaries is pending or, to the knowledge of the Company, threatened,
except for any investigation or review that would not individually and in the
aggregate have a Material Adverse Effect.

2.9 Absence of Certain Changes.

As of the date of this Agreement, except as disclosed in Schedule 2.9 of
the Company Disclosure Letter, or in the 2000 10-K, since December 30, 2000,
the Company and its Subsidiaries have conducted their business in the ordinary
course consistent with past practice and have not taken any of the actions set
forth in paragraphs (i) through (vi) of Section 4.1, and there has not been any
occurrence, including the commencement or to the knowledge of the Company,
threat of any action, suit, investigation or proceeding against the Company or
its Subsidiaries, that has had or would reasonably be expected to have a
Material Adverse Effect, other than occurrences relating to or arising out of
the economy in general or the industries of the Company and its Subsidiaries in
general and not specifically relating to the Company or any of its
Subsidiaries, occurrences related to the execution of this Agreement and the
announcement of the transactions contemplated hereby, or occurrences otherwise
agreed to in writing by Purchaser.

2.10 No Undisclosed Liabilities.

Except for liabilities and obligations incurred since December 30, 2000 in
the ordinary course of business, liabilities and obligations incurred in
connection with this Agreement or any of the agreements to be entered into
pursuant to this Agreement, and liabilities and obligations identified in
Schedule 2.10 of the Company Disclosure Letter, neither the Company nor any of
its Subsidiaries has any liabilities or obligations of any nature whatsoever,
including guarantees or other similar obligations, (whether absolute, accrued,
fixed, contingent, liquidated, unliquidated or otherwise), other than
liabilities or obligations recognized or disclosed in the Financial Statements
or disclosed in the 2000 10-K, or which individually or in the aggregate would
not have a Material Adverse Effect.

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2.11 Litigation; Claims.

There are no actions, suits or proceedings pending or, to the knowledge of
the Company, threatened against the Company arising out of or in any way
related to this Agreement, the Merger or any of the transactions contemplated
hereby or thereby.

2.12 INTENTIONALLY OMITTED.

2.13 Disclosure Documents.

(a) Each document required to be filed by the Company with the SEC in
connection with the transactions contemplated by this Agreement, including on
Schedule 13E-3, (the "Company Disclosure Documents") and any amendments or
supplements thereto, will, when filed, comply as to form with the applicable
requirements of the Exchange Act and the rules and regulations thereunder.

(b) At the time any Company Disclosure Document or any amendment or
supplement thereto is first mailed to stockholders of the Company, it will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of
the filing of any Company Disclosure Documents or any amendment or supplement
thereto, not misleading, and from the time of any distribution thereof through
the Effective Time each such Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The representations and warranties
contained in paragraphs (a) and (b) of this Section 2.13 will not apply to
statements or omissions included in the Company Disclosure Documents, if any,
based upon information furnished to the Company in writing by Purchaser
specifically for use therein.

(c) The information with respect to the Company or any Subsidiary that the
Company furnishes to Purchaser in writing specifically for use in the Schedule
13E-3 (as defined herein), the Preliminary Proxy Statement and the Company
Proxy Statement will not, at the time of the filing thereof, and from the time
of any distribution thereof through the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. The
representations and warranties contained in this Section 2.13(c) will not apply
to statements or omissions included in the Schedule 13E-3, the Preliminary
Proxy Statement (as hereinafter defined) and Company Proxy Statement (as
hereinafter defined), if any, based upon information furnished by Purchaser, or
its Affiliates specifically for use therein.

2.14 INTENTIONALLY OMITTED.

2.15 Environmental Matters.

Except as would not individually or in the aggregate have a Material
Adverse Effect:

(a) Neither the Company nor any of its Subsidiaries nor to the knowledge
of the Company as of the date of this Agreement any operator or owner of their
respective past or present properties is in violation, or alleged violation, of
any judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those arising under the
Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Super fund Amendments and Reauthorization Act of 1986 ("SARA"),
the Federal Water Pollution Control Act, the Solid Waste Disposal Act, as
amended, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, the Occupational Safety and Health Act of 1970, as
amended, or any state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter "Environmental
Laws").

(b) There have been no releases (i.e., any past or present releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, disposing or dumping) or threatened releases of any
hazardous waste as defined by 42 U.S.C. (S)6903(5), any hazardous substances as
defined by 42 U.S.C.(S)9601(33) or any toxic substance, oil or hazardous
materials or other chemicals or substances regulated by any Environmental Laws
("Hazardous Substances ") on, upon, into or from any properties of the Company
or its Subsidiaries.

A-11

(c) As of the date of this Agreement, no amounts of Hazardous Substance
has been discharged, generated, treated, manufactured, handled, stored,
transported, emitted, released or is present at any property now or previously
owned, leased or operated by the Company except in compliance with all
applicable Environmental Laws.

2.16 Takeover Laws.

The provisions of Sections 203 of the DGCL either does not apply to the
execution, delivery and performance of this Agreement and the consummation of
the Merger or has been rendered inapplicable because of a vote of the Board of
Directors approving the consummation of the Merger and the transactions
contemplated by this Agreement. No "fair price," "control share acquisition" or
other similar anti-take over statute or regulation enacted in any jurisdiction
other than Delaware is applicable to the execution, delivery and performance of
this Agreement, or the consummation of the Merger.

2.17 Board Recommendation; Fairness Opinion.

(a) The Company represents that each of the Special Committee and the
Board of Directors, upon the recommendation of the Special Committee, each at
meetings duly called and held, have (i) determined, that this Agreement, the
Merger and the other transactions contemplated hereby are fair to, advisable
and in the best interests of the Company's stockholders (other than Purchaser
and its current and future stockholders), (ii) approved this Agreement, and the
transactions contemplated hereby, including the Merger, which approvals, and
prior actions taken by such Board immediately prior to the execution of this
Agreement, are sufficient to render entirely inapplicable to the Merger and
Purchaser and its Affiliates, as of the date hereof, the provisions of Section
203 of the DGCL, (iii) resolved to recommend approval of this Agreement and
adoption of the Merger by its stockholders and (iv) resolved to amend the
Company Rights Plan so as to render it inapplicable to the Merger and
Purchaser, or to redeem all of the outstanding rights under the Company Rights
Plan.

(b) The Special Committee has received the written opinion of its
Financial Advisor, dated as of the date of this Agreement, to the effect that,
based on, and subject to, the various assumptions and qualifications set forth
therein, as of the date of such opinion, the Per Share Merger Consideration to
be received by holders of Shares (other than Purchaser and its current and
future stockholders) pursuant to the Merger is fair from a financial point of
view to such holders (the "Fairness Opinion"). The Company has delivered to the
Purchaser a copy of the Fairness Opinion, together with the Financial Advisor's
written consent to the inclusion of or reference to the Fairness Opinion in the
Schedule 13E-3, the Preliminary Proxy Statement and the Company Proxy
Statement.

2.18 INTENTIONALLY OMITTED.

2.19 Brokers and Finders.

The Special Committee has furnished to Purchaser or its counsel a true and
complete copy of the letter agreement (the "Engagement Letter") between the
Company and the Financial Advisor, such Engagement Letter being the only
agreement pursuant to which such firm would be entitled to any payment relating
to the transactions contemplated hereunder. Other than as set forth herein or
in Schedule 2.19 of the Company Disclosure Letter, no broker, financial advisor
or investment banker or other person is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company or
any of its Subsidiaries.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to the Company that:

3.1 Organization and Qualification. The Purchaser is a corporation or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and has all requisite power and
authority to own, operate and lease its properties and to carry on its business
in all material respects as it is now being conducted. Purchaser is a new
corporation that was formed for the

A-12

purpose of consummating the transactions contemplated by this Agreement.
Purchaser has not conducted any business or engaged in any activities unrelated
to the transactions contemplated by this Agreement. Purchaser has no material
liabilities other than in connection with the transactions contemplated by this
Agreement and the financing arrangements with the Lending Sources.

3.2 Corporate Power, Authorization and Enforceability. The Purchaser has
all requisite power and authority to enter into this Agreement and to perform
its obligations hereunder and to consummate all the transactions contemplated
hereby. The execution and delivery of this Agreement by Purchaser, the
performance by the Purchaser of its obligations hereunder and the consummation
by Purchaser of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Purchaser and the stockholders of the
Purchaser, and no other corporate action on the part of Purchaser is necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Purchaser
and is a legal, valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms.

3.3 No Conflict; Required Filings and Consents.

(a) Assuming satisfaction of all applicable requirements referred to in
Section 3.3(b) below, the execution and delivery of this Agreement by the
Purchaser, the compliance by the Purchaser with the provisions hereof and the
consummation by the Purchaser of the transactions contemplated hereby will not
conflict with or violate any statute, law, ordinance, rule, regulation, order,
writ, judgment, award, injunction, decree or ruling applicable to the Purchaser
or any of its properties, or conflict with, violate or result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, cancellation or acceleration of, or the loss of a benefit under, or
result in the creation of a lien, security interest, charge or encumbrance on
any of the properties or assets of Purchaser pursuant to (i) the organizational
documents of the Purchaser or (ii) any contract, lease, agreement, note, bond,
mortgage, indenture, deed of trust, or other instrument or obligation, or any
license, authorization, permit, certificate or other franchise, other than such
conflicts, violations, breaches, defaults, losses, rights of termination,
amendment, cancellation or acceleration, liens, security interests, charges or
encumbrances as to which requisite waivers have been obtained or which
individually and in the aggregate would not have a material adverse effect on
the ability of the Purchaser to perform its obligations under this Agreement.

(b) Other than in connection with or in compliance with the provisions of
the DGCL, the Exchange Act, the "blue sky" laws of various states and the HSR
Act, if applicable (i) the Purchaser is not required to submit any notice,
report, registration, declaration or other filing with any Governmental Entity
in connection with the execution or delivery of this Agreement by Purchaser or
the performance by Purchaser of its obligations hereunder or the consummation
by Purchaser of the transactions contemplated by this Agreement and (ii) no
waiver, consent, approval, order or authorization of any Governmental Entity is
required to be obtained by the Purchaser in connection with the execution or
delivery of this Agreement by Purchaser or the performance by the Purchaser of
its obligations hereunder or the consummation by the Purchaser of the
transactions contemplated by this Agreement.

3.4 Board and Stockholder Approval. The Board of Directors and
stockholders of the Purchaser has approved this Agreement and the Merger and
has authorized the proper officers to execute and deliver this Agreement and
all necessary action has been taken in connection therewith.

3.5 Brokers and Finders. No broker, finder or investment banker, other
than any whose fees and expenses will be paid by the Purchaser, is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Purchaser.

3.6 Disclosure Documents.

(a) Each document required to be filed by the Purchaser with the SEC in
connection with the transactions contemplated by this Agreement, including on
Schedule 13E-3 (the "Purchaser Disclosure Documents") and any amendments or
supplements thereto, will, when filed, comply as to form with the applicable
requirements of the Exchange Act and the rules and regulations thereunder.

A-13

(b) The information with respect to the Purchaser that Purchaser furnishes
to the Company in writing specifically for use in any Company Disclosure
Documents will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they made, not misleading; provided that no representation is made by Purchaser
with respect to statements or omissions in the Company Disclosure Documents
based upon information furnished to Purchaser by the Company specifically for
use therein.

(c) The Schedule 13E-3, the Preliminary Proxy Statement and Company Proxy
Statement will comply with the applicable requirements of the Exchange Act and
will not, at the time of the filing thereof, or from the time of any
distribution thereof through the Effective Time contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading; provided, that no
representation is made by the Purchaser with respect to the statements or
omissions in the Schedule 13E-3, the Preliminary Proxy Statement or the Company
Proxy Statement based upon information furnished to Purchaser in writing by the
Company specifically for use therein.

(d) The information contained in the Schedule 13D and the amendments
thereto filed by the current stockholders of Purchaser is true and accurate in
all material respects. In addition, neither Purchaser nor any of its Affiliates
were, prior to the execution of this Agreement, subject to the prohibitions on
transactions generally applicable to "interested stockholders" within the
meaning of Section 203 of the DGCL.

ARTICLE IV
COVENANTS

4.1 Conduct of Business by the Company. Except as required or permitted by
this Agreement, during the period from the date of this Agreement until the
Effective Time, the Company agrees as to itself and its Subsidiaries that
(except to the extent that Purchaser shall otherwise consent in writing) the
Company and its Subsidiaries shall conduct their respective operations in the
ordinary course of business consistent with past practice, and each of the
Company and its Subsidiaries will use its commercially reasonable efforts to
preserve intact its present business organization, to keep available the
services of its present officers and employees and to maintain satisfactory
relationships with licensors, licensees, suppliers, contractors, distributors,
customers and others having business relationships with it and to maintain
insurance on the same terms as are in effect on the date of this Agreement.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Effective Time, neither the Company nor any of
its Subsidiaries shall, without the prior written consent of Purchaser:

(i) amend its Certificate of Incorporation or other charter document or
Bylaws;

(ii) authorize for issuance, issue, sell, deliver, pledge or agree or
commit to issue, sell, deliver or pledge (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) any capital stock of any class or any debt or other securities
convertible into capital stock or equivalents (including, without limitation,
stock appreciation rights), or amend any of the terms of any of the foregoing,
other than the issuance of shares of capital stock upon the exercise of
outstanding options under the Company Stock Option Plan;

(iii) (A) split, combine or reclassify any shares of its capital stock, or
authorize or propose the issuance or authorization of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
adopt or approve any Rights Plan, or repurchase, redeem or otherwise acquire
any of its securities or any securities of its Subsidiaries, or (B) declare or
pay any dividend of any kind, make any payment of cash or other property to
shareholders or to terminate, cancel or otherwise settle any outstanding
Options under the Company Stock Option Plan, other than in the case of clauses
(A) or (B) above for the issuance of Shares in connection with the

A-14

exercise of options or the repurchase of Shares to the extent contractually
required pursuant to the terms of existing employee stock repurchase agreements
or this Agreement, or the cancellation of non-vested options of terminated
employees; or issue any new Options or equivalent instruments of any kind;

(iv) without prior consultation with the Purchaser (in addition to the
consent requirement described above) commence any litigation or arbitration
other than in accordance with past practice or settle any litigation or
arbitration for money damages or other relief in excess of $50,000 or if as
part of such settlement the Company or any Subsidiary would agree to any
restrictions on its operations;

(v) waive, release or amend its rights under any confidentiality,
"standstill" or similar agreement that the Company entered into in connection
with its consideration of a potential strategic transaction; provided, however,
that the Company may waive, release or amend its rights under any such
confidentiality, "standstill" or similar agreement if the Company's Board
determines, after consultation with its independent legal counsel, that failure
to do so would be reasonably likely to constitute a breach of its fiduciary
duties to the Company's stockholders under applicable law; or

(vi) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(i) through 4.1(v).

4.2 Access to Information; Confidentiality.

(a) From the date of this Agreement to the Effective Time, the Company
shall, and shall cause its Subsidiaries, officers, directors, employees and
agents to, afford the officers, employees and agents of Purchaser and its
Affiliates and the attorneys, accountants, banks, other financial institutions
and investment banks working with Purchaser, and its respective officers,
employees and agents ("Representatives") reasonable access, at all reasonable
times upon reasonable notice and in such manner as will not unreasonably
interfere with the conduct of the Company's business, to its officers,
employees, agents, properties, books, records and contracts, and shall furnish,
Purchaser and its Affiliates and the attorneys, banks, other financial
institutions and investment banks working with Purchaser, all financial,
operating and other data and information as they reasonably request.

(b) Any information heretofore or hereafter furnished by the Company which
is non-public, confidential or proprietary in nature is referred to in this
Agreement as "Confidential Information". The Purchaser agrees that the
Confidential Information will be used solely for the purpose of consummating
the transactions contemplated by this Agreement, and until the Effective Time,
such information will be kept confidential by the Purchaser and its
Representatives (as defined below), except that the Confidential Information or
portions thereof may be disclosed to those Representatives of the Purchaser who
need to know such information solely for the purpose of evaluating the
transactions contemplated by this Agreement.

(c) In the event that the Purchaser or any of its Representatives become
legally compelled (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or similar process) to disclose any of the
Confidential Information, the Purchaser shall provide the Company with prompt
prior written notice of such requirement so that the Company may seek a
protective order or other appropriate remedy and/or waive compliance with the
terms of this Section 4.2. In the event that such protective order or other
remedy is not obtained, or that the Company waives compliance with the
provisions hereof, the Purchaser agree, to furnish only that portion of the
Confidential Information which the Purchaser is advised by counsel is legally
required and to exercise commercially reasonable efforts to obtain assurance
that confidential treatment will be accorded such Confidential Information.

(d) The term "Confidential Information" does not include any information
that the Purchaser can demonstrate that at the time of disclosure or thereafter
is generally available to the public (other than as a result of its disclosure
directly or indirectly by the Purchaser or its Representatives).

(e) If this Agreement is terminated pursuant to Article VI, upon the
Company's request, the Purchaser will promptly return to the Company any and
all copies of the Confidential Information in its possession or in the
possession of its Representatives, and the Purchaser and its Representatives
will promptly destroy all copies of any analyses, compilations, studies or
other documents prepared by or for

A-15

the Purchaser which reflect or contain any Confidential Information, except for
any of the foregoing which Purchaser or its counsel deems advisable to retain
in connection with pending or future litigation, provided that such
Confidential Information is retained by the Purchaser's counsel and only for so
long as considered advisable in light of any pending or future litigation.

(f) No investigation pursuant to this Section 4.2 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.

4.3 Preparation of Proxy Statement; Stockholders Meeting; Schedule 13E-3.

(a) The Company will, as promptly as practicable following the date of
this Agreement and in consultation with Purchaser, duly call, give notice of,
convene and hold a meeting of its stockholders (the "Stockholders' Meeting")
for the purpose of approving this Agreement, the Merger and the transaction
contemplated by this Agreement, except as otherwise provided in Section 4.3(f)
below. Nothing herein shall prevent the company from adjourning or postponing
the Company's stockholders meeting if there are insufficient shares of Company
Common Stock necessary to conduct business at its meeting of the Stockholders.
Subject to Section 4.5, the Company will, through the Board of Directors and
the Special Committee, recommend to its stockholders approval of the foregoing
matters and seek to obtain all necessary votes and approvals thereof by the
stockholders required to approve the Merger.

(b) In connection with the Stockholders' Meeting contemplated hereby, the
Company will promptly prepare and file, and Purchaser will cooperate with the
Company in the preparation and filing of, a preliminary proxy statement (the
"Preliminary Proxy Statement") with the SEC and will use its commercially
reasonable efforts to respond to the comments of the SEC concerning the
Preliminary Proxy Statement and to cause a final proxy statement (the "Company
Proxy Statement") to be mailed to the Company's stockholders, in each case as
soon as reasonably practicable. The Purchaser will promptly prepare, and the
Company will cooperate with the Purchaser in the preparation and filing of the
Rule 13E-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") with
the SEC and will use its commercially reasonable efforts to respond to comments
by the SEC concerning the Schedule 13E-3. Purchaser shall be given a reasonable
opportunity to review and comment on all filings with the SEC and all mailings
to the Company's stockholders in connection with the Merger prior to the filing
or mailing thereof, and the Company shall use its commercially reasonable
efforts to reflect all such comments. The Company shall pay the filing fees for
any Company Schedule 13E-3 and the Preliminary Proxy Statement. Each party to
this Agreement will notify the other parties promptly of the receipt of the
comments of the SEC, if any, notification of SEC approval of the Company Proxy
Statement and of any request by the SEC for amendments or supplements to the
Schedule 13E-3, the Preliminary Proxy Statement or the Company Proxy Statement
or for additional information, and will promptly supply the other parties with
copies of all correspondence between such party or its representatives, on the
one hand, and the SEC or members of its staff, on the other hand, with respect
to the Schedule 13E-3, the Preliminary Proxy Statement, the Company Proxy
Statement or the Merger.

(c) If at any time prior to the Stockholders' Meeting, any event should
occur relating to the Company or any of the Subsidiaries which should be set
forth in an amendment of, or a supplement to, the Schedule 13E-3 or the Company
Proxy Statement, the Company will promptly inform Purchaser. If at any time
prior to the Stockholders' Meeting, any event should occur relating to
Purchaser or any of its Associates or Affiliates, or relating to the plans of
any such persons for the Surviving Corporation after the Effective Time of the
Merger, or relating to the Financing, that should be set forth in an amendment
of, or a supplement to, the Schedule 13E-3 or the Company Proxy Statement, the
Purchaser, with the cooperation of Company, will, upon learning of such event,
promptly prepare, file and, if required, mail such amendment or supplement to
the Company's stockholders; provided that, prior to such filing or mailing, the
Company shall consult with Purchaser with respect to such amendment or
supplement and shall afford Purchaser reasonable opportunity to comment
thereon.

(d) Purchaser shall furnish to the Company the information relating to
Purchaser and its Affiliates and the plans of such persons for the Surviving
Corporation after the Effective Time of the Merger, and relating to any
financing matters, which is required to be set forth in the Preliminary Proxy
Statement or the Company Proxy Statement under the Exchange Act and the rules
and regulations of the SEC

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thereunder. The Company shall cause, to the extent available, to be included as
an exhibit to the Preliminary Proxy Statement and the Company Proxy Statement,
the written Fairness Opinion as an exhibit to the Schedule 13E-3, and any
reports or opinion delivered to the Board of Directors or the Special Committee
by the Financial Advisor in connection with the delivery of the Fairness
Opinion which are required under Schedule 13E-3 to be filed as exhibits.

(e) The Company will cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.

(f) The parties hereto understand and agree that if the Special Committee
withdraws its approval or recommendation of the Merger pursuant to and in
compliance with the provisions of Section 4.5 below, the Company will not
convene or hold a Stockholder Meeting without obtaining the prior consent of
the Special Committee.

4.4 Regulatory Filings. Promptly after the delivery of the Commitments,
the parties will cooperate in making any filings necessary under any government
regulatory requirements that may be applicable to the Merger, including
filings, if any, necessary under the HSR Act.

4.5 Acquisition Proposals.

(a) Except as expressly permitted by this Section 4.5, neither the Board
of Directors nor the Special Committee shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to the Purchaser, its
approval or recommendation of the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Acquisition
Proposal, or (iii) cause the Company to enter into any outline, letter of
intent, agreement in principle, acquisition agreement or other similar
agreement, whether or not binding on the parties, (each, a "Company Acquisition
Agreement") related to any Acquisition Proposal (as hereinafter defined).
Notwithstanding the foregoing, if at anytime the Board of Directors or the
Special Committee determines in good faith, after consultation with and receipt
of advice from outside counsel or its financial advisor, that it is necessary
to do so in order to act in a manner consistent with its fiduciary duties to
the Company's stockholders under applicable law, subject to compliance with
paragraph (b) below, (x) either the Board of Directors or the Special Committee
may withdraw or modify, or propose publicly to withdraw or modify, its approval
or recommendation of the Merger or this Agreement, (y) the Board of Directors
may approve or recommend, or propose publicly to approve or recommend, a
Superior Proposal, and (z) the Board of Directors may cause the Company to
enter into a Company Acquisition Agreement upon termination of this Agreement
pursuant to Section 6.1(d) and accept such Superior Proposal. For purposes of
this Agreement, a "Superior Proposal" means an Acquisition Proposal that the
Special Committee of the Board of Directors of the Company, in good faith,
after consultation with its outside counsel and its financial advisor, and
taking into account the proposed financing thereof, determines to be of a
higher price per Share and more favorable to the stockholders of the Company
than the transaction contemplated hereunder. For purposes of this Agreement, an
"Acquisition Proposal" means any inquiry or the making of any proposal or offer
from any third party, other than the Purchaser or its Affiliates regarding any
merger, consolidation, share exchange, recapitalization, business combination,
the sale of substantial assets (other than in the ordinary course of business),
the sale or purchase of (or right to sell or purchase) shares of capital stock
(other than pursuant to the exercise of stock options outstanding on the date
of this Agreement), tender offer or similar transactions, whether in a single
transaction or a series of transactions, involving the Company or any of its
Subsidiaries.

(b) In addition to the obligations of the Company as set forth in Section
4.5(a), the Company promptly shall advise the Purchaser orally and in writing
of any request for non-public information, any Acquisition Proposal, including
all of the material proposed terms of such Acquisition Proposal, the identity
of the third party, or any decision by the Company to take any actions with
respect to any of the foregoing (with any such notice referred to as a "Company
Notice"). Any such Company Notice will be delivered promptly after (and in no
event later than 24 hours after) receipt of any request for non-public
information or of any Acquisition Proposal and prior to the Company taking any
of such actions. In addition, in the event the Company intends to enter into a
Company Acquisition Agreement, the Company will deliver a Company Notice at
least twenty-four (24) hours (but Company Notices given on

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a non-business day, or after 6:00 p.m. on a business day, shall take effect on
the first business day thereafter) prior to entering into such Company
Acquisition Agreement, which Company Notice will identify the third party and
the material proposed terms of such Company Acquisition Agreement. Subject to
confidentiality agreement requirements imposed by any such third party which
shall be substantially similar to those set forth in Section 4.2 hereof and
which the Board of Directors determines in good faith, after consultation with
its outside counsel, are necessary to enter into in order to act in a manner
consistent with its fiduciary duties to the Company's stockholders under
applicable law, the Company will update the information required to be provided
in the Company Notice upon the request of the Purchaser.

4.6 Public Announcements. Purchaser on the one hand, and the Company on
the other hand, will consult with each other before, and obtain the other
party's consent with respect to, issuing any press release, any filing with the
SEC on Form 8-K or otherwise making any public statements with respect to this
Agreement or the Merger or the other transactions contemplated hereby, and
shall not issue any such press release, SEC Form 8-K filing or make any such
public statement prior to such consultation and consent, except to the extent
that compliance with legal requirements and NASDAQ rules require a party to
issue a press release or public announcement or make an 8-K filing. Any consent
required pursuant to the preceding sentence shall not be unreasonably withheld
or delayed.

4.7 Notification of Certain Matters.

(a) The Company shall give prompt notice (which notice shall state that it
is delivered pursuant to Section 4.7 of this Agreement) in writing to
Purchaser, and Purchaser shall give prompt notice in writing to the Company, of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material respect
as of the time such representation or warranty is made and (ii) any material
failure of the Company, Purchaser, as the case may be, or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.

(b) The Company shall give reasonably prompt notice (which notice shall
state that it is delivered pursuant to Section 4.7 of this Agreement) in
writing to Purchaser, of any occurrence that has had or may reasonably be
expected to have a Material Adverse Effect, other than occurrences relating to
or arising out of the economy in general or the industries of the Company and
its Subsidiaries in general and not specifically relating to the Company or any
of its Subsidiaries and occurrences related to the execution of this Agreement
and the announcement of the transactions contemplated hereby.

4.8 Officers' and Directors' Indemnification; Insurance.

(a) The Purchaser and Surviving Corporation agree that for a period ending
on the sixth anniversary of the Effective Time, the Surviving Corporation will
maintain all rights to indemnification (including with respect to the
advancement of expenses incurred in the defense of any action or suit) existing
on the date of this Agreement in favor of the present and former directors,
officers, employees and agents of the Company as provided in the Company's
Certificate of Incorporation and Bylaws, in each case as in effect on the date
of this Agreement, and that during such period, neither the Certificate of
Incorporation nor the Bylaws of the Surviving Corporation shall be amended to
reduce or limit the rights of indemnity afforded to the present and former
directors, officers, employees and agents of the Company, or the ability of the
Surviving Corporation to indemnify them, nor to hinder, delay or make more
difficult the exercise of such rights or indemnity or the ability to indemnify;
provided; however, that in the event any claim or claims are asserted or made
within such six-year period, all rights to indemnification in respect to any
such claim or claims shall continue until the disposition of any and all such
claims.

(b) The Purchaser and Surviving Corporation agree to cause the Surviving
Corporation to indemnify to the fullest extent permitted under its Certificate
of Incorporation, its Bylaws and applicable law the present and former
directors, officers, employees and agents of the Company against all losses,
damages,

A-18

liabilities or claims made against them arising from their service in such
capacities prior to and including the Effective Time, to at least the same
extent as such persons are currently permitted to be indemnified pursuant to
the Company's Certificate of Incorporation and Bylaws, for a period ending on
the sixth anniversary of the Effective Time.

(c) Should any claim or claims be made against any present or former
director, officer, employee or agent of the Company, on or prior to the sixth
anniversary of the Effective Time, arising from such person's service as such
at any time prior to the Effective Time, the provisions of this Section 4.8
respecting the Certificate of Incorporation and Bylaws and the obligation of
indemnity of the Surviving Corporation shall continue in effect until the final
disposition of all such claims.

(d) The Company and the Purchaser agree that in the event that the
Surviving Corporation or any of its successors or assigns consolidates with or
merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, then and in each such
case, proper provisions shall be made so that the successors and assigns of the
Surviving Corporation shall assume the obligations of the surviving
Corporation, set forth in this Section 4.8. The provisions of this Section
4.8(d) are in addition to, and not substitution for, any other rights or
indemnification that any such person may have by contract or otherwise.

(e) The provisions of this Section 4.8 are intended to be for the benefit
of, and shall be enforceable by, each indemnified party and such party's heirs
and representatives.

(f) The Surviving Corporation shall maintain for a period of six years
from the Effective Time the Company's current directors' and officers'
insurance and indemnification policy to the extent that it provides coverage
for events occurring prior to the Effective Time (the "D&O Insurance") for all
persons who are directors and officers of the Company on the date of this
Agreement, so long as such insurance is available on commercially reasonable
terms and the annual premium therefor would not be in excess of 200% of the
last annual premium paid prior to the date of this Agreement (the "Maximum
Premium").

If the existing D&O Insurance expires, is terminated or cancelled during
such six-year period, the Purchaser will use all reasonable efforts to cause to
be obtained as much D&O Insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium, on terms
and conditions no less advantageous than the existing D&O Insurance.

4.9 Additional Agreements.

(a) Subject to the terms and conditions hereof, each of the parties to
this Agreement agrees to use commercially reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement (including consummation of the Merger) and to cooperate with each
other in connection with the foregoing.

(b) Subject to the terms and conditions hereof, each of the parties to
this Agreement agrees to use commercially reasonable efforts to: (i) obtain all
necessary waivers, consents and approvals from other parties to loan
agreements, leases, licenses and other contracts, (ii) obtain all necessary
consents, approvals and authorizations as required to be obtained under any
federal, state or foreign law or regulations, including, but not limited to,
those required under the HSR Act, if required, (iii) defend all lawsuits or
other legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby, (iv) lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby, (v) effect all necessary
registrations and filings, including, but not limited to, filings under the HSR
Act and submissions of information requested by Governmental Entities, and (vi)
fulfill all conditions to this Agreement.

4.10 Company Indebtedness. Prior to the Effective Time, the Company and
Purchaser shall cooperate with each other in taking such actions requested by
the Purchaser as are reasonably appropriate or necessary in connection with
obtaining the prior written consent of Fleet National Bank, N.A. prior to the
Effective Time.

A-19

4.11 Other Actions by the Company. If any "fair price," "control share
acquisition," "shareholder protection" or other form of anti-takeover statute,
regulation or charter provision or contract is or shall become applicable to
the Merger or the transactions contemplated hereby, the Company, the Special
Committee and the Board of Directors shall, promptly upon the request of the
Purchaser, grant such approvals and take such actions as are necessary under
such laws and provisions so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to the extent allowable to eliminate or minimize the effects of
such statute, regulation, provision or contract on the transactions
contemplated hereby. The Board of Directors and the Company have taken and
shall continue to take such actions as are necessary to either amend the
Company Rights Plan or redeem any outstanding rights under the Company Rights
Plan, so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement, and otherwise act to eliminate or minimize the effects of such
Company Rights Plan on such transaction.

4.12 Litigation Cooperation. Promptly upon execution of this Agreement and
until the Effective Time, each of the Company and Purchaser shall cooperate
with each other in connection with any litigation by a third party arising out
of or in connection with this Agreement or any of the transactions contemplated
by this Agreement.

4.13 Future Filings. The Company will deliver to the Purchaser as soon as
they become available true and complete copies of any report or statement
mailed by it to its stockholders generally or filed by it with the SEC
subsequent to the date of this Agreement and prior to the Effective Time. The
Purchaser shall deliver to the Company as soon as they become available, true
and complete copies of any report or statement mailed by it to the Company's
stockholders generally or filed by it with the SEC subsequent to the date of
this Agreement and prior to the Effective Time.

4.14 Board Action Relating to Stock Option Plans. As soon as practicable
following the date of this Agreement, the Board of Directors of the Company
(or, if appropriate, any committee administering a Company Stock Option Plan)
shall adopt such resolutions or take such actions as may be required to adjust
the terms of all outstanding Company Stock Options in accordance with Section
1.7 and shall make such other changes to the Company Stock Option Plan in
accordance with the terms of the Company Stock Option Plan as the Purchaser,
the Special Committee and the Company deem appropriate to give effect to the
Merger, and, at Purchaser's request, to terminate such plans as of the
Effective Time.

4.15 Knowledge of Inaccuracies. In the event that Purchaser, its
stockholders or any senior executive officer of the Company shall have
knowledge on or prior to the date of this Agreement of the existence or
occurrence of any fact, circumstance, or event the failure of the Company to
disclose which in this Agreement or the Company Disclosure Schedule otherwise
would cause, or be reasonably likely to cause, any inaccuracy or breach by the
Company of any representation, warranty, covenant or other obligation
hereunder, then such fact, circumstance or event shall be deemed to have been
disclosed by the Company to the Purchaser in this Agreement or Company
Disclosure Letter.

4.16 Financing Matters.

(a) Purchaser has had discussions with one or more banks, financial
institutions or other public or private financing sources (the "Lending
Sources") to determine the available terms of financing and reasonably expects
that such commitments regarding junior or subordinated debt financing, together
with equity contributions to the Purchaser made or to be made by certain
stockholders of the Purchaser (collectively, the "Commitments"), sufficient to
consummate the transactions contemplated by the Merger Agreement, will be
obtainable from such Lending Sources and stockholders of the Purchaser, as the
case may be. The Company acknowledges that the Lending Sources have not had the
opportunity to complete due diligence on all aspects of the Company's
operations, agreements and finances, including with respect to the Company's
operations for the period ended December 30, 2000, and that the results of such
investigation may result in the Commitments being unavailable or available only
in amounts and on terms not acceptable to the Purchaser.

(b) The Company agrees to provide, and will cause its Subsidiaries and its
and their respective officers, employees and advisors to provide, all
cooperation reasonably necessary in connection with the

A-20

arrangement of any financing to be consummated contemporaneously with or at or
after the expiration of the Effective Time in respect of the transactions
contemplated by this Agreement, including participation in meetings and, due
diligence sessions, the execution and delivery of any commitment letters,
underwriting or placement agreements, pledge and security documents, other
definitive financing documents, or other requested certificates or documents,
including a certificate of the chief financial officer of the Company, comfort
letters of accountants and legal opinions as may be reasonably requested by
Purchaser and taking such other actions as are reasonably required to be taken
by the Company in the Commitments, provided that Purchaser shall use reasonable
efforts not to materially interfere with the duties of such officers, employees
and advisors such that the Company's business and results of operations would
be materially adversely affected thereby.

(c) The Company has entered into or agrees to enter into the engagement
letter agreement (the "Golub Engagement Letter") among Golub Associates
Incorporated, LEG Partners III SBIC, L.P., LEG Partners Debentures SBIC, L.P.
the Purchaser and the Company.

(d) Notwithstanding anything to the contrary contained in this Agreement,
the Company shall not enter into any Commitments or any other letters,
agreements or other documents contemplated by Sections 4.16(b), 4.16(c) or
5.2(f) if, in the aggregate, such Commitments, letters, agreements or other
documents obligate the Company to pay more than $400,000.00 of fees, costs and
expenses (excluding contingent liabilities such as indemnification
obligations), without the prior consent of the Special Committee.

4.17 Voting. Each of the Purchaser and its stockholders will vote any and
all shares of the Company's Common Stock held by them, or which they have the
right to vote, in favor of approval of the Merger, in person, or by proxy.

4.18 Exemption from Liability Under Section 16(B). Purchaser and the
Company shall take all such steps as may be required or reasonably requested to
cause the transactions contemplated by this Agreement and any other
dispositions of Company equity securities (including derivative securities) in
connection with this Agreement by each individual who is a director, officer or
ten (10%) percent stockholder of the Company to be exempt under Rule 16b-2
promulgated under the Exchange Act and the rules and regulations promulgated
thereunder, such steps to be taken in accordance with the No-Action Letter
dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher &
Flom LLP, or as may otherwise be reasonably requested by the Company.

4.19 Delisting. Each of the parties agrees to cooperate with each other in
taking, or causing to be taken, all actions necessary to delist the Company
Common Stock from NASDAQ and to terminate registration under the Exchange Act,
provided that such delisting and termination shall not be effective until after
the Effective Time of the Merger.

ARTICLE V
CONDITIONS OF MERGER

5.1 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of each of the following
conditions:

(a) This Agreement and the Merger shall have been approved and adopted by
the affirmative vote of a majority of Shares held by the stockholders of the
Company, as required under the laws of the State of Delaware;

(b) No temporary restraining order, preliminary or permanent injunction,
judgment or other order, decree or ruling nor any statute, rule, regulation,
SEC stop order or other order shall be in effect which would make the
acquisition or holding by Purchaser or its Affiliates of Shares or shares of
Common Stock of the Surviving Corporation illegal or otherwise prevent the
consummation of the Merger; and

(c) Upon the written request of either the Purchaser or the Special
Committee prior to the Closing, the Company shall have delivered to the
Purchaser or the Special Committee, as applicable, (i) a pro forma balance
sheet of the Surviving Corporation, on a consolidated basis, as of the
Effective Time (and

A-21

reflecting any debt incurred by the Surviving Corporation to finance the
Merger), (ii) projections for the Surviving Corporation's operations, on a
consolidated basis, for such period reasonably necessary to deliver the
certificate described in clause (iii) below, and (iii) a Solvency Certificate
(as hereinafter defined), duly executed by the Company's Chief Financial
Officer or such other mutually acceptable person, in form and substance
reasonably satisfactory to the Purchaser or the Special Committee, as
applicable.

5.2 Conditions Precedent to Purchaser's Obligations. In addition to the
conditions set forth in Section 5.1, the Purchaser shall be obligated to
perform the acts contemplated for performance by them under Article I only if
each of the following conditions is satisfied at or prior to the Closing Date,
unless any such condition is waived in writing by Purchaser:

(a) The receipt of cash proceeds from debt and equity financings
sufficient to consummate the transactions contemplated by this Agreement
("Financing Condition").

(b) The representations and warranties of the Company set forth in Article
2 shall be true and correct in all material respects as of the Closing Date
with the same force and effect as though made again at and as of the Closing
Date, except for any representations and warranties that address matters only
as of a particular date specifically set forth in such representation, other
than the date hereof, (which shall remain true and correct as of such date).

(c) The Company shall have performed and complied in all material
respects, individually or in the aggregate, (without giving duplicative effect
to any materiality qualification contained in the applicable obligation) with
all other covenants and agreements contained in this Agreement required to be
performed or complied with by it on or before the Closing Date.

(d) Since the date of this Agreement, there shall not have been the
occurrence of any event or condition, or series of events or conditions, that
has had or would reasonably be expected to have a Material Adverse Effect.

(e) The Company shall have executed and delivered to Purchaser at and as
of the Closing a certificate, duly executed by the Company's Chief Financial
Officer, in form and substance reasonably satisfactory to Purchaser and
Purchaser's counsel, certifying that to such officers' knowledge, the
conditions specified in (b), (c) and (d) have been satisfied.

(f) The Company shall have obtained the material third party consents
necessary to consummate the Merger including the consent of Fleet National
Bank, N.A

(g) As of the Effective Time, the effects of the Company Rights Plan shall
have been eliminated to the Purchaser's reasonable satisfaction.

(h) Shareholders holding Common Stock representing more than five percent
(5%) of the Company's outstanding stock shall not have dissented from the
Merger and exercised their rights under Section 262 of the DGCL.

5.3 Conditions to Obligations of the Company. In addition to the
conditions set forth in Section 5.1, the Company shall be obligated to perform
the acts contemplated for performance by it under Article I only if each of the
following conditions is satisfied at or prior to the Closing Date, unless any
such condition is waived in writing by the Company:

(a) The representations and warranties of the Purchaser set forth in
Article III shall be true and correct in all material respects as of the
Closing Date with the same force and effect as though made again at and as of
the Closing Date, except for any representations and warranties that address
matters only as of a particular date specifically set forth in the particular
representation or warranty which shall remain true and correct as of such
particular date.

(b) The Purchaser shall have performed and complied in all material
respects, individually or in the aggregate, (without giving duplicative effect
to any materiality qualification contained in the applicable obligation) with
all covenants and agreements contained in this Agreement required to be
performed or complied with by them on or before the Closing Date.

A-22

(c) The Purchaser shall have deposited with the Exchange Agent the Deposit
Amount in trust for the benefit of the holders of certificates.

(d) The Purchaser shall have executed and delivered to the Company at and
as of the Closing a certificate, duly executed by the Purchaser's President
and/or Chief Financial Officer, in form and substance reasonably satisfactory
to the Company and the Company's counsel, certifying that to such officers'
knowledge, the conditions specified in (a), (b) and (c) have been satisfied.

ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER

6.1 Termination. This Agreement may be terminated, at any time prior to
the Effective Time, whether before or after approval by the stockholders of the
Company:

(a) by mutual written agreement of the boards of directors of Purchaser
and the Company; or

(b) by either Purchaser or Company:

(i) if any court of competent jurisdiction or other governmental body
shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become
final and non appealable; or

(ii) if there has been a material breach by the other party of any
representation or warranty set forth in this Agreement unless
such breach is capable of being cured and is cured within 20 days
after the giving of written notice of the material breach.

(iii) if there has been a material breach by the other party of any
covenant or agreement set forth in this Agreement unless such
breach is capable of being cured and is cured within 20 days
after the giving of written notice of the material breach.

(c) by Company, in the case of (i), (ii) or (iii) below, or by Purchaser,
(i) if the Board of Directors shall have approved or recommended or proposed
publicly to approve or recommend an Acquisition Proposal by a third party, or
(ii) the Board of Directors or the Special Committee shall have withdrawn or
modified in a manner adverse to Purchaser its approval or recommendation of
this Agreement or the transactions contemplated hereby, or (iii) the Board of
Directors or the Special Committee shall have failed to include in the Company
Proxy Statement such recommendation (including the recommendation that the
stockholders of the Company vote in favor of the Merger) or publicly announced
an intention to do any of the foregoing, (iv) if the Company enters into a
Company Acquisition Agreement, or (v) if there has been a material breach by
the Company of any covenant or agreement set forth in this Agreement including,
a material breach of Section 4.5 hereof, which breach arises primarily from the
actions taken, or the failure to act, by the Special Committee, unless such
breach is capable of being cured and is cured within 20 days after the giving
of written notice of the material breach;

(d) by the Company, pursuant to Section 4.5, in the event the Company has
complied with all the provisions of Section 4.5 and has determined to enter
into a Company Acquisition Agreement.

(e) by either Purchaser or Company, if the Effective Time shall not have
occurred on or before August 31, 2001, or it becomes manifestly evident that
the conditions to the transaction shall not be satisfied by such date;
provided, however, that the right to terminate this agreement under this
Section 6.1(e) shall not be available to any party whose failure to fulfill any
obligation under this Agreement shall have principally caused, or resulted in,
the failure of the Effective Time to occur on or before such date.

6.2 Procedure and Effect of Termination. In the event of the termination
of this Agreement by the Company or Purchaser or both of them pursuant to
Section 6.1, the terminating party shall provide written notice of such
termination to the other party and this Agreement shall forthwith become void
and there shall be no liability on the part of Purchaser or the Company, except
as set forth in this Section 6.2 and in Sections 4.2(b)-(f) and 6.3 of this
Agreement. The foregoing shall be an exclusive remedy and shall

A-23

relieve any party for liability for any and all damages actually incurred as a
result of any breach of this Agreement or otherwise, except for any deliberate
and wilful breach of this Agreement. Sections 4.2(b)-(f), 6.2, 6.3 and Article
VIII of this Agreement shall survive the termination of this Agreement.

6.3 Expenses.

(a) Except as otherwise provided in this Agreement and whether or not the
transactions contemplated by this Agreement are consummated, all costs and
expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.

(b) In the event that the Company or Purchaser terminates this Agreement
pursuant to Section 6.1(c) or the Company terminates this Agreement pursuant to
Section 6.1(d), then the Company shall reimburse Purchaser for all of the
Purchaser's reasonable Expenses (as defined below) as liquidated damages;
provided, that such Expenses for which Purchaser is entitled to reimbursement
shall not exceed an amount equal to $400,000.00 less the aggregate amount of
Company obligations paid by the Company contemplated by Section 4.16(d) hereof;
and provided, however, that such limitation of $400,000 shall not be applicable
in the event that the Company consummates an Acquisition Proposal that was
inquired or made prior to the termination of this Agreement. Any such payment
shall be made within five (5) business days after a termination by the
Purchaser pursuant to Section 6.1(c) or at the time of any termination by the
Company pursuant to Sections 6.1(c) or 6.1(d). For purposes of this Agreement,
"Expenses" shall mean out-of-pocket expenses incurred by the Purchaser or on
its behalf (other than by the Company) in connection with the Merger and the
consummation of the transactions contemplated by this Agreement, (including,
reasonable attorneys' fees and disbursements, depository fees and expenses,
fees payable to the Lending Sources, the fees of accountants and financial
advisors, and filing fees and printing costs). Notwithstanding anything to the
contrary contained above, in the event that this Agreement and the Merger shall
not have been approved and adopted by the affirmative vote of a majority of the
Shares held by the stockholders of the Company at a duly called Stockholders'
Meeting, then in such event the Purchaser shall not be entitled to
reimbursement by the Company of any Expenses.

6.4 Amendment. This Agreement may be amended by each of the parties by
action taken by or on behalf of their respective boards of directors at any
time prior to the Effective Time; provided, however, that (i) such amendment
shall be in writing signed by all of the parties, and (ii) after adoption of
this Agreement and the Merger by the stockholders of the Company, no amendment
may be made without the further approval of the stockholders of the Company to
the extent such approval is required by applicable law; provided, however, that
any modification or amendment hereto shall have been approved by the Special
Committee.

6.5 Waiver. Subject to the requirements of applicable law, at any time
prior to the Effective Time, whether before or after the Special Meeting, any
party hereto, by action taken by its Board of Directors, may (i) extend the
time for the performance of any of the obligations or other acts of any other
party hereto or (ii) waive compliance with any of the agreements of any other
party or with any conditions to its own obligations; provided, however, that
any waiver by the Company shall have been approved by the Special Committee.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party by a duly authorized officer of such party. Notwithstanding the
above, any waiver given shall not apply to any subsequent failure of compliance
with agreements of the other party or conditions to its own obligations.

6.6 Termination decisions by the Company. The Board of Directors shall
terminate this Agreement in connection with any action by the Special Committee
contemplated by Section 6.1(c)(ii) or (iii) hereof upon, and only upon, the
recommendation of the Special Committee.

ARTICLE VII
DEFINITIONS

As used herein the following terms not otherwise defined have the
following respective meanings:

"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such

A-24

specified Person. As used in this definition the term "control" (including the
terms "controlled by" and "under common control with") means, with respect to
the relationship between or among two or more Persons, the possession, directly
or indirectly or as trustee or executor, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee or executor, by contract or
otherwise, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such Person.

"Company Rights Plan" means the Company's stockholder rights plan pursuant
to a Rights Agreement dated as of April 11, 2000, between the Company and
Continental Stock Transfer and Trust Company as Rights Agreement.

"Indebtedness" means (i) all indebtedness of the Company or any of its
Subsidiaries for borrowed money, whether current or funded, or secured or
unsecured, (ii) all indebtedness of the Company or any of its Subsidiaries for
the deferred purchase price of property or services represented by a note or
other security, (iii) all indebtedness of the Company created or arising under
any conditional sale or other title retention agreement with respect to
property acquired by the Company or any of its Subsidiaries (even though the
rights and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property), (iv) all
indebtedness of the Company or any of its Subsidiaries secured by a purchase
money mortgage or other lien to secure all or part of the purchase price of
property subject to such mortgage or lien, (v) all obligations under leases
which shall have been or must be, in accordance with generally accepted
accounting principles, recorded as capital leases in respect of which the
Company or any of its Subsidiaries is liable as lessee, (vi) any liability of
the Company or any of its Subsidiaries in respect of banker's acceptances or
letters of credit, and (vii) all indebtedness referred to in clause (i), (ii),
(iii), (iv), (v) or (vi) above which is directly or indirectly guaranteed by
the Company or any of its Subsidiaries or which the Company or any of its
Subsidiaries has agreed (contingently or otherwise) to purchase or otherwise
acquire or in respect of which it has otherwise assured a creditor against
loss.

"Material Adverse Effect" means any material adverse effect on the
business, properties, assets, results of operations or financial condition of
the Company and its Subsidiaries taken as a whole.

"Person" means any corporation, association, partnership, limited
liability company, organization, business, individual, government or political
subdivision thereof or governmental agency.

"Solvency Certificate" shall mean a certificate of the Chief Financial
Officer of the Company regarding solvency matters of the Company in
substantially the form previously delivered by the Company to the Purchaser.

"Subsidiary" means, with respect to any Person, any corporation a majority
(by number of votes) of the outstanding shares of any class or classes of which
shall at the time be owned by such Person or by a Subsidiary of such Person, if
the holders of the shares of such class or classes (a) are ordinarily, in the
absence of contingencies, entitled to vote for the election of a majority of
the directors (or persons performing similar functions) of the issuer thereof,
even though the right so to vote has been suspended by the happening of such a
contingency, or (b) are at the time entitled, as such holders, to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, whether or not the right so to vote exists by
reason of the happening of a contingency.

"Tax" or "Taxes" means any federal, state, local, or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales,
use, transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, intangibles, social security,
unemployment, disability, payroll, license, employee, or other tax or levy, of
any kind whatsoever, including any interest, penalties, or additions to tax in
respect of the foregoing.

ARTICLE VIII
MISCELLANEOUS

8.1 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by rule of law or public
policy, all other conditions and provisions of this Agreement shall

A-25

nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.

8.2 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered if sent via telecopier or delivered
personally(including, without limitation, delivery by commercial carrier
warranting next-day delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by similar notice, except
that notices of changes of address shall be effective upon receipt):

(a) If to Company:
Specialty Catalog Corp.
21 Bristol Drive
South Easton, MA 02375
Attention: Special Committee
Fax: (508) 238-3305

With copies to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Stephen Kotran, Esq.
Fax: (212) 558-3588

If to Purchaser:
Specialty Acquisition Corp.
c/o Kane Kessler, P.C.
1350 Avenue of the Americas
26th Floor
New York, New York 10019
Attn: Guy Naggar and
Jeffrey S. Tullman, Esq.
Fax: (212) 245-3009

With copies to:
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019
Attention: Robert L. Lawrence, Esq.
Fax: (212) 245-3009

8.3 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Any reference in this Agreement to a section, exhibit or
schedule shall, unless otherwise expressly indicated, refer to a section of or
an exhibit or schedule to this Agreement.

8.4 Representations and Warranties, etc. The respective representations
and warranties of the Company and Purchaser contained herein shall survive
until, and shall expire with, and be terminated and extinguished upon the
earlier to occur of (a) the termination of this Agreement pursuant to Section
6.1 and (b) the Effective Time. This Section 8.4 shall have no effect upon any
other obligation of the parties hereto, whether to be performed before or after
the consummation of the Merger.

8.5 Miscellaneous. This Agreement and the documents delivered pursuant
hereto or in connection herewith (i) constitute the entire agreement and
supersede all other prior agreements and undertakings, both written and oral
(including, without limitation, any agreement or proposed agreement relating to
the

A-26

timing of execution of this Agreement and the payment of any amount in
connection therewith), among the parties, or any of them, with respect to the
subject matter hereof, (ii) are not intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder, other than Sections
4.8 (which is intended for the benefit of the present and former directors,
officers, employees and agents of the Company and may be enforced by any such
indemnified persons), and (iii) the Purchaser may assign this Agreement to its
lenders as collateral security; provided, however, that no such assignment
shall relieve the assignor of its obligations hereunder. This Agreement may be
executed in one or more counterparts which together shall constitute a single
agreement.

8.6 Attorneys Fees. If any legal proceeding is initiated by any party to
enforce this Agreement or otherwise with respect to the subject matter of this
Agreement, the prevailing party or parties shall be entitled to recover
reasonable attorney's fees incurred in connection with such proceedings.

8.7 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of Delaware, regardless of the laws that might
otherwise governs under applicable principals of conflicts of laws thereof.

8.8 Jurisdiction and Venue. This Agreement shall be subject to the
exclusive jurisdiction of the state or federal courts sitting in New York
County, New York. The parties to this Agreement agree that any breach of any
term or condition of this Agreement shall be deemed to be a breach occurring in
the State of New York by virtue of a failure to perform an act required to be
performed in the State of New York and irrevocably and expressly agree to
submit to the jurisdiction of the United States District Court for the Southern
District of New York or courts of the State of New York for the purpose of
resolving any disputes among the parties relating to this Agreement or the
transactions contemplated hereby. The parties irrevocably waive, to the fullest
extent permitted by law, any objection which they may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement, or any judgment entered by any court in respect
hereof brought in New York County, New York, and further irrevocably waive any
claim that any suit, action or proceeding brought in New York County, New York
has been brought in an inconvenient forum. The parties hereto agree to service
of process by certified or registered United States mail, postage prepaid,
addressed to the party in question.

8.9 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.

8.10 Assignment. This Agreement may not be assigned by any party without
the written consent of the other party; provided, that the Purchaser may assign
this Agreement to a corporation, partnership, or limited liability company of
which the stockholders of the Purchaser maintain majority control.

8.11 Further Assurances. The parties hereto shall deliver any and all
other instruments or documents reasonably requested by the other party in order
to give effect to all of the terms and provisions of this Agreement.

8.12 Publicity. No public announcement or other publicity regarding this
Agreement or the transactions contemplated hereby shall be made without the
prior written consent of the Purchaser and the Company as to form, content,
timing and manner of distribution. Notwithstanding the foregoing, nothing in
this Agreement shall preclude the Company from making any public announcement
or filing required pursuant to any federal or state securities laws or stock
exchange rules; provided that prior to such filing Purchaser shall be given a
reasonable opportunity to review and comment on such public announcement or
filing.

[SIGNATURE PAGE FOLLOWS]

A-27

IN WITNESS WHEREOF, Purchaser and the Company have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.

SPECIALTY ACQUISITION CORP.

By: /s/ Guy Naggar
-------------------------------
Name: Guy Naggar
Title: President

SPECIALTY CATALOG CORP.

By: /s/ Thomas McCain
-------------------------------
Name: Thomas McCain
Title: Senior Vice President, Chief
Financial Officer, Secretary, and
Treasurer

A-28

AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER

Amendment No. 1, dated as of August 31, 2001 ("Amendment No. 1") to the
Agreement and Plan of Recapitalization and Merger (the "Merger Agreement"),
dated May 4, 2001, by and between Specialty Acquisition Corp. ("Purchaser") and
Specialty Catalog Corp. (the "Company").

WITNESSETH:

WHEREAS, the Purchaser and the Company are parties to the Merger
Agreement. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings ascribed to them in the Rights Agreement.

WHEREAS, the parties now desire to amend the Merger Agreement, on the
terms and subject to the conditions set forth in this Amendment No. 1.

NOW, THEREFORE, in consideration of the promises and the respective mutual
covenants, representations and warranties herein contained, the parties hereto
hereby agree as follows:

1. Section 6.1(e) of the Merger Agreement is hereby amended by deleting
the such section in its entirety and thereof and inserting in its stead the
following Section 6.1(e) in lieu thereof:

"by either Purchaser or Company, if the Effective Time shall not have
occurred on or before the earlier of (i) November 15, 2001 or (ii) four
business days after the date of the special meeting of stockholders of the
Company specified in the proxy statement to be mailed to such stockholders
in connection with the approval of this Agreement, or it becomes
manifestly evident that the conditions to the transaction shall not be
satisfied by such date; provided, however, that the right to terminate
this agreement under this Section 6.1(e) shall not be available to any
party whose failure to fulfill any obligation under this Agreement shall
have principally caused, or resulted in, the failure of the Effective Time
to occur on or before such date."

2. Each of the Purchaser and the Company represents and warrants that the
execution, delivery and performance by it of this Amendment No. 1 has been duly
authorized, executed and delivered and constitutes a valid and binding
agreement enforceable against it in accordance with its terms.

3. Each of the Purchaser and the Company represents and warrants that the
execution, delivery and performance by it of this Amendment No. 1 does not and
will not contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding up or
applicable to it.

6. Except as expressly amended by this Amendment No. 1, the Merger
Agreement shall remain in full force and effect, and the parties hereto agree
to be bound by the Merger Agreement, as the same was in effect immediately
prior to the effectiveness of this Amendment No. 1.

7. This Amendment No. 1 to the Merger Agreement shall be governed and
construed on the same basis as the Merger Agreement, as set forth therein.

A-29

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.
SPECIALTY ACQUISITION CORP.

By: /s/ Guy Naggar
-------------------------------
Name: Guy Naggar
Title: President

SPECIALTY CATALOG CORP.

By: /s/ Thomas McCain
-------------------------------
Name: Thomas McCain
Title: Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer

A-30

ANNEX B

May 4, 2001

Special Committee of the Board of Directors
Board of Directors
Specialty Catalog Corp.
21 Bristol Drive
South Easton, MA 02375

Member of the Special Committee and Members of the Board of Directors:

We understand that Specialty Catalog Corp. ("SC" or the "Company") intends to
enter into a Merger Agreement with Specialty Acquisition Corp. (the
"Purchaser"), dated May 4, 2001, which provides for, among other things, each
share of Common Stock, $.01 par value per share, of the Company (other than
shares held by Purchaser) to be cancelled and extinguished and be automatically
converted into and become a right to receive $3.75 per share in cash upon
surrender of the certificate that evidenced the Shares (the "Proposed
Transaction").

The Special Committee has asked our opinion as investment bankers as to the
fairness, from a financial point of view, to the shareholders of SC (other than
Purchaser and its shareholders) of the consideration to be received by such
shareholders in the Proposed Transaction.

In the course of our engagement, we have, among other things:

1) reviewed publicly available information concerning SC issued from 12/31/95
through the date of this opinion;

2) analyzed certain financial statements and other financial and operating
data concerning SC prepared by the management of the Company;

3) analyzed certain financial projections prepared by the management of SC
with regard to its business prospects;

4) discussed the past and current operations and financial condition and the
prospects of SC with senior executives of SC;

5) visited the South Easton, MA facility of SC and engaged in discussions
with management;

6) compared the financial performance of SC and the prices and trading
activity of SC Common Stock with that of certain other comparable
publicly-traded companies and their securities;

7) compared the Proposed Transaction with other transactions involving public
and private companies that we deemed to be comparable;

8) considered the average price per share paid by SC for the 144,000 shares
purchased in the open market in 1999 and 2000;

9) analyzed transactions concluded by SC (Daxbourne and AHI);

10) considered the dearth of interest in acquiring SC by 53 candidates less
than two years ago and the failed acquisition of the Company last year;

11) considered the potential consequences to SC shareholders if the notice to
delist SC shares from NASDAQ were to become effective;

12) reviewed the public announcements and filings relating to the Proposed
Transaction and the drafts of the Merger Agreement as they became
available and certain related documents; and

13) conducted other financial studies and analyses and performed such other
investigations and took into account such other factors as we deemed
necessary or appropriate for purposes of the opinion expressed herein.

In preparing our opinion, we have assumed and relied upon, without independent
verification, the accuracy and completeness of all of the financial and other
information, which we reviewed, and analyzed

B-1

in connection with this opinion. With respect to the projected financial
information and business prospects, we have assumed that such information has
been reasonably prepared on a consistent basis with prior practice and that
such information reflects the best currently available estimates and judgments
of the Company's management as to expected future financial performance. In
addition, we have not made an independent evaluation or appraisal of the assets
or liabilities of SC, nor have we been furnished with any such evaluation or
appraisal. Our opinion is necessarily based on economic, market and other
conditions as they exist and as they can be evaluated as of the date of this
opinion. We have not been requested to opine upon, and our opinion does not in
any manner address SC's underlying business decision to proceed with the
transaction. Furthermore, we have not been requested to, and did not, solicit
or entertain any other offers of the purchase of the stock or the assets of the
Company or any other transaction involving the Company.

We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with this transaction and will receive a
fee for our services. The Company has agreed to indemnify us from certain
liabilities arising out of our engagement. Prior to this engagement, Burnham
Securities Inc. has provided no financial services to the Company except that
in December 1999 Burnham was engaged by the then existing Independent Committee
of the Board of Directors of the Company to provide financial advice and advise
on the fairness of the consideration to be received by SC shareholders in a
proposed merger that was not consummated.

It is understood that this letter is for the information of the Special
Committee of the Board of Directors and the Board of Directors of the Company
in its consideration of the fairness of the Proposed Transaction to the
shareholders of the Company (other than the Purchaser and its shareholders)
from a financial point of view. Our opinion does not constitute a
recommendation as to how any member of the Special Committee of the Board of
Directors, the Board of Directors or any shareholder of the Company should vote
on the Proposed Transaction and is not to be quoted or referred to, in whole or
in part, in any document, nor shall it be used for any other purpose without
our prior written consent, except that we hereby consent to the inclusion of
this opinion in its entirety in any filing made by the Company with the
Securities and Exchange Commission with respect to the Proposed Transaction.

Subject to the foregoing, on the basis of our review and analyses and such
other factors as we deemed relevant, and subject to our review of the
definitive Merger Agreement, it is our opinion that as of the date hereof the
consideration to be received by the shareholders of SC (other than the
Purchaser and its shareholders) in the Proposed Transaction is fair, from a
financial point of view, to such shareholders.

Very truly yours,

BURNHAM SECURITIES INC.

By: /s/ Richard Lewisohn, III
Richard Lewisohn, III
Senior Managing Director

B-2

ANNEX C

DELAWARE GENERAL CORPORATION LAW, Section 262. APPRAISAL RIGHTS.

(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:

(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Section Section
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:

a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph;
or

d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.

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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or

(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each consitutent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constitutent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of such notice, demand in writing from the surviving
or resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify stockholders
of the effective date of the merger or consolidation, either (i) each such
constitutent corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of any class or
series of stock of such constitutent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided, however, that
if such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on which the
notice is given.

C-2

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon

C-3

the surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of Chancery
may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.

* * *

C-4

PLEASE VOTE, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
FOLD AND DETACH HERE

SPECIALTY CATALOG CORP.

PROXY FOR 2001 SPECIAL MEETING OF STOCKHOLDERS
__________, 2001
SOLICITED BY THE BOARD OF DIRECTORS

The undersigned, having received notice of the 2001 special meeting of
stockholders to be held on __________, 2001 at ______ a.m., local time, at
_________ and the Proxy Statement relating to the meeting, hereby revokes all
prior proxies and appoints Thomas McCain and David Moore, and each of them
acting singly, with full power of substitution, as proxies to represent and vote
on behalf of the undersigned, as designated below, all shares of common stock,
par value $0.01 per share, of Specialty Catalog Corp., a Delaware corporation,
that the undersigned would be entitled to vote if present in person at the 2001
special meeting of stockholders and any adjournments thereof.

When properly executed, this proxy will be voted in the manner directed herein
by the undersigned. If a choice is not specified with respect to any proposal,
this proxy will be voted FOR such proposal.

Attendance of the undersigned at the special meeting will not be deemed to
revoke this proxy unless the undersigned shall revoke this proxy in writing and
shall vote in person at the special meeting.

EACH STOCKHOLDER SHOULD SIGN THIS PROXY PROMPTLY AND RETURN IT IN THE ENCLOSED
ENVELOPE. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SPECIALTY CATALOG CORP.

HAS YOUR ADDRESS CHANGED? DO YOU HAVE COMMENTS?

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PROXY

INSTRUCTIONS FOR VOTING YOUR PROXY

Mark, sign and date the attached proxy card and return it in the postage-paid
envelope enclosed.

[ ] Votes must be indicated, as in example to the left, in black or blue ink.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.

1. To approve and adopt the Agreement and Plan of Recapitalization and Merger
by and between Specialty Catalog Corp. and Specialty Acquisition Corp.,
dated as of May 4, 2001, as amended by Amendment No. 1 dated August 31,
2001, pursuant to which the stockholders of Specialty Catalog Corp., other
than Specialty Acquisition Corp. and dissenting stockholders who perfect
their dissenters' rights, will receive $3.75 in cash for each share of
Specialty Catalog Corp. common stock that they own:

[ ]FOR [ ] AGAINST [ ] ABSTAIN

2. To grant to the proxies the discretionary authority to adjourn the special
meeting to satisfy conditions to the closing of the Agreement and Plan of
Recapitalization and Merger.

[ ]FOR [ ] AGAINST

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED, OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR PROPOSAL 1 AND PROPOSAL 2.

DATED: _________________, 2001

SIGNATURE(S)

Please sign name(s) exactly as appearing on
your stock certificate. If shares are held
jointly, each joint owner should sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. If a corporation, please sign full
corporate name by president or other
authorized officer. If a partnership, please
sign in partnership name by authorized person.

Signature:________________________