PROSPECTUS
Rule 424(b)(1)
Registration No. 333-27611
MOTHERS WORK, INC.
This Prospectus relates to the resale by a Selling Stockholder
of a total of 217,365 shares of Common Stock, $.01 par value per share (the
"Common Stock") of Mothers Work, Inc. (the "Company").
The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholder. See "Selling Stockholder."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTIVE PURCHASERS SHOULD CONSIDER THE RISKS SET
FORTH UNDER "RISK FACTORS" COMMENCING ON PAGE 2.
The shares offered by the Selling Stockholder hereby will be
sold at market prices on The Nasdaq Stock Market ("Nasdaq") or in private sales
at prevailing market prices or negotiated prices. The Selling Stockholder may
pay commissions or other compensation to broker-dealers in connection with such
sales, which may be in excess of customary commissions charged for Nasdaq
transactions. See "Selling Stockholder."
The Common Stock is traded on Nasdaq under the symbol MWRK. On
July 31, 1997, the closing sales price of the Common Stock, as reported by
Nasdaq, was $9.00 per share.
The date of this Prospectus is August 14, 1997
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RISK FACTORS
In addition to the other information contained in this
Prospectus, the following factors should be considered carefully in evaluating
an investment in the Common Stock offered by this Prospectus.
Recent Operating Losses; Maternity Business Restructuring
The Company incurred a loss of $7.9 million for the second
fiscal quarter ended March 31, 1997 before considering preferred dividends, or a
loss of $2.30 per share. Results for the quarter include unusual charges of $7.6
million or $1.40 per share, the cash portion of which is approximately $1.3
million to be paid out through the second quarter of fiscal 1998, taken in
conjunction with the Company's restructuring of its core maternity business to
combine overlapping product lines and close approximately 30 retail locations
serviced by other Company stores. Although operating cash flow (operating income
excluding amortization and depreciation expense) for the Company's core
maternity business for the first six months of fiscal 1997 (and exclusive of the
unusual charges) of $13.5 million was comparable to the same period in fiscal
1996, there can be no assurance that the Company's restructuring efforts will be
successful or that the Company can return to profitable operations. The Company
incurred a loss before extraordinary items and preferred dividends of $2.4
million in fiscal 1995 and income before preferred dividends of $0.9 million in
Fiscal 1996. After recording an extraordinary loss, net of income tax benefit,
of $4.2 million for the early extinguishment of debt and preferred dividends of
$0.2 million, the Company had a net loss of $6.8 million in fiscal 1995. In
fiscal 1996, the Company incurred preferred dividends of $1.0 million resulting
in a net loss of $0.1 million. Total stockholders' equity at March 31, 1997 is
$27.1 million which includes an accumulated deficit of $12.1 million.
Continuing Losses from Episode Operations; Risks Associated with Integration
of Episode Business
Since the acquisition of certain leases and assets of Episode
USA, Inc. on May 30, 1996, the Company has been engaged in the marketing and
retailing of non-maternity, upscale women's apparel and accessories, similar to
designer fashions but with a price point for dresses and blouses in the $200 to
$500 range and $120 to $200 range, respectively (commonly referred to as
"bridge" fashion). The Company has introduced its own non-maternity "bridge"
line, Daniel and Rebecca(R), and at March 31, 1997, the Company operated 33
Episode(R)* stores. The Company's Episode division has operated at a loss since
the acquisition, and the losses for the second quarter of fiscal 1997 exclusive
of the unusual charges discussed above in "Recent Operating Losses," are
primarily attributable to the Episode operations. Although Episode's sales
levels improved in March and April, Episode revenues remain below management's
initial estimates and are currently at levels which would not support profitable
operations of the Episode division. The Company's management has limited
experience in the bridge women's apparel business and the integration of Episode
into the rest of the Company's operations has required substantial management
time and other resources. Further, the operations of a bridge women's fashion
business are subject to numerous risks, unanticipated operating problems, and
greater competition and fashion risk than the Company's core maternity business.
Based on the foregoing factors, there can be no assurance that the Company's
Episode Operations will become profitable.
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(1) Episode America, a division of Mothers Work, Inc., is licensed to use
the Episode(R) trademark by Episode USA, Inc.
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Leverage and Liquidity
The Company became highly leveraged after completion of the
offering of 12 5/8% Senior Unsecured Notes (the "Notes") in 1995. As of March
31, 1997, the Company's total indebtedness was approximately $100,169,000, its
stockholder's equity was approximately $27,142,000 and the Company's total
assets were approximately $156,411,000, of which approximately $44,782,000 are
intangible assets. After excluding the Company's unusual charges of $7.6 million
discussed above, for the six-month period ending March 31, 1997, the Company's
consolidated EBITDA was approximately $10,280,000; fixed charges exceeded
earnings available to cover fixed charges by approximately $2,859,000 and the
ratio of EBITDA to interest expense, net was 1.56. The Company's annual
aggregate debt service is approximately $13.1 million.
Concurrent with the Episode acquisition, and in order to
provide the Company with additional borrowing capacity under its working capital
revolving line of credit facility with CoreStates Bank, N.A. ("Working Capital
Facility"), the Working Capital Facility was increased from $15.0 million to
$20.0 million. In addition, the Company also had $4.0 million in a letter of
credit issued by CoreStates Bank to collateralize an Industrial Revenue Bond.
The Company had $2,883,000 in borrowings and $5.5 million in letters of credit
issued under the Working Capital Facility at March 31, 1997. In April 1997, the
Working Capital Facility was extended to August 1999 and provides for a
revolving credit and letter of credit facility.
The Company's ability to satisfy its obligations will be
dependent upon its future performance, which is subject to general economic
conditions and to financial, business and other factors, including factors
beyond the Company's control, and the Company's ability to obtain additional
borrowings, if any, when needed. There can be no assurance that internally
generated funds, trade credit, and the borrowing capacity under the Working
Capital Facility will provide sufficient capital resources to finance the
Company's operations in the future, or that, if there is a need for additional
borrowings, that alternative sources of financing would be available.
Certain Anti-Takeover Provisions
The Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and By-Laws (the "By-Laws")
include certain provisions which may have the effect of delaying, deterring or
preventing a future takeover or change in control of the Company unless such
takeover or change in control is approved by the Company's Board of Directors.
Such provisions may also render the removal of directors and management more
difficult. Specifically, the Company's Certificate of Incorporation or By-Laws
provide for a classified Board of Directors serving staggered three-year terms
and restrictions on who may call a special meeting of stockholders. In addition,
the Company's Board of Directors has the authority to issue up to 2,000,000
additional shares of preferred stock (the "Preferred Stock") and to determine
the price, rights, preferences, and privileges of those shares without any
further vote or actions by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
such additional shares of Preferred Stock, while potentially providing desirable
flexibility in connection with possible acquisitions and serving other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or may discourage a third party from attempting to acquire, a majority
of the outstanding voting stock of the Company.
On October 5, 1995, the Board of Directors declared a
distribution of one Right for each outstanding share of Common Stock. Subject to
the terms of the Rights Agreement, as amended, each Right
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entitles the holder thereof to purchase from the Company one one-thousandth of a
share of Series B Preferred Stock, par value $.01 per share ("Series B Unit"),
at a Purchase Price of $85.00, subject to adjustment (the "Right"). The Rights
remain attached to and can only be transferred with the Common Stock until the
Distribution Date (as defined in the Rights Agreement). The transfer of a share
of Common Stock will constitute the transfer of the accompanying Right until the
Distribution Date. The Rights are not exercisable until the Distribution Date
which will occur upon the earlier of (i) ten business days following a public
announcement that an Acquiring Person (as defined in the Rights Agreement) has
acquired beneficial ownership of 10% or more of the Company's outstanding common
stock, or (ii) ten business days following the commencement of a tender offer or
exchange offer that would result in a person or group owning 10% or more of the
Company's outstanding Common Stock. The Rights have certain anti-takeover
effects. When the Rights become exercisable, each holder of a Right, except the
Acquiring Person, will have the right to receive Mothers Work common stock or
common stock of the acquiring company having a value equal to two times the
exercise price of the Right. The Rights will cause substantial dilution to a
person or group that attempts to acquire the Company without conditioning the
offer on the redemption of the Rights. The rights can be mandatorily redeemed by
action of a majority of the independent directors at any time prior to the
earlier of the October 9, 2005 and the Distribution Date for $.01 per right. The
Rights are intended to increase the expense of a person seeking to acquire the
Company without Board of Directors' approval and to dilute the stock holdings of
an acquiror.
The Company is also subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"), which will
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. Furthermore, certain provisions of the Company's
By-Laws, including provisions that provide that the exact number of directors
shall be determined by a majority of the Board of Directors, that vacancies on
the Board of Directors may be filled by a majority vote of the directors then in
office, though less than a quorum, and that limit the ability of new majority
stockholders to remove directors, all of which may have the effect of delaying
or preventing changes in control or management of the Company, and which could
adversely affect the market price of the Company's Common Stock.
Dependence on Key Personnel
The success of the Company's business will continue to be
dependent upon Dan and Rebecca Matthias, the Chairman and Chief Executive
Officer and the President and Chief Operating Officer of the Company,
respectively, and on other key personnel. The Company maintains and is the
beneficiary under a $5 million key person life insurance on Dan Matthias and a
$5 million key person life insurance on Rebecca Matthias, but not on the lives
of any other officer, director or key employee. The Company believes that to
succeed in the future it must continue to attract, retain and motivate
additional highly skilled management personnel and store managers. The loss of
key personnel or the inability to attract and retain key employees in the future
could have a material adverse effect on the Company.
Competition
The maternity apparel industry and women's bridge apparel
industry are highly competitive with respect to price, quality and style of
merchandise and store location. The Company faces competition for customers and
store locations from various full-price maternity clothing chains, a number of
off-price specialty retailers and catalog retailers, as well as from local,
regional and national department stores and women's and,
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to some extent, men's clothing stores, many of which have significantly greater
financial and other resources than the Company. The retailing business is
affected by changes in consumer tastes, demographic trends and the type, number
and location of competing stores. Additionally, since there are few barriers to
entry into the retail clothing business, the Company may face future competition
from participants not currently in the maternity market, such as certain large
national specialty stores and department store chains.
Fashion Risk
The women's apparel business (both maternity and bridge
apparel) is affected by changes in consumer tastes requiring the Company to keep
up to date on, and to some extent anticipate, emerging fashion trends. The
failure to do so may adversely affect the Company's operating results. With
respect to maternity apparel, the regular women's apparel market occasionally
shifts toward looser-fitting styles. During these times, pregnant women have a
greater opportunity to substitute regular market apparel for maternity wear.
Such a shift may adversely affect the Company's operating results.
Other Business Factors
The Company's future performance will be subject to a number
of factors beyond its control, including economic downturns and demographic
changes. The Company's business depends upon sustained demand for maternity
clothing. In the event that such demand were to decline for any reason, such as
a decrease in the number of pregnancies among women in the Company's customer
base, the Company's operating results could be adversely affected.
USE OF PROCEEDS
The Company will receive no proceeds from any sales of Common
Stock hereunder by the Selling Stockholder.
THE COMPANY
Mothers Work, Inc. together with its subsidiaries is the
largest specialty retailer of maternity clothing in the United States. As of
March 31, 1997, the Company operated 560 retail locations, including 33
Episode(R)** upscale bridge apparel specialty stores and 527 locations offering
a full range of career, casual and special occasion maternity wear consisting of
224 Motherhood Maternity(R) stores, 73 Maternite(R) stores, 49 Mimi Maternity(R)
stores, 46 Maternity Works(R) outlet stores, 39 A Pea in the Pod(R) stores and
94 leased departments. The Company situates its stores primarily in regional
shopping malls and, to a lesser extent, in central business districts within
major metropolitan areas, and in factory-direct outlet centers. The Company is
vertically-integrated, performing design, manufacturing, distribution and sales
functions in-house.
The Company currently operates maternity retail stores under
five store concepts which, although having different merchandising and marketing
strategies, all sell clothing that is designed to meet an expecting mother's
entire lifestyle needs including her career requirements, as well as her casual
and special
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(2) Episode America, a division of Mothers Work, Inc., is licensed to use
the Episode(R) trademark by Episode USA, Inc.
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occasion needs. Maternite, the Company's original concept, markets traditional
clothing. Mimi Maternity, which was developed in 1990, is designed to meet the
needs of fashion forward women who are willing to spend more to make a fashion
statement. A Pea in the Pod markets the most upscale of the Company's fashions
including a premium or "bridge" merchandise selection manufactured by the
Company, including the Company's Mimi Maternity line of clothing, and certain
designer labels. Motherhood markets a moderately-priced line of maternity
clothing in regional malls and department stores. Finally, Maternity Works, a
chain of factory-direct outlet stores, serves the woman who seeks upscale
apparel during her pregnancy but cannot or will not purchase at full retail
prices.
On May 31, 1996, the Company entered into a new line of
business involving bridge women's apparel and accessories through the
acquisition of certain leases and other assets of Episode U.S.A., Inc., a
company involved in that line of business. As of March 31, 1997, the Company
operated 33 retail locations under the Episode concept.
The principal executive office of the Company is located at
456 North 5th Street, Philadelphia, Pennsylvania 19103 and its telephone number
is (215) 873-2200.
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<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3
with the Securities and Exchange Commission (the "Commission") relating to the
shares of Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted pursuant to the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
securities offered hereby.
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Commission. Proxy
statements concerning the Company, reports and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices in New York (7 World Trade Center,
Suite 1300, New York, New York 10048) and Chicago (Citicorp Center, 500 W.
Madison St., Suite 1400, Chicago, Illinois 60661-2511). Copies of such material
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the Internet's World
Wide Web located at http://www.sec.gov. This Registration Statement, including
all exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
The Company will furnish, without charge, to any person to
whom a copy of this Prospectus is delivered, upon such person's written request,
a copy of any and all of the documents that have been incorporated by reference
in the Registration Statement and herein (not including exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
such documents). Any such request should be directed to the Chief Financial
Officer, Mothers Work, Inc., 456 North 5th Street, Philadelphia, Pennsylvania
19103, phone number: (215) 873-2200.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Commission are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the year
ended September 30, 1996.
(b) The Company's Quarterly Reports on Form 10-Q for the
quarters ended December 31, 1996, March 31, 1997, and June 30, 1997.
(c) The Company's Current Reports on Form 8-K filed on March
18, 1997 and April 30, 1997.
(d) The description of the Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission,
including any amendments or reports filed for the purpose of updating such
description.
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(e) In addition, all documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior
to the termination of the offering shall be deemed to be incorporated by
reference herein from their respective dates of filing.
Any statements contained in a document incorporated or deemed to be 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 or in any other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
SELLING STOCKHOLDER
The following table sets forth the name of the sole Selling Stockholder
and certain information regarding the beneficial ownership of the Company's
Common Stock by the Selling Stockholder as of July 31, 1997, and as adjusted to
reflect the sale of the shares offered by this Prospectus:
<TABLE>
<CAPTION>
Beneficial Ownership
Number of Shares After Offering
Beneficially Owned -----------------------------
Prior To Number of Shares Number of Percentage of
Name Offering Offered Shares Class
- ---- ------------------ --------------- --------- -------------
<S> <C> <C> <C> <C>
Toppy International Ltd. 217,365(1) 217,365 0 --
</TABLE>
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(1) The Shares were acquired by the Selling Stockholder in connection with
the Company's acquisition of certain leases and other assets of Episode USA,
Inc., an affiliate of the Selling Stockholder.
PLAN OF DISTRIBUTION
The Selling Stockholder or its pledgees, donees, transferees
or other successors in interest, may sell all, a portion or none of the
securities offered by it hereby from time to time. Any such sales may be in one
or more transactions on Nasdaq or any other securities market on which the
securities are then listed or traded at prices prevailing at the times of such
sales or in private sales of the securities at prices related to the prevailing
market prices or at negotiated prices. The sales may involve (a) a block
transaction in which the broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (b) a purchase by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus,
(c) ordinary brokerage transactions in which the broker solicits purchasers, (d)
exchange distributions and/or secondary distributions in accordance with the
rules of the Nasdaq Stock Market, or (e) privately negotiated transactions.
Broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions (which compensation may be in excess of customary
commissions). The Selling Stockholder and any broker-dealers that participate in
the distribution of the shares may be deemed to be underwriters and any
commissions received by them and any profit on the resale positioned by them
might be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended (the "Act"). The Selling Stockholder may from
time to time deliver all or a portion of the securities offered hereby to cover
a short sale or sales or upon exercise of a put
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equivalent position. In addition, any such shares that qualify for sale under
Rule 144 or Rule 144A under the Act may be sold under any such rules rather than
pursuant to this Prospectus.
There can be no assurance that the Selling Stockholder will
sell any or all of their shares of Common Stock offered hereby. The Company will
receive no proceeds from any sales of Common Stock hereunder by the Selling
Stockholder.
The Registration Statement of which this Prospectus is a part
has been filed with the Commission by the Company in accordance with certain
subscription agreements between the Company and certain of the Selling
Stockholders, pursuant to which the Company has agreed to pay the filing fees,
costs and expenses associated with such Registration Statement. The Company has
also agreed to indemnify such Selling Stockholder for certain civil liabilities
in connection with such Registration Statement and the securities offered
hereby, including liabilities under the Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been
passed upon for the Company by Pepper, Hamilton & Scheetz LLP, 3000 Two Logan
Square, Philadelphia, PA 19103. Elam M. Hitchner, III, a partner of Pepper,
Hamilton & Scheetz, LLP and a member of the Company's Board of Directors, owns
20,000 shares of Common Stock and options to purchase an additional 8,000 shares
of Common Stock.
EXPERTS
The consolidated financial statements of Mothers Work, Inc.
included in Mothers Work, Inc.'s Annual Report on Form 10-K for the year ended
September 30, 1996, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
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No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, the securities offered hereby to any person in any state or
other jurisdiction in which such offer or solicitation is unlawful. The delivery
of this Prospectus at any time does not imply that information contained herein
is correct as of any time subsequent to its date.
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TABLE OF CONTENTS
Page
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Risk Factors............................................................ 2
Use of Proceeds......................................................... 5
The Company............................................................. 5
Available Information................................................... 6
Incorporation of Certain Documents by Reference......................... 6
Selling Stockholder..................................................... 8
Plan of Distribution.................................................... 8
Legal Matters........................................................... 9
Experts................................................................. 9
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MOTHERS WORK, INC.
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PROSPECTUS
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August 14, 1997
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