<PAGE>
 
                                                                   Exhibit 10.2

                                LEASE AGREEMENT


  I.  IDENTIFICATION OF PARTIES


  THIS LEASE AGREEMENT, made on the eleventh day of June, 1998, by READING
OUTLET CENTER ASSOCIATES, a Pennsylvania Limited Partnership,  D/B/A MOSS REALTY
COMPANY, having its principal place of business located at 801 North Ninth
Street, Reading, Pennsylvania, 19604 (hereinafter called "LANDLORD") and DM
Management Company, a Delaware Corporation, having its principal place located
at 25 Recreation Park Drive, Hingham  MA  02043 (hereinafter called "TENANT").


  II.  LEASED PREMISES

  LANDLORD hereby leases to TENANT and TENANT hereby rents from LANDLORD the
store premises (hereinafter referred to as the "Store","Premises," "Leased
Premises" or "Demised Premises") designated on the plan attached as "Exhibit A"
hereto located in Building# 5 at 831 Oley Street, Reading  PA  erected as part
of a shopping center presently known as READING OUTLET CENTER (hereinafter
referred to as the "Center," "Shopping Center" or "Entire Premises" and
presently comprising the area shown in Exhibit "A"), said Demised Premises being
measured and described by the following dimensions which are measured from the
outside building lines of each wall of the Demised Premises or, in the case of
those walls separating the Demised Premises from other stores in the shopping
center, from the center lines of such walls, without deduction or exclusion for
any space occupied or used by columns, stairs, or other interior construction or
equipment:

  Total Approx.
  Square Footage of the Demised Premises:  3059


  III.  USE OF PREMISES

  Subject to the provisions of this Lease, other terms not withstanding, TENANT
shall use the Demised Premises solely for the purpose of conducting the business
of:  retail sale of clothing, accessories and home merchandise, which may
include, without limitation, ladies ready to wear, accessories, shoes, bed and
bath goods and accessories.


(a)  Except as otherwise specifically provided commencing on the Commencement
     Date and thereafter for the balance of the term of this Lease, TENANT shall
     continuously occupy and use Demised premises solely for conducting the
     business specified in the Lease Agreement as the permitted use, and will
     not use or permit or 
<PAGE>
 
     suffer the use of the demised premises for any other
     business or purpose.  In addition, TENANT agrees that TENANT shall not
     operate or cause or permit to be operated any catalogue, mail, or telephone
     order sales in or from the Demised Premises except (i) outbound
     telemarketing and (ii) the incidental sale of merchandise which TENANT is
     permitted to sell over the counter to customers in the Demised Premises
     pursuant to the permitted use set forth in the Lease Agreement, provided
     that no such sales pursuant to subclause (i) or (ii) above shall be
     included in the Gross Sales for purposes of this Lease, nor shall TENANT
     divert elsewhere any business which would ordinarily be transacted by
     TENANT at, in, on or from the Demised Premises.  The authorization of the
     use of the Premises for the business purposes set forth in the Lease
     Agreement does not constitute a representation or warranty by LANDLORD that
     any particular use of the Premises is now or will continue to be permitted
     under applicable laws or regulations.

(b)  TENANT shall not permit, allow or cause any of the following to be
     conducted in the Demised Premises:  any public or  private auction, or any
     sale which would indicate to the public that TENANT is bankrupt or is going
     out of business, except during such period as LANDLORD shall have the right
     to show the Premises under section XXXI of the General Conditions.  TENANT
     shall not use or permit any use of the Demised Premises, except in a manner
     consistent with the general standards of merchandising in the Shopping
     Center, nor shall TENANT's advertising indicate or imply that TENANT is
     operating its business in a manner which is not consistent with the general
     high standards of merchandising in the Shopping Center.  Nothing contained
     in this paragraph shall affect or is intended to affect TENANT's pricing
     policies.

(c)  Because the adequacy of the rental is dependent upon TENANT's Gross Sales
     whether or not Percentage Rent is payable TENANT agrees that commencing
     with the Commencement Date and thereafter throughout the term of this
     Lease, TENANT will continuously, actively and diligently operate or cause
     the permitted business to be operated in good faith and in an efficient,
     businesslike and respectable manner, maintaining in the Demised Premises a
     full staff of employees, and a full stock of seasonal merchandise of the
     quality, kind, type and breadth which TENANT usually sells, and employing
     TENANT's best continual efforts and abilities to the end that the maximum
     Gross Sales which can reasonably be produced from the Demised Premises
     shall be produced.

(d)  Throughout the term of this Lease, TENANT shall cause its store to remain
     open each day of the week during the hours set forth in Paragraph III of
     the General Conditions captioned  "Shopping Center Hours Of Operation",
     provided that at least 85% in number (the "Required Number of Co-Tenants")
     of the other tenancies in the Shopping Center on the date hereof remain
     open during such hours, and that at least all of the tenantable spaces in
     the buildings shown as Building #4 and #5 on the plan attached hereto as
     Exhibit "A" remain open during such hours. In the event that fewer than the

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<PAGE>
 
     Required Number of Co-Tenants are open for business on a regular basis
     during any thirty (30) consecutive day period, or in the event that more
     than 85% of the stores (other than TENANT) in the Building shown as
     Building #4 and  #5 on the plan attached hereto as Exhibit B are not open
     for business on a regular basis during any thirty (30) consecutive day
     period, TENANT shall have the right to terminate this Lease upon thirty
     (30) days prior written notice to LANDLORD. TENANT agrees that the hours
     during which TENANT is obligated to operate may be changed by LANDLORD from
     time to time provided that LANDLORD will not act in a discriminatory
     manner.

(e)  TENANT shall have the right to operate and/or advertise any business
     operated at or from the Demised Premises under any name which TENANT or any
     successor to TENANT permitted hereunder carries on its business.


  IV.  ADDITIONAL USE OF THE PREMISES
  TENANT covenants and agrees that TENANT at its own cost and expense:

(a)  Will keep all exterior and interior store front surfaces clean and will
     maintain the rest of the Demised Premises and all corridors and loading
     areas immediately adjoining the Demised Premises in a clean and orderly
     condition and free of insects, rodents, vermin and other pests;

(b)  Will not permit accumulations of any refuse, but will remove the same and
     keep such refuse in odor-proof, rat-proof containers within the interior of
     the Demised Premises shielded from the view of the general public until
     removed and will not burn any refuse whatsoever but will cause all such
     refuse to be removed by such person or companies, including LANDLORD, as
     may be approved;

(c)  Will replace promptly with glass of a like kind and quality any plate glass
     or window glass of the Demised Premises which may become cracked or broken.

(d)  Will not, without the LANDLORD's prior written consent, place or maintain
     any merchandise or other articles in any vestibule or entry of the Demised
     Premises or within two (2) feet of any entrance from the Demised Premises
     to the enclosed mall, on the footwalks adjacent or elsewhere on the
     exterior thereof;

(e)  Will not use or permit the use of any apparatus, or sound reproduction or
     transmission, or any musical instrument, in such manner that the sound so
     reproduced, transmitted or produced shall be audible beyond the confines of
     the Demised Premises at a volume not greater than 45 decibels measured from
     the main doorway of TENANTs space, and will not use any other advertising
     medium, including without limitation flashing 

                                       3
<PAGE>
 
     lights, or search lights which may be heard or experienced outside the
     Demised Premises;

(f)  Will keep all mechanical apparatus free of vibration and noise which may be
     transmitted beyond the confines of the Demised Premises;

(g)  Will not cause or permit objectionable odors to emanate or to be dispelled
     from the Demised Premises;

(h)  Will be responsible for the payment of trash removal expenses at the
     currant rate of $ 75.00 per month and shall likewise be responsible for any
     escalation of said expense upon 30 day notice from the LANDLORD;

(i)  Will be required, at their own expense, to have on premises fire
     extinguishers of the type and quality required by the local Fire Marshall
     and or fire prevention/control ordinances;

(j)  Will comply with all laws, rules, regulations, guidelines, orders and
     ordinances of applicable federal, state and local governmental authorities,
     commissions, boards and agencies with respect to this Lease and the use of
     the Demised Premises, for TENANT's specific purpose, other than the general
     sale of merchandise at retail, or any work to be performed in the Demised
     Premises by TENANT and TENANT shall secure and keep in force all permits,
     licenses and approvals required for TENANT's use of the Demised Premises.
     In addition, TENANT shall also comply with all recommendations of the
     Association of Fire Underwriters, Factory Mutual Insurance Companies, the
     Insurance Services Organization, or other similar body establishing
     standards for fire insurance ratings with respect to the use or occupancy
     of the premises by TENANT, and will participate in periodic fire brigade
     instruction and drills at the request of LANDLORD and will supply,
     maintain, repair and replace for the Demised Premises any fire
     extinguishers or other fire prevention equipment and safety equipment
     (including installation of approved hoods and ducts if cooking activity is
     conducted on the premises) required by these rules, regulations and the
     Association or other body in order to obtain insurance at the lowest
     available premium rate throughout the term of this Lease.

     Landlord represents and warrants to TENANT that, as of the date hereof, the
     Premises comply with all applicable federal, state and local laws,
     regulations or codes or insurance requirements which are applicable to the
     uses permitted hereunder (collectively the "Codes"), including without
     limitation, the Americans With Disabilities Act, that LANDLORD does not
     know of any change in any Law which has been proposed which would require
     any modification to the Premises, and that LANDLORD shall at its own cost
     and expense make any changes now or hereafter required to bring the
     Premises into compliance with Codes applicable to the use of the Premises
     for general merchandising purposes. In the event such representation and
     warranty proves untrue, and LANDLORD
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<PAGE>
 
     fails to make such changes, TENANT shall be entitled to perform any work
     necessary to bring the Premises up to Code, and to deduct amounts expended
     to do so from Rent due hereunder.

(k)  Will not receive or ship articles of any kind except through the facilities
     provided for that purpose by LANDLORD and will not permit any delivery of
     goods, supplies, merchandise, or fixtures to or from the leased Premises to
     be made through any of the enclosed malls unless the Leased Premises have
     no entrance other than on such a mall, in which latter case TENANT shall
     use its best efforts to schedule such deliveries outside shopping center
     business hours, except with LANDLORD's approval in emergency situations;

(l)  Will when applicable light the show windows of the Demised Premises each
     day of the year to the extent which shall be required by LANDLORD of all
     tenants of the Shopping Center, but in no event later than one hour after
     the close of the Center;

(m)  Will at its own expense repair and maintain all air conditioning units and
     the replacement of all air conditioning filters. (the replacement of said
     filters shall be done monthly.)
(n)  Will refer to the name of the Shopping Center in all advertising done to
     promote sales at its store or stores in the geographical area in which the
     Center is located;

(o)  Will not use the plumbing facilities identified to its leasehold  for any
     other purpose than that for which they are constructed and will not permit
     any foreign substance of any kind to be thrown in them and the expense of
     repairing any breakage, stoppage, seepage or damage, whether occurring on
     or off the premises, resulting from a violation of this provision by TENANT
     or TENANT's employees, agents or invitees shall be borne by TENANT.  All
     grease traps and other plumbing traps shall be kept clean and operable by
     TENANT at TENANT's own cost and expense;

(p)  Will not permit any shopping carts in the common areas even if taken there
     by customers;

(q)  Will not place or cause or permit to be placed within the Demised Premises,
     pay telephones, vending machines (except those for the exclusive use of
     TENANT's employees) or amusement devices of any kind without the prior
     written consent of LANDLORD;
 
(r)  Will be responsible for all lighting equipment in the Demised Premises;
 
(s)  Will be responsible for janitorial services within the Demised Premises;

(t)  Will be responsible for additional keys for employees.

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<PAGE>
 
  V. LENGTH OF TERM


  The original term of this Lease and TENANT's obligation to pay rent and occupy
the Demised Premises in accordance with the terms of the Lease shall commence on
the earlier of the following dates (such earlier date being hereinafter called
the "Commencement Date"):  the date that is thirty (30) days after the date of
possession and with a fully executed Lease Agreement or; (2) the date on which
TENANT shall first open the Demised Premises for business with the public,
however no later than September 1, 1998.  LANDLORD hereby agrees that possession
of the Demised Premises shall be delivered to TENANT no later than July 15,
1998. The term of this Lease shall be for a period of five years, plus the
period, if any, between the Commencement Date if it falls on a day other than
the first day of the month and the first day of the first calendar month in the
term.



  VI. CONFIRMATION OF THE TERM


  At any time after the Commencement Date of the term of the Lease the parties
shall execute and deliver to each other, at the option of LANDLORD, either an
instrument in recordable form or a letter agreement prepared by LANDLORD,
wherein TENANT shall:  (1) certify that the Lease is in full force and effect
and (2) certify the commencement and termination dates of the original term of
this Lease.

  This Lease and the tenancy hereby created shall cease and terminate at the end
of the term of this Lease without the necessity of any notice from either
LANDLORD or TENANT to terminate the same, and TENANT hereby waives notice to
vacate the Premises and agrees that LANDLORD shall be entitled to the benefit of
all provisions of law respecting the summary recovery of possession of premises
from a TENANT holding over to the same extent as if statutory notice had been
given.

  From the date of the signing of the Lease by the TENANT, the TENANT shall be
bound to all of the terms and conditions of the lease, subject only to exception
set forth in  paragraph identified as Length Of Term.



  VII. INABILITY TO GIVE POSSESSION

 
  DELETED

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<PAGE>
 
  VIII. FIXED MINIMUM RENT


  TENANT shall pay to LANDLORD a guaranteed annual minimum rent ("Fixed Minimum
Rent") for each of the following periods during the term of this Lease, as
follows:
<TABLE>
<CAPTION>
 
TIME PERIOD     ANNUAL AMOUNT         MONTHLY AMOUNT
--------------  -------------  ----------------------------
<S>             <C>            <C>
Years 1 - 5        $39,767.00  $ 3,313.92 ( $13.00 sq. ft.)
Years 6 - 10       $45,885.00  $ 3,823.75 ( $15.00 sq. ft.)
 
</TABLE>

  Each such installment shall be due and payable on or before the first day of
each calendar month in the original term of this Lease, in advance, at the
office of Agent or at such other place as may be designated by LANDLORD from
time to time, without any  prior demand therefor and without any deduction or
setoff whatsoever, the first installment to be paid on the Commencement Date
whether or not the Commencement Date is the first day of the  calendar month.
In the event that the Commencement Date of the term of this Lease shall be a day
other than the first day of a calendar month, TENANT's first payment of Fixed
Minimum Rent shall be prorated for the fractional month between the Commencement
Date and the first day of the first full calendar month in the term of this
Lease on a per diem basis (calculated on a thirty-day month).



  IX. TAXES


  TENANT agrees to pay as rent in addition to the minimum rental herein reserved
its pro-rata share (agreed to be 9.48%) of all taxes assessed or imposed upon
the demised premises and/or the building of which the demised premises is a part
during the term of this lease.  Should any increase in taxes be exclusively
attributable to the use and occupancy of the demised premises by the TENANT, the
TENANT agrees to pay the entire increase. The word "Taxes" shall include all
taxes attributable to improvements now or hereafter made to the Shopping Center
or any part of it or attributable to the present or future installation in the
Shopping Center or any part of the Shopping Center of fixtures, machinery or
equipment, all real estate Taxes, (provided that Taxes shall not include any
taxes attributable to improvements made by any tenant which LANDLORD shall have
given the right under any lease to charge back to such tenant), water and sewer
and other governmental impositions and charges of every kind and nature,
nonrecurring as well as recurring, special or extraordinary as well as ordinary,
foreseen and unforeseen, and each and every installment thereof, which shall or
may during the term of this Lease be levied, assessed or imposed, or become due
and payable or become liens upon, or arise in connection with the use, occupancy
or possession of, or any interest in, the Shopping Center or any part of it or
any land, buildings or other improvements. 

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<PAGE>
 
Notwithstanding anything to the contrary provided herein, LANDLORD shall pay all
Taxes over the longest period permitted by law.

  For each "Tax Year"  during the original term of this Lease, TENANT shall pay
to LANDLORD as additional rent (hereinafter called "Tax Rent"), on account of
Tax Rents, TENANT shall pay monthly, in advance, as additional rent, together
with each monthly installment of Fixed Minimum Rent, without demand or setoff,
an amount equal to one-twelfth (1/12) of the annual amount payable on account of
Tax Rent

  Such amount may be adjusted by LANDLORD at any time during the term of this
Lease to an amount equal to one-twelfth (1/12) of the Tax Rent payable by TENANT
for the preceding Tax Year.  If TENANT's payment on account of Tax Rent for the
last Tax Year exceeds the actual amount payable by TENANT as Tax rent for such
Tax Year LANDLORD shall refund such excess to TENANT within thirty (30) days. In
the event TENANT is indebted to LANDLORD for any reason whatsoever, LANDLORD may
deduct the amount owed from such overpayment.

  LANDLORD shall have the right to bill TENANT for Tax Rent at any time after
each receipt by LANDLORD of a bill, assessment, levy, notice of imposition or
other evidence of taxes due or payable all of which are  hereinafter
collectively referred to as a "Tax Bill" (whether such bill is a final bill, an
estimate of actual taxes or represents a Tax Bill based upon a final or partial
assessment or determination).  TENANT shall pay the balance of its Tax Rent
within thirty (30) days of receipt from LANDLORD of a written statement setting
forth the taxes for which LANDLORD has received a Tax Bill, TENANT's share of
taxes, and TENANT's payments made on account of such Tax Rent.  All payments on
account of Tax Rent made by TENANT during such Tax Year after receipt of such
bill and statement shall be applied by LANDLORD toward payment on account of
TENANT's obligation for Tax Rent for the next ensuing Tax Year and shall not
reduce TENANT's obligation to pay the balance due LANDLORD pursuant to such
statement.  In making the above computations a tax bill or photocopy of the tax
bill submitted by LANDLORD to TENANT shall be conclusive evidence of the amount
of the taxes included in the computation of the Tax Rent in question; provided,
however, LANDLORD shall have the right to bill TENANT for TENANT's share of the
Tax Rent for the last Tax Year in the term of this Lease whether or not LANDLORD
shall have received a Tax Bill covering the period from the date of the Tax Bill
which formed the basis of the most recent installment on account of Tax Rent
billed to TENANT to the expiration of the term of this Lease.  If LANDLORD has
not received a Tax Bill for such period, LANDLORD shall estimate the amount of
such last installments of Tax rent on the basis of information contained in the
Tax Bill most recently received by LANDLORD, subject to adjustment when LANDLORD
receives a Tax Bill which includes the period from the date of such Tax Bill to
the expiration of the term of this Lease.  TENANT shall pay such adjusted amount
upon billing by LANDLORD.

                                       8
<PAGE>
 
  For the purpose of this Lease the words "Tax Year" shall mean the twelve (12)
full calendar months of the term commencing with the commencement date of Lease
and each succeeding twelve (12) month period thereafter in the term of this
Lease.

  If, after TENANT shall have made the required annual payment of Tax Rent,
LANDLORD shall receive a refund of any portion of the taxes included in the
computation of such Tax Rent within forty-five (45) days after receipt of the
refund LANDLORD shall pay to TENANT that percentage of the net refund after
deducting all costs and expenses (including, but not limited to, attorneys' and
appraisers' fees) expended or incurred in obtaining such refund, which portion
of the taxes in question paid by TENANT bears to the entire amount of such taxes
immediately prior to the refund.  TENANT shall not institute any proceedings
with respect to the assessed space valuation of the Shopping Center or any part
of it for the purpose of securing a tax reduction.  In the event the LANDLORD
shall retain any consultant to negotiate the amount of taxes, tax rate, assessed
value and/or other factors influencing the amount of taxes and/or institute any
administrative and/or legal proceedings challenging the tax rate, assessed value
of other factors influencing the amount of taxes, whether or not such action
results in a reduction in the amount of taxes.  TENANT's Tax Rent shall include
the portion of the aggregate of all such reasonable fees, reasonable attorneys'
and appraisers' fees and all disbursements, court costs and other similar items
paid or incurred by LANDLORD during the applicable Tax Year with respect to such
proceedings which is obtained by multiplying the aggregate of such sums by the
fraction set forth in the term of this Lease identified as TAXES.

  In the event of any dispute regarding the floor area or any portion of it
(other than the Leased Premises which shall be determined by the provisions of
the Lease Agreement), the following determination of LANDLORD shall be binding
upon the parties. (3059 sq. ft. - 32,269 sq. ft. Bldg #5 = 9.48%)



  X. ADDITIONAL RENT


  All sums of money or charges required to be paid by TENANT under this Lease,
whether or not the same are designated "Additional rent," shall for all purposes
of this Lease be deemed and shall be paid by TENANT as rent.  If such amounts or
charges are not paid at the time provided in this Lease, they shall
nevertheless, if not paid when due,be collectible as rent with the next
installment of Fixed Minimum Rent thereafter falling due together with a late
fee of eighteen percent (18%) per annum from the due date, or no later than the
tenth (10th) day of the month, of the installment to the date of payment, but
not in excess of the highest rate allowed by law.

                                       9
<PAGE>
 
  XI. PERCENTAGE RENT


  In addition to the Fixed Minimum Rent and all other sums specified herein and
as part of the total rent to be paid, TENANT covenants and agrees that it will,
without demand, pay to LANDLORD Percentage Rental as set forth below from the
demised premises in each lease year.  For the purposes of calculating such
Percentage Rental, "Gross Sales" shall mean the selling price of all merchandise
or services sold in or from the Store by TENANT, its subTENANTs, licensees and
concessionaires, whether for cash or for credit, excluding, however, the
following:

     (1)  The sale price of all merchandise returned and accepted for full
          credit or the amount of the cash refund  or allowance made thereon;

     (2)  The sums and credits received in settlement of claims for loss or
          damage to merchandise;

     (3)  Sales tax, so-called luxury taxes, excise taxes, gross receipt taxes,
          and other taxes imposed upon the sale of merchandise or services,
          whether added separately to the selling price of the merchandise or
          services and collected from customers or included in the retail
          selling price;

     (4)  Receipts from public telephones, vending machines, sales of money
          orders, and the collection of public utility bills;

     (5)  Interest, carrying charges, or finance charges in respect of sales
          made on credit;

     (6)  Sales of TENANT's fixtures;

     (7)  Transfers of merchandise between TENANT-owned stores;

     (8)  Sales to other merchant's jobbers, or employees;

     (9)  Sales to employees at a discount.

  The Percentage Rental, shall be computed based on the following time periods,
which shall be called "Lease Year" or "Lease Years". The first Percentage Rental
period shall be extended from the commencement date of the Lease to the last day
of the month proceeding the first anniversary of the commencement date of this
Lease. Subsequent Percentage Rental periods shall commence on each anniversary
of the commencement

                                       10
<PAGE>
 
date of this Lease Year. Percentage Rental for any partial Lease Year, whether
the first or last year shall be computed on a pro-rata basis.

  Each Lease Year shall be considered as an independent accounting period for
the purposes of computing the amount of Percentage Rental.  The Percentage
Rental payable by TENANT to the LANDLORD as described in this article shall
begin upon the Gross Sales of the TENANT, from the leased premises as defined
above reaching One Million Three Hundred Twenty Five Thousand Five Hundred Sixty
Seven Dollars. ($433.33 sq. ft. break point).  At which time TENANT shall pay
three percent (3%) of Gross Sales above this amount to LANDLORD.  Should
TENANT's sales reach this amount the Percentage Rental payment due hereunder
shall be paid within thirty (30) days following the end of the Lease Year.  At
the expiration of this Lease or any renewal option hereunder TENANT's Percentage
Rental payment, if any, due hereunder shall be made within thirty (30) days of
such expiration date.  Gross sales must be reported monthly.


  XII. MONTHLY ACCOUNTING


  TENANT shall submit to LANDLORD before the twentieth (20) day following the
end of each month during the term hereof (including the 20th day of the month
following the end of the term), a written statement, signed by TENANT and
certified by it to be correct, showing the amount of Gross Sales during the
preceding month.



  XIII. YEARLY ACCOUNTING


  TENANT shall submit to LANDLORD before the sixtieth (60) day following the end
of each lease Year a written statement, signed by TENANT and certified by an
officer of TENANT to be correct, setting forth the amount of Gross Sales during
the preceding Lease Year.  The statements referred to herein shall be made in
such form and contain such details as LANDLORD may reasonably request.

  The acceptance by LANDLORD of payments of Percentage Rental or reports thereon
shall be without prejudice and shall in no case constitute a waiver of
LANDLORD's right to audit TENANT's books and records of its Gross Sales and
inventories of merchandise.  TENANT shall maintain at its Home Office adequate
records for a period of twenty-four (24) months after the close of each Lease
Year for the allowing of LANDLORD to verify the reported Gross Sales for such
year.  Once with respect to each Lease Year and any time within said twenty-four
(24) months, LANDLORD or its agents may inspect such records during normal
business hours.

                                       11
<PAGE>
 
  LANDLORD shall have the right to cause, upon five (5) days notice to TENANT, a
complete audit to be made of TENANT's entire business affairs relating to the
Store and of all records including those specified in the preceding paragraph,
and TENANT shall make all such records available for examination at the TENANT's
home office.  If the results of such audit shall show that TENANT's statement of
Gross Sales for any period has been understated by three percent (3%) or more,
then TENANT shall pay LANDLORD the cost of such audit in addition to any
deficiency payment required.  The furnishing by TENANT of any grossly inaccurate
statement shall constitute a breach of the Lease.  Any information obtained by
LANDLORD as a result of such audit shall be held in strict confidence by
LANDLORD, except in any proceeding or action to collect the cost of such audit
or deficiency or with respect to a prospective sale, mortgage, lease or lease-
back of the Center.

  XIV. TENANT'S RECORDS

  TENANT covenants and agrees that TENANT's records and those of any subTENANT,
licensee or concessionaire  upon the Demised Premises shall be kept in
accordance with generally accepted accounting principles and that the records
required in this Lease will be provided and maintained.  TENANT shall record
each sale at the time the sale is made, using cash registers equipped with
sealed continuous totals or such other devices for controlling sales.
Furthermore, TENANT shall keep at all times during the term of this Lease, at
the Demised Premises or at the general office of TENANT, full, complete and
accurate books of account and records in accordance with the accepted accounting
practices with respect to all operations of the business to be conducted in or
from the demised premises including, without limitation, the recording of Gross
Sales and the receipt of all merchandise into and the delivery of all
merchandise from the Demised Premises during the term of this lease and shall
retain such books and records, copies of all tax reports submitted to the
appropriate taxing authorities, as well as copies of contracts, vouchers,
checks, inventory records, dated cash register tapes and other documents and
papers in any way relating to the operation of such business (all of which are
hereinafter collectively referred to as "Books and Records"), for at least two
(2) years from the end of the Lease Year to which they are applicable, or, if an
audit is commenced or if a controversy should arise between the parties to this
Lease regarding the rent payable under this Lease until such audit or
controversy is terminated even though such retention period may be after the
expiration of the term of, or earlier termination of, this Lease.

  DELETED

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<PAGE>
 
  XV. INSURANCE


  TENANT agrees to pay to LANDLORD as additional rent its pro-rata share (agreed
to be .75%) of all insurance premiums upon the demised premises and/or the
building of which the demised premises is a part.  If any increase is
exclusively caused by any act or neglect of the TENANT or the nature of the
TENANT's business, TENANT agrees to pay the entire increase. TENANT's annual
payment for insurance hereunder is estimated to be $.26 per square foot. (3059 -
408,692 sq. ft. Center = .75%)



  XVI. COMMON COST OF MAINTENANCE AND OPERATION


  LANDLORD shall maintain the Common Area, which shall include, without
limitation, the roof, all structural elements of the Building which the Demised
Premises are located, exterior walls, gutters, downspouts and foundations in
good order, condition and repair.  TENANT agrees to pay LANDLORD fifty cents
($.50) per square foot per year for the entire term of this lease for the
Center's Common Area Maintenance Costs.  "Common area Maintenance Costs" shall
mean the total costs and expenses incurred in operating, maintaining, and
repairing the Common Areas, including without limitations the cost of the
following:  landscaping; gardening; planting; cleaning; painting (including line
painting); decorating; paving; lighting; removal of snow; fire protection; water
and sewer charges applicable to the common area; operating of public toilets;
installing and rent of signs; maintenance, repair, and replacement of utility
systems serving the Center and the Premises, including water, sanitary sewer and
storm water lines and other utility lines, pipes and conduits; replacement of
machinery and equipment owned and used in operation, maintenance and repair of
the Common Area, or the rental charges for such machinery and equipment; costs
of personnel (including applicable payroll taxes, workmen's compensation
insurance, and disability insurance) to implement all of the foregoing.
LANDLORD may, however, cause any or all of said services to be provided by
independent contractors.


  XVII.  SECURITY DEPOSIT

  DELETED


  XVIII. EXTENSION OPTION


  The term of this Lease shall expire on the last day of the month preceding the
Fifth Anniversary of the Commencement date    or if the Lease is extended as set
forth below, the Tenth Anniversary of the Commencement Date.  In the event
TENANT has performed all of the terms, conditions, and covenants of this Lease
which are required of it, then 

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<PAGE>
 
TENANT is hereby granted an option for a five (5) year extension from the day of
the Fifth Anniversary of the Commencement Date through the last day of the month
preceding the Tenth Anniversary of the Commencement Date. The option shall be
exercised by TENANT notifying LANDLORD in writing by certified or registered
mail at least ninety (90) days before the Fifth Anniversary of the Commencement
Date of its intention to exercise such option. If the option is not exercised as
herein provided for, then the option right is being waived and the Lease shall
terminate accordingly. If said option is exercised, all of the terms,
conditions, and covenants of this Lease shall prevail and be binding upon the
parties for the extended period. The annual base rental for the extension period
shall be $45,885.00 ($15.00 sq. ft.) payable as set forth in this Lease with
such additional rent as is provided for in this Lease. The breakpoint for
Percentage Rental payable by TENANT during each Lease Year of the extension
period shall begin upon the Gross Sales of the TENANT from the Leased Premises
reaching One Million Five Hundred Twenty Nine Thousand Five Hundred
(1,529,500.00) Dollars ($500.00/sq. ft.) breakpoint. Thereafter TENANT shall pay
three percent (3%) of Gross Sales above this amount to LANDLORD.

 
  XIX.  FIXTURES


  TENANT shall have the right to use the existing fixtures for the entire term
of this Lease.  However, the fixtures must remain when Tenant vacates the
Demised Premises. In addition, TENANT shall have the right to install such
tenant fixtures as TENANT shall elect, and shall have the right to remove such
fixtures at the end of the term.

  TENANT may purchase the fixtures, if they wish to do so by contacting William
Semko, General Manager of the Reading Outlet Center.


XX.  GET OUT CLAUSE


  TENANT may cancel this Lease, by a thirty (30) day written notice to LANDLORD,
given within six (6) months after the expiration of the first such Lease Year,
if the Gross Sales for the first full twelve (12) months of the Lease Term do
not exceed $764,750.00.( $250/sq.ft.) If Tenant does not so notify LANDLORD of
its intention to cancel, then this Lease shall remain in full force and effect
for the entire Lease Term.

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<PAGE>
 
  XXI.  LEASE DOCUMENTS


  In addition to the Lease Agreement consisting of 19 pages, the following are
attached to the Lease and are incorporated in and made part of the Lease as
fully as though set forth at length in the Lease: "GENERAL CONDITIONS" attached
as Exhibit "B", Building Layout attached as Exhibit "A", and Signage attached as
Exhibit "C".

  IN WITNESS WHEREOF, the parties hereto, intending to be legally bound by the
Lease, have caused this Lease to be duly executed the day and year first above
written.

READING OUTLET CENTER ASSOCIATES
D/B/A MOSS REALTY COMPANY



BY: /s/ Charles T. McMurtrie
    _______________________________


ITS: President 
    ______________________________


DATE: July 10, 1998
     _____________________________


ATTEST: /s/ Sandra Bartman
       ___________________________



DM MANAGEMENT COMPANY


BY: /s/ Patricia C. Selander
    _______________________________


ITS: V.P. -- Inventory Management
     ______________________________


DATE: July 8, 1998
      _____________________________


ATTEST: /s/ Nancy B. Morse
        ___________________________

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