| PHOENIX FOOTWEAR GROUP INC Item 1A Risk Factors The following section discusses material risks that should carefully consider, which, if they were actually to occur, could harm our business and the trading price of our common stock |
| We operate in a very competitive and rapidly changing environment |
| New risk factors can arise and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements |
| Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements |
| 13 _________________________________________________________________ [70]Table of Contents Our acquisitions or acquisition efforts, which are important to our growth, may not be successful, which may limit our growth or adversely affect our results of operations and financial condition Acquisitions have been an important part of our development to date |
| As part of our business strategy, we intend to make additional acquisitions of footwear, apparel and related products companies that we believe could complement or expand our business, augment our market coverage, provide us with important relationships or otherwise offer us growth opportunities |
| If we identify an appropriate acquisition candidate, we may not be able to complete the acquisition timely or at all, or negotiate successfully the terms of or finance the acquisition |
| Unsuccessful acquisition efforts may result in significant additional expenses that would not otherwise be incurred |
| In addition, we cannot assure you that we will be able to integrate the operations of our acquisitions without encountering difficulties, including unanticipated costs, possible difficulty in retaining customers and supplier or manufacturing relationships, failure to retain key employees, the diversion of management attention or failure to integrate our information and accounting systems |
| Following an acquisition, we may not realize the revenues and cost savings that we expect to achieve or that would justify the acquisition investment, and we may incur costs in excess of what we anticipate |
| These circumstances could adversely affect our results of operations or financial condition |
| Our recently completed acquisitions make evaluating our operating results difficult given the significance of these acquisitions to our operations, and our historical results do not give you an accurate indication of how we will perform in the future Our historical results of operations do not give effect for a full fiscal year to our 2005 acquisitions of Chambers Belt and Tommy Bahama Footwear |
| Accordingly, our historical financial information does not necessarily reflect what our financial position, operating results and cash flows will be in the future as a result of these acquisitions, or give you an accurate indication of how we will perform in the future |
| The financing of any future acquisitions we make may result in dilution to your stock ownership and/or could increase our leverage and our risk of defaulting on our bank debt Our business strategy is to expand into new markets and enhance our position in existing markets through acquisitions |
| In order to successfully complete targeted acquisitions, or to fund our other activities, we may issue additional equity securities that could dilute your stock ownership |
| We may also incur additional debt if we acquire another company, which could significantly increase our leverage and hence our risk of default under our secured credit facility |
| For example, in financing our recent Chambers Belt acquisition we issued 374cmam462 shares of our common stock in a private placement to Chambers Belt and incurred approximately dlra19dtta5 million of additional debt under our amended credit facility to pay the purchase price and to refinance Chambers Belt’s funded indebtedness |
| In our recent acquisition of Tommy Bahama Footwear, we increased our credit facility again to, among other things, obtain a dlra7dtta0 million bridge loan to pay the cash purchase price |
| Defaults under our secured credit arrangement could result in a foreclosure on our assets by our bank We have a dlra63 million secured credit facility with our bank |
| As of February 28, 2006, we had dlra60dtta2 million outstanding under this facility, including a dlra7dtta0 bridge loan due May 1, 2006 |
| In the future, we may incur additional indebtedness in connection with other acquisitions or for other purposes |
| Our credit facility includes a number of covenants, including financial covenants and a requirement to provide the lender with audited financial statements no later than 90 days after our fiscal year end |
| We were in default of one of our financial covenants as of December 31, 2005 and did not deliver audited financial statements to the lender by the March 31, 2006 deadline |
| We obtained a waiver from our bank related to the violation of these financial covenants |
| We are currently in discussions with our lender to extend the term of our dlra7dtta0 million bridge loan |
| We do not anticipate that we will be able to pay off the bridge loan by the May 1, 2006 deadline, which would place us in default under our credit facility |
| We anticipate that our lender will agree to extend the term of this bridge loan, although there can be no assurance that these discussions will be successful or that we will be able to comply with any future maturity date |
| 14 _________________________________________________________________ [71]Table of Contents If we default under our credit arrangement but are unable to cure the default, obtain appropriate waivers or refinance the defaulted debt, our bank could declare our debt to be immediately due and payable and foreclose on our assets, which may result in a complete loss of your investment |
| If we are unable to obtain awards of future DoD boot solicitations, our net sales and consolidated operating results would be adversely affected We are currently under the final option year in our contract with the DoD to manufacture mil-spec boots, which expires in September 2006 |
| We expect a new five-year solicitation for hot weather combat boots to be offered during the next 120 days and corresponding awards to be made at the end of the third quarter of our 2006 fiscal year |
| There is no certainty that we will be awarded future DSCP boot solicitations |
| Most boot contracts are for multi-year periods |
| Our sales to the DoD were dlra13dtta6 million or 59prca of total net sales for our military boot business in fiscal 2005 |
| Therefore, if we do not receive an award from this upcoming solicitation, we could be adversely affected for several years |
| A large portion of our sales are to a relatively small group of customers with whom we do not have long-term purchase orders, therefore the loss of any one or more of these customers could adversely affect our business Ten major customers represented approximately 44dtta1prca of net sales in fiscal 2005, including the DoD, Wal-Mart and Nordstrom, which comprised 14dtta4prca, 9dtta2prca and 4dtta9prca of net sales for the period |
| Except for Wal-Mart, which was added during fiscal 2005 through the acquisition of Chambers Belt, most of these same customers represented a significant portion of net sales in fiscal 2004 |
| Though the DoD continued to be the largest customer for both our military boot segment and the Company, we expect Wal-Mart to be our largest customer for both our accessories segment and for the Company in fiscal 2006 |
| Although we have long-term relationships with many of our customers, our customers do not have a contractual obligation to purchase our products, and we cannot be certain that we will be able to retain our existing major customers |
| The retail industry can be uncertain due to changing customer buying patterns and consumer preferences, and customer financial instability |
| For instance we have experienced a sharp decline in our sales to Dillard’s over the past three years due to its consolidation of its footwear vendor base |
| These factors could cause us to lose one or more of these customers, which could adversely affect our business |
| Material reductions in the level of orders from the DoD have harmed our operating results and this trend could continue |
| Doing business with the US government entails many risks that could adversely affect us through the early termination of our contracts or by interfering with Altama’s ability to obtain future government contracts Our contracts with the DoD under the Altama brand are subject to partial or complete termination under specified circumstances including, but not limited to, the following circumstances: • the convenience of the government; • the lack of funding; or • our actual or anticipated failure to perform our contractual obligations |
| Additionally, there could be changes in government policies or spending priorities as a result of election results, changes in political conditions or other factors that could significantly affect the level of troop deployment |
| Any of these occurrences could adversely affect the level of business we do with the DoD and, consequently, our operating results |
| For example, the DoD did not order in excess of the maximum volume under the first year option of the DoD contract and, therefore we did not operate at surge rates, as was the case during the first year of the DoD contract which ended September 30, 2004 |
| The DSCP and other DoD agencies with which Altama may do business are also subject to unique political and budgetary constraints and have special contracting requirements and complex procurement laws that may affect the 15 _________________________________________________________________ [72]Table of Contents contract or Altama’s ability to obtain new government customers |
| These agencies often do not set their own budgets and therefore have little control over the amount of money they can spend |
| In addition, these agencies experience political pressure that may dictate the manner in which they spend money |
| Due to political and budgetary processes and other scheduling delays that frequently occur in the contract or bidding process, some government agency orders may be canceled or substantially delayed, and the receipt of revenues or payments may be substantially delayed |
| For example, the DoD delayed acceptance of products ordered which caused our results to be lower in the second quarter of fiscal 2005 than we anticipated |
| Government agencies have the power, based on financial difficulties or investigations of their contractors, to deem contractors unsuitable for new contract awards |
| Because we engage in the governmental contracting business, we will be subject to audits and may be subject to investigation by governmental entities |
| Failure to comply with the terms of any of these government contracts could result in substantial civil and criminal fines and penalties, as well as our suspension from future government contracts for a significant period of time, any of which could adversely affect our business by requiring us to spend money to pay the fines and penalties and prohibiting us from earning revenues from government contracts during the suspension period |
| Furthermore, our failure to qualify as a small business under federal regulations following the acquisition could reduce the likelihood of our ability to receive awards of future DoD contracts |
| Altama qualified as a small business at the time of its bid for the current DoD contract |
| Small business status, having less than 500 employees, is a factor that the DoD considers in awarding its military boot contracts |
| Our combined employment is now in excess of 500 employees, which could adversely affect our ability to obtain future contract awards |
| Our future success depends on our ability to respond to changing consumer preferences and fashion trends and to develop and commercialize new products successfully A significant portion of our principal business is the design, development and marketing of dress and casual footwear, apparel and accessories |
| Although our focus in these segments of our business is on traditional and sustainable niche brands, our consumer brands may still be subject to rapidly changing consumer preferences and fashion trends |
| For example, our Trotters and Softwalk brands have experienced decreased retail acceptance of various styles, which adversely affected our net sales |
| Accordingly, we must identify and interpret fashion trends and respond in a timely manner |
| Demand for and market acceptance of new products, such as our new Altama public safety footwear line, are uncertain, and achieving market acceptance for new products generally requires substantial product development and marketing efforts and expenditures |
| Any failure on our part to regularly develop innovative products and update core products could limit our ability to differentiate and appropriately price our products, adversely affect retail and consumer acceptance of our products, and limit sales growth |
| Each of these risks could adversely affect our results of operations or financial condition |
| We face intense competition, including competition from companies with greater resources than ours, and if we are unable to compete effectively with these companies, our market share may decline and our business and stock price could be harmed We face intense competition in the footwear and apparel industry from other companies, such as those companies listed in “Business — Competition” above |
| Many of our competitors have greater financial, distribution or marketing resources, as well as greater brand awareness |
| In addition, the overall availability of overseas manufacturing opportunities and capacity allow for the introduction of competitors with new products |
| Moreover, new companies may enter the markets in which we compete, further increasing competition in the footwear and apparel industry |
| We believe that our ability to compete successfully depends on a number of factors, including anticipating and responding to changing consumer demands in a timely manner, maintaining brand reputation and authenticity, developing high quality products that appeal to consumers, appropriately pricing our products, providing strong and effective marketing support, ensuring product availability and maintaining and effectively assessing our distribution channels, as well as many other factors beyond our control |
| Due to these factors within and beyond our control, we may not be able to compete successfully in the future |
| Increased competition may result in price reductions, reduced profit margins, loss of market share, and an inability to generate cash flows that are sufficient to maintain or expand 16 _________________________________________________________________ [73]Table of Contents our development and marketing of new products, each of which would adversely affect the trading price of our common stock |
| The financial instability of our customers could adversely affect our business and result in reduced sales, profits and cash flows We sell much of our merchandise in our footwear and apparel, premium brands and accessories segments to department stores and specialty retailers across the US and extend credit based on an evaluation of each customer’s financial condition, usually without requiring collateral |
| However, the financial difficulties of a customer could cause us to curtail business with that customer |
| We may also assume more credit risk relating to that customer’s receivables due us |
| Two of our customers constituted 28dtta9prca of trade accounts receivable outstanding at December 31, 2005 |
| Our inability to collect on our trade accounts receivable from any of our major customers could adversely affect our business or financial condition |
| Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights or if we are sued for intellectual property infringement We believe that we derive a competitive advantage from our ownership of the Trotters, SoftWalk, HS Trask, Royal Robbins and Altama trademarks, and our patented footbed technology and our license of the Wrangler and Tommy Bahama Footwear marks |
| We vigorously protect our trademarks against infringement |
| We believe that our trademarks are generally sufficient to permit us to carry on our business as presently conducted |
| We cannot, however, know whether we will be able to secure trademark protection for our intellectual property in the future or that protection will be adequate for future products |
| Further, we face the risk of ineffective protection of intellectual property rights in the countries where we source our products |
| We cannot be sure that our activities do not and will not infringe on the proprietary rights of others |
| If we are compelled to prosecute infringing parties, defend our intellectual property, or defend ourselves from intellectual property claims made by others, we may face significant expenses and liability that could divert our management’s attention and resources and otherwise adversely affect our business or financial condition |
| We depend on third-party trademarks to market some of our products and services and the loss of the right to use these trademarks or the diminished marketing appeal of these trademarks could adversely affect our business We hold licenses to design and distribute products bearing trademarks owned by other entities |
| We have an exclusive license from Tommy Bahama Group, Inc |
| to design and distribute men’s and women’s footwear, hosiery, belts and men’s small leather goods and accessories bearing the “Tommy Bahama^®” mark and related marks and exclusive licenses from Wrangler Apparel Corp |
| to distribute leather belts, accessories, and suspenders bearing the “Wrangler^®” mark and related marks |
| Each license agreement may be terminated by the respective licensors prior to the end of the applicable term for several reasons, including a material default by us under the applicable agreement, or if we do not meet certain sales requirements |
| Although we recently obtained these licenses in connection with our fiscal 2005 acquisitions, we expect that the revenue generated from sales of products under these licenses will be a significant part of our overall revenue |
| If an owner of a trademark that we license terminates our license agreements because we have materially defaulted under the applicable agreement, have not met required sales requirements, or for any other reason permitted under such agreements, or if the name “Tommy Bahama^®” (or related marks) or “Wrangler^®” (or related marks) were to suffer diminished marketing appeal, or if we are unable to renew these agreements, our revenues and operations could be materially adversely affected |
| Our inventory levels may exceed our actual needs, which could adversely affect our operating results by requiring us to make inventory write-downs If we order more product than we are able to sell, we could be required to write-down this inventory, adversely affecting our margins and in turn, our operating results |
| Additionally, excess inventory adversely affects our liquidity |
| Excess inventory could occur as the result of change in customer order patterns, general sales activity, orders subject to cancellation by customers, misforecasting and consumer demand |
| Write-downs of inventory could adversely affect our gross profit and operating results |
| 17 _________________________________________________________________ [74]Table of Contents Our financial results may fluctuate from quarter to quarter as a result of seasonality in our business, and if we fail to meet expectations, the price of our common stock may fluctuate The footwear and apparel, and accessories industries generally, and our business specifically, are characterized by seasonality in net sales and results of operations |
| Our business is seasonal, with the first and third quarters generally having stronger sales and operating results than the other two quarters |
| These events could cause the price of our common stock to fluctuate |
| Our international manufacturing operations are subject to the risks of doing business abroad, which could affect our ability to manufacture our products in international markets, obtain products from foreign suppliers or control the costs of our products We currently rely on foreign sourcing of our products, other than most of our military footwear and some belts manufactured at our California facility |
| We believe that one of the key factors in our growth has been our strong relationships with manufacturers capable of meeting our requirements for quality and price in a timely fashion |
| We obtain our foreign-sourced products primarily from independent third-party manufacturing facilities located in Brazil and Asia |
| As a result, we are subject to the general risks of doing business outside the US, including, without limitation, work stoppages, transportation delays and interruptions, political instability, expropriation, nationalization, foreign currency fluctuation, changing economic conditions, the imposition of tariffs, import and export controls and other non-tariff barriers, and changes in local government administration and governmental policies, and to factors such as the short-term and long-term effects of severe acute respiratory syndrome, or SARS, and the outbreak of avian influenza in China |
| Although a diverse domestic and international industry exists for the kinds of merchandise sourced by us, there can be no assurance that these factors will not adversely affect our business, financial condition or results of operations |
| Our reliance on independent manufacturers for almost all of our non mil-spec non-accessory products, with whom we do not have long-term written agreements, could cause delay and damage customer relationships In fiscal 2005, we utilized 21 third-party manufacturers to produce our dress and casual footwear products, 7 third-party manufacturers to produce our apparel products, 3 third-party manufacturers to produce our non mil-spec boot volume, and 13 third-party manufacturers to produce our accessories products |
| We do not have long-term written agreements with any of our third-party manufacturers |
| As a result, any of these manufacturers may unilaterally terminate their relationships with us at any time |
| Establishing relationships with new manufacturers would require a significant amount of time and would cause us to incur delays and additional expenses, which would also adversely affect our business and results of operations |
| In addition, in the past, a manufacturer’s failure to ship products to us in a timely manner or to meet the required quality standards has caused us to miss the delivery date requirements of our customers for those items |
| This, in turn, has caused, and may in the future cause, customers to cancel orders, refuse to accept deliveries or demand reduced prices |
| This could adversely affect our business and results of operation |
| Our results could be adversely affected by disruptions in our manufacturing systems In fiscal 2005, our manufacturing operations at our Altama and Chambers Belts brands produced approximately 80prca of the products sold |
| We expect that these products could represent over 19prca of our combined net sales in fiscal 2006, reflecting the inclusion of the recently acquired Chambers Belt in our results for a full fiscal year |
| Any significant disruption in those operations, or in our Chambers Belt California manufacturing operations for any reason, such as power interruptions, fires, hurricanes, war or other force majeure, could adversely affect our sales and customer relationships and therefore adversely affect our business |
| For instance, in September 2004 we encountered production delays at our Puerto Rico manufacturing plant following a closure for several days due to severe weather |
| 18 _________________________________________________________________ [75]Table of Contents Fluctuations in the price, availability and quality of raw materials could adversely affect our gross profit Fluctuations in the price, availability and quality of raw materials, such as leather and bison hides, used to manufacture our products, could adversely affect our cost of goods or our ability to meet our customers’ demands |
| Although we do not expect our foreign manufacturing partners, or ourselves in manufacturing our Altama brand and Chambers brand, to have any difficulty in obtaining the raw materials required for footwear and accessories production, certain sources may experience some difficulty in obtaining raw materials |
| We generally do not enter into long-term purchase commitments |
| In the event of price increases in these raw materials in the future, we may not be able to pass all or a portion of these higher raw materials prices on to our customers, which would adversely affect our gross profit |
| A decline in general economic conditions could lead to reduced consumer demand for our products and could lead to a reduction in our net sales, and thus in our ability to obtain credit In addition to consumer fashion preferences, consumer spending habits are affected by, among other things, prevailing economic conditions, levels of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions |
| Slowdowns would likely cause us to delay or slow our expansion plans and result in lower net sales than expected on a quarterly or annual basis, which could lead to a reduction in our stockholders’ equity and thus our ability to obtain credit as and when needed |
| We may be required to recognize impairment charges that could adversely affect our reported earnings in future periods Our business acquisitions typically result in goodwill and other intangible assets |
| As of December 31, 2005, we had dlra71dtta1 million of goodwill and unamortizable intangibles |
| We expect this figure to continue to increase with additional acquisitions |
| Pursuant to generally accepted accounting principles in the United States, we are required to perform impairment tests on our goodwill annually or at any time when events occur that could impact the value of our business |
| Our determination of whether an impairment has occurred is based on a comparison of each of our reporting units’ fair market value with its carrying value |
| Significant and unanticipated changes could require a provision for impairment in a future period that could adversely affect our reported earnings in a period of such change |
| The exercise of outstanding stock options and warrants, and the allocation of unallocated shares held by our 401(k) plan, would cause dilution to our stockholders’ ownership percentage and/or a reduction in earnings per diluted share As of March 15, 2006, we had outstanding 8cmam346cmam943 shares of common stock, net of treasury stock |
| This includes 196cmam967 shares issued to the seller in connection with our Altama acquisition and held by the escrow agent pursuant to the terms of our settlement with him and 237cmam565 unallocated shares held by our 401(k) plan, which despite the fact they are outstanding for voting and other legal purposes, are classified as treasury shares for financial statement reporting purposes and are not taken into account in determining our earnings per share or earnings per diluted share |
| The 237cmam565 unallocated shares will be allocated at the rate of approximately 120cmam000 shares annually until they are fully allocated to the accounts of plan participants |
| After each allocation these additional shares will be included in the weighted average shares outstanding for purposes of determining our earnings per share and earnings per diluted share |
| As of March 15, 2006, we had outstanding options and warrants to purchase 1cmam610cmam602 shares at exercise prices ranging from dlra1dtta73 to dlra15dtta00 per share, and 52cmam500 shares reserved for issuance under deferred stock awards |
| The exercise of all or part of these options or warrants, and issuance of shares under the deferred stock awards, would cause our stockholders to experience a dilution in their percentage ownership |
| We depend on our senior executives to develop and execute our strategic plan and manage our operations, and if we are unable to retain them, our business could be harmed Our future success depends upon the continued services of James Riedman, our Chairman of the Board, who has played a key role in developing and implementing our strategic plan |
| We also rely on Richard E White, our 19 _________________________________________________________________ [76]Table of Contents Chief Executive Officer and Kenneth E Wolf, our Chief Financial Officer, who have played key roles in integrating our newly acquired brands |
| Our loss of any of these individuals would harm us if we are unable to employ a suitable replacement in a timely manner |
| Riedman, White, Wolf, or any of our other senior executives |
| The charge to earnings from the compensation to employees under our employee retirement plan could adversely affect the value of your investment in our common stock As of December 31, 2005, our 401(k) plan held 358cmam885 unallocated shares of our common stock, which constituted approximately 4dtta3prca of our outstanding shares as of that date |
| Under the terms of the plan, approximately 120cmam000 of these shares will be allocated to plan participants in February of each year until fully allocated of which approximately 120cmam000 were allocated in February 2006 |
| We are required to record an expense for compensation based on the market value of the amount allocated to employees each year |
| For fiscal 2004 and 2005, we recorded non-cash expenses for this allocation of dlra854cmam000 and dlra935cmam000, respectively |
| To the extent our stock price increases, we would be required to take a higher charge for this allocation and thereby decrease our reported earnings |
| This could adversely affect the value of your investment in our common stock |
| We are controlled by a principal stockholder who may exert significant control over us and our significant corporate decisions in a manner adverse to your personal investment objectives, which could depress the market value of our stock James R Riedman, our Chairman of the Board, is the largest beneficial owner of our stock |
| Through his personal holdings and shares over which he is deemed to have beneficial ownership held by Riedman Corporation (of which he is a shareholder, President and a director), our employee retirement plan, his children, and an affiliated entity, he beneficially owned approximately 28dtta2prca of our outstanding shares as of March 15, 2006 |
| Riedman also has beneficial ownership of shares underlying options which, if exercised, would increase his percentage beneficial ownership to approximately 35dtta2prca as of March 15, 2006 |
| Through this beneficial ownership, Mr |
| Riedman can direct our affairs and significantly influence the election or removal of our directors and the outcome of all matters submitted to a vote of our stockholders, including amendments to our certificate of incorporation and bylaws and approval of mergers or sales of substantially all of our assets |
| The interest of our principal stockholder may conflict with interests of other stockholders |
| This concentration of ownership may also harm the market price of our common stock by, among other things: • delaying, deferring or preventing a change in control of our company; • impeding a merger, consolidation, takeover or other business combination involving our company; • causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or • discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company |
| Delaware law, our charter documents and agreements with our executives may impede or discourage a takeover, even if a takeover would be in the interest of our stockholders We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third-party to acquire control of us, even if a change in control would be beneficial to our existing stockholders |
| In addition, our Board of Directors has the power, without stockholders’ approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock, which could be used defensively if a takeover is threatened |
| All options issued under our stock option plans automatically vest upon a change in control unless otherwise determined by the compensation committee |
| In addition, several of our executive officers have employment agreements that provide for significant payments on a change in control |
| These factors and provisions in our certificate of incorporation and bylaws could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock or reduce our ability to achieve a premium in such sale, which could limit the market value of our common stock and prevent you from maximizing the return on your investment |
| 20 _________________________________________________________________ [77]Table of Contents Shares of our common stock eligible for public sale could cause the market price of our stock to drop, even if our business is doing well Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, could adversely affect the market price for our common stock |
| As of March 15, 2006, there were 8cmam346cmam943 shares of our common stock outstanding |
| Of our currently outstanding shares of common stock, 5cmam533cmam306 shares are freely tradable without restriction or further registration under federal securities laws, including 27cmam158 shares held by our affiliates which are registered for resale on a Form S-8 |
| In the near future we plan to register an additional 245cmam000 shares for resale on a Form S-8, which will include approximately 23cmam800 shares held by our affiliates |
| The remaining 2cmam813cmam637 shares are held by our affiliates or were issued in a private placement and are considered restricted or control securities and are subject to the trading restrictions of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act |
| These securities cannot be sold unless they are registered under the Securities Act or unless an exemption from registration is otherwise available |
| We also have in effect registration statements on Form S-8 covering 1cmam500cmam000 shares of common stock, under our 2001 Long-Term Incentive Plan, 1cmam195cmam102 shares of which are subject to previously granted options and deferred stock awards and the remainder of which are available for future awards under that plan |
| Our principal stockholders, James Riedman and Riedman Corporation, who beneficially own in the aggregate 2cmam359cmam655 shares of our common stock and vested options to acquire an additional 582cmam306 shares, have demand registration rights covering 1cmam152cmam710 of the shares they beneficially own |
| In connection with our recent Chambers Belt acquisition we granted it registration rights covering the 374cmam462 shares and any additional shares issued to Chambers Belt as part of the earn-out consideration under the terms of the acquisition |
| The agreement provides one demand registration right per year for three years and unlimited piggyback registration rights for three years, subject to certain exceptions |
| Significant resale of these shares could cause the market price of our common stock to decline regardless of the performance of our business |
| These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate |
| Our stock price has fluctuated significantly during the past 12 months and may continue to do so in the future, which could result in litigation against us and significant losses for investors Our stock price has fluctuated significantly during the past 12 months and in the future may continue to do so |
| A number of factors could cause our stock price to continue to fluctuate, including the following: • the failure of our quarterly operating results or those of similarly situated companies to meet expectations; • adverse developments in the footwear, apparel or accessories markets and the worldwide economy; • changes in interest rates; • our failure to meet investors’ expectations; • changes in accounting principles; • sales of common stock by existing stockholders or holders of options; • announcements of key developments by our competitors; • the reaction of markets to announcements and developments involving our company, including future acquisitions and related financing activities; and • natural disasters, acts of terrorism, riots, wars, geopolitical events or other developments affecting us or our competitors |
| In addition, the stock market has experienced extreme price and volume fluctuations |
| This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance |
| 21 _________________________________________________________________ [78]Table of Contents These broad market fluctuations may adversely affect our stock price, regardless of our operating results |
| In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities |
| We may in the future be the target of similar litigation |
| Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources |