RISK
FACTORS
You
should carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Forward Looking Statements.” The risks and
uncertainties described below are not the only ones facing
us. Additional risks and uncertainties not presently known to us or
that we currently believe are immaterial may also impair our business
operations. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected, the value of our common stock could decline, and you may
lose all or part of your investment.
Risks
Relating to Our Business
General
economic conditions, including continued weakening of the economy, may affect
consumer purchases of discretionary items, which could adversely affect our
sales.
The intimate apparel industry
historically has been subject to cyclical variations, recessions in the general
economy and future economic outlook. Throughout fiscal year 2009 and
the first six months of fiscal 2010, there was significant deterioration in the
global financial markets and economic environment, which we believe negatively
impacted consumer spending at many retailers, including us. Our
results are dependent on a number of factors impacting consumer spending,
including general economic and business conditions; consumer confidence; wages
and employment levels; the housing market; consumer debt levels; availability of
consumer credit; credit and interest rates; fuel and energy costs; energy
shortages; taxes; general political conditions, both domestic and abroad; and
the level of customer traffic within department stores, malls and other shopping
and selling environments. Consumer purchases of discretionary items,
including our products, may decline during recessionary periods and at other
times when disposable income is lower. A continued or incremental
downturn in the U.S. economy, an uncertain economic outlook or an expanded
credit crisis could continue to adversely affect our business and our revenues
and profits.
If
we cannot compete effectively in the retail and wholesale apparel industries,
our business, financial condition and results of operations may be adversely
affected.
The intimate apparel industry is highly
competitive, both on the retail and wholesale levels. Our retail
division competes with a variety of retailers, including national department
store chains, national and international specialty apparel chains, apparel
catalog businesses and online apparel businesses that sell similar lines of
merchandise. Many of Frederick’s of Hollywood’s competitors have
greater financial, distribution, logistics, marketing and other resources
available to them and may be able to adapt to changes in customer requirements
more quickly, devote greater resources to the design, sourcing, distribution,
marketing and sale of their products, generate greater national brand
recognition or adopt more aggressive pricing policies. If we are
unable to overcome these potential competitive disadvantages, such factors could
have an adverse effect on our business, financial condition and results of
operations.
The wholesale industry is characterized
by a large number of small companies manufacturing and selling unbranded
merchandise, and by several large companies which have developed widespread
consumer recognition of the brand names associated with merchandise manufactured
and sold by these companies. In addition, some of the larger
retailers to whom our wholesale division has historically sold its products have
sought to expand the development and marketing of their own brands and to obtain
intimate apparel products directly from the same or similar sources from which
our wholesale division obtains its products. Many of these companies
have greater financial, technical and sourcing capabilities than we
do. If our wholesale division does not continue to provide high
quality products and reliable services on a timely basis at competitive prices,
we may not be able to continue to compete in the wholesale intimate apparel
industry. If we are unable to compete successfully, we could lose one
or more of our significant customers which, if not replaced, could negatively
impact sales and have an adverse effect on our business, financial condition and
results of operations.
The
failure to successfully order and manage inventory to reflect customer demand
and anticipate changing consumer preferences and buying trends may adversely
affect our revenue and profitability.
Our success depends, in part, on
management’s ability to anticipate and respond effectively to rapidly changing
fashion trends and consumer tastes and to translate market trends into
appropriate, saleable product offerings. Generally, merchandise must
be ordered well in advance of the applicable selling season and the extended
lead times may make it difficult to respond rapidly to new or changing product
trends or price changes. If we are unable to successfully anticipate,
identify or react to changing styles or trends and we misjudge the market for
our products or our customers’ purchasing habits, then our product offerings may
be poorly received by the ultimate consumer and may require substantial
discounts to sell, which would reduce sales revenue and lower profit
margins. In addition, we will incur additional costs if we need to
redesign our product offerings. Brand image also may suffer if
customers believe that we are unable to offer innovative products, respond to
the latest fashion trends, or maintain product quality.
Our
inability to consummate a financing for the amount and within the time period
required under our financing agreement with our senior lender, absent a waiver
of such requirement, will constitute an event of default under our senior
revolving credit facility.
In September and October 2009, we
amended our revolving credit facility with our senior lender to provide for a
$2.0 million bridge facility to be repaid upon the earlier of August 1, 2010 and
the consummation of a financing in which we receive net proceeds of at least
$4.4 million. We did not receive that amount in the Private
Placement. Unless we receive the amount of proceeds required by our
credit facility by August 1, 2010, we will be in violation of a covenant under
our credit facility. If such violation is not waived by our senior
lender, it will constitute an event of default.
We
are required to raise additional financing under our senior revolving credit
facility and may not be able to obtain it on favorable terms, or at all, which,
in addition to violating a covenant under our credit facility, could limit our
ability to operate and dilute the ownership interests of existing
shareholders.
Since the Private Placement did not
yield net proceeds of at least $4.4 million, we are required to raise additional
funds under our senior credit facility. We cannot be certain that we
will be able to obtain such additional financing on favorable terms, or at
all. Further, if we obtain additional funding through the issuance of
equity, shareholders may experience dilution or the new equity securities may
have rights, preferences or privileges senior to those of existing holders of
common stock. Future financings may place restrictions on how we
operate our business. If we cannot raise funds on acceptable terms,
if and when needed, we may be required to curtail our operations significantly,
which could adversely affect our business.
We
depend on key personnel and we may not be able to operate and grow the business
effectively if we lose the services of any key personnel or are unable to
attract qualified personnel in the future.
We are dependent upon the continuing
service of key personnel and the hiring of other qualified
employees. In particular, we are dependent upon the management and
leadership of Thomas J. Lynch, our Chairman and Chief Executive Officer, Linda
LoRe, our President, and Thomas Rende, our Chief Financial Officer. The loss of
any of them or other key personnel could affect our ability to operate the
business effectively.
Our
retail division historically has depended on a high volume of mall traffic, the
lack of which would hurt our business.
Most Frederick’s of Hollywood stores
are located in shopping malls. Sales at these stores are influenced,
in part, by the volume of mall traffic. Frederick’s of Hollywood
stores benefit from the ability of the malls’ “anchor” tenants, generally large
department stores, and other area attractions to generate customer traffic in
the vicinity of its stores and the continuing popularity of malls as shopping
destinations. A decline in the desirability of the shopping
environment of a particular mall, whether due to the closing of an anchor tenant
or competition from non-mall retailers, or recessionary economic conditions that
consumers have been experiencing, could reduce the volume of mall traffic, which
could have an adverse effect on our business, financial condition and results of
operations.
If
leases for Frederick’s of Hollywood stores cannot be negotiated on reasonable
terms, our growth and profitability could be harmed.
The growth in our retail division’s
sales is significantly dependent on management’s ability to operate retail
stores in desirable locations with capital investments and lease costs that
allow for the opportunity to earn a reasonable return. Desirable
locations and configurations may not be available at a reasonable cost, or at
all. If we are unable to renew or replace our store leases or enter
into leases for new stores on favorable terms, our growth and profitability
could be harmed.
Our
wholesale business historically has been concentrated on one key customer, and a
significant decrease in business from or the loss of this key customer could
substantially reduce revenues.
Sales to Walmart accounted for
approximately 32% of wholesale sales for the fiscal year ended July 25, 2009 and
approximately 2% of wholesale sales for the six months ended January 23,
2010. We do not have a long-term contract with Walmart and,
therefore, our wholesale business is subject to significant unpredictable
increases and decreases in sales depending upon the size and number of orders we
receive from Walmart. We experienced a significant decrease in
Walmart business during fiscal year 2009 and the first half of fiscal year 2010,
which impacted our revenues. Our inability to increase our Walmart
orders during the remainder of fiscal year 2010 and beyond could have a material
adverse effect on our business, financial condition and results of
operations.
The
extent of our foreign sourcing and manufacturing may adversely affect our
business, financial condition and results of operations.
Substantially all of our products are
manufactured outside the United States. As a result of the magnitude
of foreign sourcing and manufacturing, our retail and wholesale businesses are
subject to the following risks:
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political
and economic instability in foreign countries, including heightened
terrorism and other security concerns, which could subject imported or
exported goods to additional or more frequent inspections, leading to
delays in deliveries or impoundment of goods, or to an increase in
transportation costs of raw materials or finished
product;
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the
imposition of regulations and quotas relating to imports, including quotas
imposed by bilateral textile agreements between the United States and
foreign countries, including China, where we conduct
business;
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the
imposition of duties, taxes and other charges on
imports;
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significant
fluctuation of the value of the U.S. dollar against foreign
currencies;
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restrictions
on the transfer of funds to or from foreign countries;
and
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violations
by foreign contractors of labor and wage standards and resulting adverse
publicity.
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If these risks limit or prevent us from
selling, manufacturing or acquiring products from foreign suppliers, our
operations could be disrupted until alternative suppliers are found, which could
negatively impact our business, financial condition and results of
operations.
Our
wholesale business operates on very tight delivery schedules. If
there are delays and expected delivery dates cannot be met, it could negatively
affect our profitability.
If there is a delay in the delivery of
goods and delivery schedules cannot be met, then our wholesale customers may
cancel their orders or request a reduced price for the delivery of their
orders. If orders are canceled, it would result in an
over-inventoried position and require the sale of inventory at low or negative
gross profits, which would reduce our profitability. We may also
incur extra costs to meet customer delivery dates, which would also reduce our
profitability.
Any
disruptions at our distribution centers could materially affect our ability to
distribute products, which could lead to a reduction in our revenue and/or
profits.
Our distribution centers in Phoenix, AZ
and Poplarville, MS serve our retail and wholesale customers. There is no backup
facility or any alternate distribution arrangements in place. If we
experience disruptions at either of our distribution centers that impede the
timeliness or fulfillment of the products to be distributed, or either
distribution center is partially or completely destroyed, becomes inaccessible,
or is otherwise not fully usable, whether due to unexpected circumstances such
as weather conditions or disruption of the transportation systems or
uncontrollable factors such as terrorism and war, it would have a material
adverse effect on our ability to distribute products, which in turn would have a
material adverse effect on our business, financial condition and results of
operations.
The
failure to upgrade information technology systems as necessary could have an
adverse effect on our operations.
Some of our information technology
systems, which are primarily utilized to manage information necessary to price
and ship products, manage production and inventory and generate reports to
evaluate business operations, are dated and are comprised of multiple
applications, rather than one overarching state-of-the-art system. Modifications
involve replacing legacy systems with successor systems, making changes to
legacy systems or acquiring new systems with new functionality. If we
are unable to effectively implement these systems and update them where
necessary, this could have a material adverse effect on our business, financial
condition and results of operations.
The
processing, storage and use of personal data could give rise to liabilities as a
result of governmental regulation, conflicting legal requirements or differing
views of personal privacy rights.
The collection of data and processing
of transactions through our Frederick’s of Hollywood e-commerce website and call
centers require us to receive and store a large amount of personally
identifiable data. This type of data is subject to legislation and
regulation in various jurisdictions. We may become exposed to
potential liabilities with respect to the data that we collect, manage and
process, and may incur legal costs if our information security policies and
procedures are not effective or if we are required to defend our methods of
collection, processing and storage of personal data. Future
investigations, lawsuits or adverse publicity relating to our methods of
handling personal data could adversely affect our business, financial condition
and results of operations due to the costs and negative market reaction relating
to such developments.
Our
collection and remittance of sales and use tax may be subject to audit and may
expose us to liabilities for unpaid sales or use taxes, interest and penalties
on past sales.
We sell Frederick’s of Hollywood
products through three channels: retail specialty stores, mail order catalogs
and our e-commerce website. We have historically operated these
channels separately and account for sales and use tax
separately. Currently, our mail order and e-commerce subsidiaries
collect and pay sales tax to the relevant state taxing authority on sales made
to residents in any state in which we have a physical presence. Our
retail subsidiaries are periodically audited by state government
authorities. It is possible that one or more states may disagree with
our method of assessing and remitting these taxes, including sales tax on
catalog and e-commerce sales. We expect to challenge any and all
future assertions by state governmental authorities or private litigants that we
owe sales or use tax, but we may not prevail. If we do not prevail,
we could be held liable for additional sales and use taxes, interest and
penalties which could have an adverse effect on our profitability.
We could be sued
for trademark infringement, which could force us to incur substantial costs and
devote significant resources to defend the litigation.
We use many trademarks and product
designs in our businesses and believe these trademarks and product designs are
important to our business, competitive position and success. As
appropriate, we rely on trademark and copyright laws to protect these designs
even if not formally registered as marks, copyrights or
designs. Third parties may sue us for alleged infringement of their
proprietary rights. The party claiming infringement might have
greater resources than us to pursue its claims, and we could be forced to incur
substantial costs and devote significant management resources to defend the
litigation. Moreover, if the party claiming infringement were to
prevail, we could be forced to discontinue the use of the related trademark,
patent or design and/or pay significant damages, or to enter into expensive
royalty or licensing arrangements with the prevailing party, assuming these
royalty or licensing arrangements are available at all on an economically
feasible basis, which they may not be.
If
we cannot protect our trademarks and other proprietary intellectual property
rights, our business may be adversely affected.
We may experience difficulty in
effectively limiting unauthorized use of our trademarks and product designs
worldwide, which may cause significant damage to our brand name and our ability
to effectively represent ourselves to our agents, suppliers, vendors and/or
customers. We may not be successful in enforcing our trademark and
other proprietary rights and there can be no assurance that we will be
adequately protected in all countries or that we will prevail when defending our
trademark and proprietary rights.
Our
stock price has been highly volatile.
The trading price of our common stock
has been highly volatile. During the quarter ended January 23, 2010,
the closing sale prices of our common stock on the NYSE Amex ranged from $1.08
to $1.56 per share and the closing sale price of our common stock on May 19,
2010 was $0.92 per share. Since the closing date of the merger on
January 28, 2008, our stock price closed at a high of $4.10 on January 29, 2008
and a low of $0.14 on March 3, 2009. Our stock price is subject to
wide fluctuations in response to a variety of factors, including:
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quarterly
variations in operating results;
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general
economic conditions;
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sales
of a substantial amount of our common stock;
and
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other
events or factors that are beyond our
control.
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Any negative change in the public’s
perception of the prospects of the retail industry could further depress our
stock price regardless of our results. Other broad market
fluctuations may lower the trading price of our common
stock. Following significant declines in the market price of a
company’s securities, securities class action litigation may be instituted
against that company. Litigation could result in substantial costs
and a diversion of management’s attention and resources.
There
will be a significant number of shares of common stock eligible for sale, which
could depress the market price of our stock.
As the registration statements covering
the shares of common stock issued in the Private Placement, pursuant to the
Exchange and Conversion Agreement and the Registration Rights Agreement have all
been declared effective by the Securities and Exchange Commission (“SEC”), a
large number of shares of common stock are available for sale in the public
market. This could harm the market price of our
stock. Further, shares may be offered from time to time in the open
market pursuant to Rule 144 under the Securities Act of 1933, as amended
(“Securities Act”), and these sales may depress the market for our common
stock.
When used
in this prospectus, the words or phrases “will likely result,” “management
expects” or “we expect,” “will continue,” “is anticipated,” “estimated,”
“believes,” “could,” “possibly,” “probably,” “anticipates,” “projects,” “may,”
or “should” or other variations or similar words are intended to identify
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place
undue reliance on any such forward-looking statements. No assurances
can be given that the future results anticipated by the forward-looking
statements will be achieved.
Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. In assessing forward-looking statements
contained herein, readers are urged to carefully read those
statements. Among the factors that could cause actual results to
differ materially are: competition; business conditions and industry growth;
rapidly changing consumer preferences and trends; general economic conditions;
large variations in sales volume with significant customers; addition or loss of
significant customers; continued compliance with government regulations; loss of
key personnel; labor practices; product development; management of growth;
increases of costs of operations or inability to meet efficiency or cost
reduction objectives; timing of orders and deliveries of products; and foreign
government regulations and risks of doing business abroad.
A
description of key factors that have a direct bearing on our results of
operations is provided above under “Risk Factors” beginning on page 3 of this
Prospectus.
All
shares of our common stock offered by this prospectus are being registered for
the account of the selling shareholders. We will not receive any of the proceeds
from the sale of these shares; however, we may receive payment in cash upon
exercise of warrants held by such selling shareholders. We expect to use any
cash proceeds received from the exercise of the warrants, if any, for general
working capital purposes. We have also retired, without the payment
of additional consideration, an aggregate of $14.3 million of Tranche C debt and
$8.8 million of Series A Preferred Stock and accrued dividends that were
exchanged and converted for shares of our common stock as described in this
prospectus.
The
following table provides certain information with respect to the selling
shareholders’ beneficial ownership of our common stock after the consummation of
the transaction contemplated by the Exchange and Conversion Agreement and as
adjusted to give effect to the sale of all of the shares offered by this
prospectus. Except as otherwise indicated, the number of shares reflected in the
table has been determined in accordance with Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended. Unless otherwise indicated,
each of the selling shareholders possesses sole voting and investment power with
respect to the securities shown.
The
percentage of beneficial ownership before the offering indicated below is based
on 38,018,199 shares of our common stock outstanding on May 19, 2010 after the
consummation of the transaction contemplated by the Exchange and Conversion
Agreement.
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Beneficial Ownership
Before Offering
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Shares
Offered
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Beneficial Ownership
After Offering
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Fursa
Master Global Event Driven Fund LP(1)
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12,512,174 |
(2)
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31.9 |
% |
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12,512,174 |
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0 |
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0 |
% |
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Fursa
Master Rediscovered Opportunities Fund L.P.(1)
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3,735,553 |
(3)
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9.7 |
% |
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3,735,553 |
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0 |
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0 |
% |
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Blackfriars
Master Vehicle LLC – Series 2(1)
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1,723,419 |
(4)
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4.5 |
% |
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1,723,419 |
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0 |
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0 |
% |
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Fursa
Capital Partners LP(1)
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897,725 |
(5)
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2.4 |
% |
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897,725 |
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0 |
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0 |
% |
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Tokarz
Investments, LLC(6)
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8,704,515 |
(7)
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22.7 |
% |
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8,704,515 |
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0 |
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0 |
% |
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TTG
Apparel, LLC(6)
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1,766,322 |
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4.6 |
% |
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1,766,322 |
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0 |
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0 |
% |
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(1)
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Fursa
Alternative Strategies, LLC (“Fursa”) may be deemed to beneficially own
these shares on behalf of the above-referenced private affiliated
investment funds and separately managed accounts over which Fursa
exercises discretionary investment authority. William F.
Harley, Chief Investment Officer of Fursa, exercises voting and
dispositive power over shares beneficially owned by Fursa. Mr.
Harley also is a member of our board of
directors.
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(2)
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Includes
(a) 317,538 shares of common stock issuable upon exercise of currently
exercisable warrants, (b) 4,825,148 shares of common stock issued upon
exchange and conversion of the Tranche C debt and Series A Preferred Stock
pursuant to the Exchange and Conversion Agreement and (c) 835,343 shares
of common stock issuable upon exercise of warrants issued pursuant to the
Exchange and Conversion Agreement. These securities are subject
to a Pledge Agreement between Fursa Master Global event Driven Fund LP and
Scotia Capital (USA) Inc.
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(3)
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Includes
(a) 2,237,384 shares of common stock issued upon exchange and conversion
of the Tranche C debt and Series A Preferred Stock pursuant to the
Exchange and Conversion Agreement and (b) 387,342 shares of common stock
issuable upon exercise of warrants issued pursuant to the Exchange and
Conversion Agreement.
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(4)
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Includes
(a) 1,102,609 shares of common stock issued upon exchange and conversion
of the Tranche C debt and Series A Preferred Stock pursuant to the
Exchange and Conversion Agreement and (b) 190,887 shares of common stock
issuable upon exercise of warrants issued pursuant to the Exchange and
Conversion Agreement.
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(5)
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Includes
(a) 499,232 shares of common stock issued upon exchange and conversion of
the Tranche C debt and Series A Preferred Stock pursuant to the Exchange
and Conversion Agreement and (b) 86,428 shares of common stock issuable
upon exercise of warrants issued pursuant to the Exchange and Conversion
Agreement.
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(6)
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Michael
T. Tokarz is the sole controlling person and manager of each of TTG
Apparel and Tokarz Investments.
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(7)
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Includes
317,538 shares of common stock issuable upon exercise of
warrants.
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Each
selling shareholder provided us with information with respect to its share
ownership. Because the selling shareholders may sell all, part or
none of their shares, we are unable to estimate the number of shares that will
be held by each selling shareholder upon resale of shares of common stock
registered hereby. We have, therefore, assumed for the purposes of
the registration statement related to this prospectus that the selling
shareholders will sell all of their shares. See “Plan of
Distribution.”
Debt
Exchange and Preferred Stock Conversion Agreement
At the
closing of our merger with FOH Holdings in January 2008, we, Fursa and FOH
Holdings entered into a debt conversion agreement, pursuant to which a $7.5
million portion of the term loan owed by FOH Holdings and its subsidiaries to
Fursa was cancelled in exchange for the issuance of an aggregate of 3,629,325
shares of our Series A Preferred Stock. The Fursa term loan
originated in January 2003 from a term loan made to FOH Holdings and its
subsidiaries and the conversion of certain pre-petition claims against FOH
Holdings and certain of its subsidiaries upon their emergence from
bankruptcy. After the closing of the merger, the principal balance
remaining due on the term loan was approximately $12,192,000. This
remaining portion of the term loan is referred to in this prospectus as the
Tranche C debt.
The
Tranche C debt bore interest at the fixed rate of 7% per annum, with 1% payable
in cash monthly in arrears and 6% paid in kind monthly in arrears and added to
the outstanding principal balance. No payment of principal was
required until the maturity date of July 28, 2012, at which time the outstanding
principal was payable in full. The Tranche C debt was secured by
substantially all of our assets and was second in priority to our senior credit
facility with Wells Fargo Retail Finance II, LLC.
On
February 1, 2010, we entered into the Exchange and Conversion
Agreement with Fursa, pursuant to which Fursa agreed to exchange and
convert the entire $14.3 million of Tranche C debt and all $8.8 million of their
outstanding shares of Series A Preferred Stock and accrued dividends into shares
of our common stock at an effective price of approximately $2.66 per
share.
On May
12, 2010, our shareholders approved the Exchange and Conversion Agreement at our
annual shareholders meeting. On May 18, 2010, we completed the transaction
contemplated by the Exchange and Conversion Agreement. At the
closing, we issued to Fursa an aggregate of 8,664,373 Conversion and Exchange
Shares upon exchange of the Tranche C debt and conversion of the Series A
Preferred Stock and accrued dividends. We also issued to Fursa immediately
exercisable three, five and seven-year warrants, each to purchase 500,000
Warrant Shares (for an aggregate of 1,500,000 shares of common stock), at
exercise prices of $2.00, $2.33 and $2.66 per share, respectively.
Pursuant
to the terms of the Exchange and Conversion Agreement, we have registered
for resale under this prospectus the Conversion and Exchange Shares and the
Warrant Shares.
Registration
Rights Agreement
Prior to
our merger with FOH Holdings in January 2008, Fursa and Tokarz were the sole
stockholders of FOH Holdings. In connection with the merger, (a) we
issued to Fursa and Tokarz Investments an aggregate of 11,844,591 shares of
common stock in exchange for all of FOH Holdings’ outstanding common stock; and
(b) we raised $20 million of gross proceeds through (i) the issuance of an
aggregate of 752,473 shares of common stock upon exercise by our shareholders of
non-transferable subscription rights to purchase shares of common stock (the
“Rights Offering”) and (ii) the issuance of an aggregate of 4,929,346 shares of
common stock not subscribed for by our shareholders in the Rights Offering that
were purchased on an equal basis by Fursa and Tokarz Investments, who acted as
standby purchasers (the “Standby Purchase”). As sole consideration
for their commitments in connection with the Standby Purchase, we issued
warrants to Fursa and Tokarz Investments representing the right to purchase an
aggregate of 635,076 shares of common stock.
Prior to
the merger, FOH Holdings had a management fee arrangement with Tokarz
Investments and Fursa, whereby Tokarz Investments and Fursa received a combined
annual management fee of $200,000. The management fee arrangement
ended as of January 28, 2008, the closing date of the merger.
At the
closing of the merger, we entered into the Registration Rights Agreement
with Fursa (on its behalf and on behalf of certain accounts it manages), Tokarz
Investments and TTG Apparel. Subject to the specific conditions, these holders
are allowed to request that we prepare a registration statement with respect to
an underwritten offering of their shares of our common stock up to two times. In
connection with any such requested registration, we will select the underwriters
for such registration, subject to the reasonable consent of the requesting
party, and we may preempt such a demand to register shares if we elect to effect
an underwritten primary registration in lieu thereof. The holders are
also allowed to include their shares of our common stock on registration
statements effected by us pursuant to certain “piggyback” registration
rights. This prospectus also relates to the resale by Fursa, Tokarz
Investments and TTG Apparel of the shares of our common stock held by them at
the time of our merger pursuant to the Registration Rights
Agreement.
The
selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of the shares of
common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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privately
negotiated transactions;
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settlement
of short sales;
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broker-dealers
may agree with the selling shareholder to sell a specified number of such
shares at a stipulated price per
share;
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a
combination of any such methods of
sale;
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
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any
other method permitted pursuant to applicable
law.
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The
selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling shareholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling shareholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling shareholders do not expect these commissions and discounts relating to
its sales of shares to exceed what is customary in the types of transactions
involved.
In
connection with the sale of our common stock or interests therein, the selling
shareholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
shareholders may also sell shares of our common stock short and deliver these
securities to close out its short positions, or loan or pledge the common stock
to broker-dealers that in turn may sell these securities. The selling
shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
shares will be sold only through registered or licensed brokers or dealers if
required under applicable state securities laws. In addition, in certain states,
the shares may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The
selling shareholders and any broker-dealers that act in connection with the sale
of the shares might be deemed to be “underwriters” within the meaning of
Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. The selling shareholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act. If any of the selling shareholders is deemed to be an
“underwriter” within the meaning of Section 2(11) of the Securities Act,
such selling shareholder will be subject to the prospectus delivery requirements
of the Securities Act.
Under
applicable rules and regulations under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), any person engaged in the distribution of the
resale shares may not simultaneously engage in market making activities with
respect to our common stock for a period of two business days prior to the
commencement of the distribution. In addition, the selling shareholders may
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing
of purchases and sales of shares of our common stock by the selling shareholders
or any other person. We will make copies of this prospectus available to the
selling shareholders and have informed the selling shareholders of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.
The
legality of the common stock offered by this prospectus has been passed upon by
Graubard Miller, New York, New York.
The
financial statements incorporated in this prospectus by reference to the Annual
Report on Form 10-K for the fiscal year ended July 25, 2009 have been so
incorporated in reliance on the reports of MHM Mahoney Cohen CPAs (The New York
Practice of Mayer Hoffman McCann P.C.) and 25 MAD LIQUIDATION CPA, P.C.
(formerly known as Mahoney Cohen & Company, CPA, P.C.), each an independent
registered public accounting firm, with respect to the fiscal year given on the
authority of said firm as experts in auditing and accounting
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. Our SEC filings are available to the public over the Internet at
the SEC’s web site at http://www.sec.gov. You may also read and copy any
document we file at the SEC’s public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference room. In addition, we make available on
or through our corporate web site copies of these reports as soon as reasonably
practicable after we electronically file or furnish them to the SEC. Our
corporate web site can be found at www.fohgroup.com.
The SEC
allows us to incorporate by reference the information we file with it, which
means that we can disclose important information to you by referring you to
those documents. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus. Any information that we file after the date of this prospectus with
the SEC will automatically update and supersede the information contained in
this prospectus. This prospectus incorporates by reference our documents listed
below and any future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act until all of the securities are
sold:
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our
Annual Report on Form 10-K for the fiscal year ended July 25,
2009;
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Amendment
No. 1 to our Annual Report on Form 10-K on Form 10-K/A for the year ended
July 25, 2009;
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our
Quarterly Report on Form 10-Q for the fiscal quarter ended October 24,
2009;
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our
Quarterly Report on Form 10-Q for the fiscal quarter ended January 23,
2010;
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our
Current Report on Form 8-K dated October 23,
2009;
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our
Current Report on Form 8-K dated November 25,
2009;
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our
Current Report on Form 8-K dated December 8,
2009;
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our
Current Report on Form 8-K dated February 1, 2010 as amended on Form 8-K/A
filed with the SEC on May 20, 2010;
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our
Current Report on Form 8-K dated March 9,
2010;
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our
Current Report on Form 8-K dated March 16,
2010;
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our
Current Report on Form 8-K dated April 20,
2010;
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our
Current Report on Form 8-K dated May 4,
2010;
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our
Current Report on Form 8-K dated May 13,
2010;
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our
Definitive Proxy Statement on Schedule 14A dated April 6, 2010;
and
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the
description of our common stock contained in our Registration Statement on
Form S-14 (File No. 2-70365), filed with the SEC pursuant to Section 12(b)
of the Exchange Act, including any amendment(s) or report(s) filed for the
purpose of updating such
description.
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Potential
investors may obtain a copy of our SEC filings without charge by written or oral
request directed to Frederick’s of Hollywood Group Inc., Attention: Thomas
Rende, 1115 Broadway, New York, New York 10010, (212) 798-4700.