The information in this prospectus is not complete and
may be changed. The selling stockholders
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer to sell these
securities or the solicitation of an offer to buy these securities in any state
in which such offer, solicitation or sale is not permitted.
SUBJECT TO COMPLETION DATED
SEPTEMBER 18, 2007
4,048,868 Shares
Common Stock
This
prospectus relates to the resale of up to 4,048,868 shares of our common stock
that are beneficially owned by the selling stockholders. The selling
stockholders may sell any, all or none of the shares of our common stock
offered under this prospectus from time to time, in one or more transactions.
The shares of our common stock offered under this prospectus may be sold at
fixed prices, prevailing market prices at the times of sale, prices related to
the prevailing market prices, varying prices determined at the times of sale or
negotiated prices. The shares of our common stock offered by this prospectus
and any prospectus supplement may be offered by the selling stockholders
directly to investors or to or through underwriters, dealers or other agents.
If required, the names of any such agents, underwriters, brokers or dealers
involved in the sale of the shares in respect of which this prospectus is being
delivered and the applicable agents commission, brokers or dealers purchase
price or underwriters discount, if any, will be set forth in an accompanying
supplement to this prospectus.
We are
registering the shares of common stock offered under this prospectus as
required by the terms of the registration rights agreement between the selling
stockholders and us, as described in the section entitled Selling
Stockholders. When the selling
stockholders offer shares of our common stock, we will provide the specific
terms of such offerings in supplements to this prospectus. As applicable, such prospectus supplements
will identify the selling stockholders not already named herein, and state the
number of shares to be sold by each. We
will not receive any proceeds from the sale of shares of our common stock sold
by the selling stockholders.
Our
shares of common stock are listed for trading on the Nasdaq Global Select
Market under the symbol CTRN. On September 17, 2007, the last reported sale
price of our common stock on the Nasdaq Global Select Market was $22.07 per
share.
Investing
in our common stock involves risks. See Risk
Factors beginning on page 5.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is ,
2007
Table of Contents
We
have filed a shelf registration statement on Form S-3 with the Securities
and Exchange Commission, or the Commission, regarding the common stock offered
by this prospectus. This prospectus, which forms part of the registration
statement, does not contain all of the information included in the registration
statement and the exhibits to the registration statement, because certain parts
have been omitted in accordance with the rules and regulations of the
Commission. Under this prospectus, selling stockholders may, from time to time,
sell up to 4,048,868 shares of our common stock in one or more offerings.
Each time the selling stockholders sell our common stock, we will provide a
supplement to this prospectus that will contain specific information about the
terms of that offering. The prospectus supplement may also add, update or
change information contained in this prospectus. Before purchasing our common
stock, you should carefully read both this prospectus and any applicable
prospectus supplement, together with the registration statement and the
exhibits filed as part of the registration statement and the documents
incorporated by reference into this prospectus.
2
Prospectus Summary
This
summary highlights information contained in other parts of this
prospectus. Because it is a summary, it
does not contain all of the information that you should consider before
investing in our common stock. You should carefully read the more detailed
information contained or incorporated by reference in this prospectus,
including the section entitled Risk Factors and our financial statements and
related notes. Our fiscal year ends on the Saturday closest to January 31,
and, except as otherwise provided, references in this prospectus to a fiscal
year mean the 52- or 53-week period ended on the Saturday closest to January 31
of the succeeding year. Fiscal 2006, for example, refers to the 53-week period
ended February 3, 2007.
Citi Trends, Inc.
We are a rapidly growing,
value-priced retailer of urban fashion apparel and accessories for the entire
family. We offer quality, branded merchandise for men, women and children,
including products from nationally recognized brands, as well as private label
products and a limited assortment of home décor items. Our merchandise
offerings are designed to appeal to the preferences of fashion conscious
consumers, particularly African-Americans. Through strong relationships with
our suppliers, we believe that we are able to offer our products at compelling
values. We seek to provide nationally recognized branded merchandise at 20% to
60% discounts to department and specialty stores regular prices.
Our growth
strategy is to open stores in new and existing markets as well as to increase
sales in existing stores. Adding stores in the markets we currently serve
enables us to benefit from enhanced name recognition and achieve advertising
and operating synergies, and entering new markets opens additional growth
opportunities. In fiscal 2005, we opened 36 new stores and in fiscal 2006, we
opened 42 new stores. The Company opened
18 stores in the first quarter of 2007 and 5 stores in the second quarter of
2007, reaching a total store count of 300 at the end of the quarter. For the remainder of the fiscal year, the
Company plans to open an additional 20 to 22 stores bringing the end of year
store count to 320 to 322. Approximately
90% of the new stores we intend to open in fiscal 2007 will be located in
states in which we are currently located. We intend to increase comparable
store sales primarily through merchandising enhancements and the expansion of
product categories such as home décor and intimate apparel.
Selling Stockholders
In
connection with our initial public offering, we entered into a registration
rights agreement with Hampshire Equity Partners II, L.P. Under this agreement, we are required to file
a registration statement covering the possible resale of the shares of our
common stock held by Hampshire Equity Partners II, L.P. and its affiliates.
We have
agreed to use our reasonable best efforts to cause this shelf registration
statement to become effective and stay effective until the earlier of:
·
the date when all securities
subject to the registration rights agreement covered by this prospectus have
been sold; or
·
the date when all securities
subject to the registration rights agreement held by Hampshire Equity Partners
II, L.P. may be sold without any restriction pursuant to Rule 144(k) under the
Securities Act of 1933, as amended, or the Securities Act.
We will not receive
proceeds from any sale of the shares of our common stock offered under this
prospectus. Hampshire Equity Partners
II, L.P. and its affiliates and we have agreed to indemnify each other in
certain circumstances against certain liabilities, including liabilities under
the Securities Act.
Corporate Information
We are incorporated in
Delaware and our principal executive offices are located at 102 Fahm Street,
Savannah, Georgia 31401. Our telephone number is (912) 236-1561 and our
website address is
3
www.cititrends.com
.
Information contained in, or accessible through, our website does not
constitute part of this prospectus.
4
Risk Factors
An
investment in shares of our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained or incorporated by reference in this
prospectus, before you decide whether to buy our common stock. The occurrence
of any of the following risks could have a material adverse effect on our
business, financial condition and results of operations.
Risks relating to our business
Our
success depends on our ability to anticipate, identify and respond rapidly to
changes in consumers fashion tastes, and our failure to adequately evaluate
fashion trends could have a material adverse effect on our business, financial
condition and results of operations.
The apparel industry in
general and our core customer market in particular are subject to rapidly
evolving fashion trends and shifting consumer demands. Accordingly, our success
is heavily dependent on our ability to anticipate, identify and capitalize on
emerging fashion trends, including products, styles and materials that will
appeal to our target consumers. Our failure to anticipate, identify or react
appropriately and timely to changes in styles, trends, brand preferences or
desired image preferences is likely to lead to lower demand for our
merchandise, which could cause, among other things, sales declines, excess
inventories and higher markdowns. The inaccuracy of our forecasts regarding
fashion trends could have a material adverse effect on our business, financial
condition and results of operations.
If
we are unsuccessful
in competing with our
retail apparel competitors, our market share could decline or our growth could
be impaired and, as a result, our financial results could suffer.
The retail apparel market
is highly competitive with few barriers to entry. We compete against a diverse
group of retailers, including national off-price apparel chains such as the TJX
Companies, Inc., Burlington Coat Factory, and Ross Stores, Inc.; mass merchants
such as Wal-Mart and Kmart; smaller discount retail chains that only sell womens
products, such as Rainbow, Dots, Its Fashions! (a subsidiary of The Cato
Corporation) and Simply Fashions; and general merchandise discount stores and
dollar stores, which offer a variety of products, including apparel, for the
value-conscious consumer. We also compete against local off-price and specialty
retail stores, regional retail chains, traditional department stores, and
web-based retail stores and other direct retailers.
The level of competition
we face from these retailers varies depending on the product segment, as many
of our competitors do not offer apparel for the entire family. Our greatest
competition is generally in womens apparel. Many of our competitors are larger
than us and have substantially greater resources than us and, as a result, may
be able to adapt more quickly to changing market conditions, exploit new
opportunities, exert greater pricing pressures on suppliers and open new stores
more quickly and effectively than us. Many of these retailers have better name
recognition among consumers than us and purchase significantly more merchandise
from vendors. These retailers may be able to purchase branded merchandise that
we cannot purchase because of their name recognition and relationships with
suppliers, or they may be able to purchase branded merchandise with better
pricing concessions than us. Our local and regional competitors have extensive
knowledge of the consumer base and may be able to garner more loyalty from
customers than us. If the consumer base we serve is satisfied with the
selection, quality and price of our competitors products, consumers may decide
not to shop in our stores. Additionally, if our existing competitors or other
retailers decide to focus more on our core customers, particularly
African-American consumers, we may have greater difficulty in competing
effectively, our business and results of operations could be adversely
affected, and the market price of our common stock could suffer.
The retail industry
periodically has experienced consolidation and other ownership changes. In the
future, other United States or foreign retailers may consolidate, undergo
restructurings or reorganizations, or realign their affiliations. Any of these
developments could result in our competitors increasing their buying
5
power or market
visibility. These developments may cause us to lose market share and could have
a material adverse effect on our sales, revenues and results of operations.
We could
experience a reduction in sales and revenues or reduced cash flows if we are
unable to fulfill our current and future merchandising needs.
We depend on our
suppliers for the continued availability and satisfactory quality of our
merchandise. Most of our suppliers could discontinue selling to us at any time.
Additionally, if the manufacturers or other owners of brands or trademarks
terminate the license agreements under which some of our suppliers sell our
products, we may be unable to obtain replacement merchandise of comparable
fashion appeal or quality, in the same quantities or at the same prices. If we
lose the services of one or more of our significant suppliers or if one or more
of them fail to meet our merchandising needs, we may be unable to obtain
replacement merchandise in a timely manner. If our existing suppliers cannot meet
our increased needs and we cannot locate alternative supply sources, we may be
unable to obtain sufficient quantities of the most popular items of the
nationally recognized brands at attractive prices, which could negatively
impact our sales, revenues and results of operations.
As an
apparel retailer, we rely on numerous third parties in the supply chain to
produce and deliver the products that we sell, and our business may be
negatively impacted by their failure to comply with applicable law.
As an importer and
retailer of goods, we rely on numerous third parties to supply the products
that we sell. Violations of law by our importers, buying agents, manufacturers
or distributors could result in delays in shipments and receipt of goods and
could subject us to fines or other penalties, any of which could restrict our
business activities, increase our operating expenses or cause our revenues to
decline. Further, we are susceptible to the receipt of counterfeit brands or
unlicensed goods. We could incur liability with manufacturers or other owners
of the brands or trademarked products if we inadvertently receive and sell
counterfeit brands or unlicensed goods and, therefore, it is important that we
establish relationships with reputable vendors to prevent the possibility that
we inadvertently receive counterfeit brands or unlicensed goods. Although we
have a quality assurance team to check merchandise in an effort to assure that
we purchase only authentic brands and licensed goods and are careful in
selecting our vendors, we may receive products that we are prohibited from
selling or incur liability for selling counterfeit brands or unlicensed goods,
which could increase our operating expenses and cause our net income to
decline.
If
our growth strategy is
unsuccessful
, our financial condition and results of
operations could suffer and the market price of our common stock could decline.
Our ability to continue
to increase our net sales and earnings depends, in large part, on opening new
stores and operating our new and existing stores profitably. We opened 40, 36
and 42 new stores in fiscal 2004, fiscal 2005, and fiscal 2006, respectively.
We opened 23 new stores in the first half of fiscal 2007 and we expect to open
an additional 20 to 22 new stores during the remainder of fiscal 2007. If we
are unable to open all of these stores or operate them profitably, we may not
achieve our forecasted sales and earnings growth targets. Additionally, growth
of our store base will place increased demands on our operating, managerial and
administrative resources and may lead to management and operating
inefficiencies, including merchandising, personnel, distribution and
integration problems. These demands and inefficiencies may cause deterioration
in the financial performance of our individual stores and, therefore, our
entire business.
We
would experience increased operating costs and limited amounts of growth if we
are unable to obtain reasonably priced financing.
Although
we believe we can meet our future cash requirements with cash flow from
operations and existing cash balances, we may need to raise additional debt or
equity capital in the future to open new stores, to respond to competitive
pressures or to respond to unforeseen financial requirements. We may not be able to obtain additional
capital on commercially reasonable terms or at all. Our inability to obtain reasonably priced
financing could create increased operating costs and diminished levels of
growth, as we could be
6
forced
to incur indebtedness with above market interest rates or with substantial
restrictive covenants, issue equity securities that dilute the ownership
interests of existing stockholders or scale back our operations and/or store
growth strategy.
A
significant disruption to our distribution process or southeastern retail
locations could have a material adverse effect on our business, financial
condition and results of operations.
Our ability to distribute
our merchandise to our store locations in a timely manner is essential to the
efficient and profitable operation of our business. We have two distribution
centers located in Savannah, Georgia, one of which also serves as our corporate
headquarters, and a distribution center in Darlington, South Carolina. We are
in the process of doubling the size of our Darlington, South Carolina
distribution center, which we expect will support our growth plans through
2010. Any natural disaster or other disruption to the operation of any of these
facilities due to fire, hurricane, other natural disaster or any other cause
could damage a significant portion of our inventory or impair our ability to
stock our stores and process product returns to suppliers adequately.
In addition, the
southeastern United States, where all three of our distribution centers are
located, is vulnerable to significant damage or destruction from hurricanes and
tropical storms. Although we maintain insurance on our stores and other
facilities, the economic effects of a natural disaster that affects our
distribution centers and/or a significant number of our stores could increase
our operating expenses, impair our cash flows and reduce our revenues, which
could negatively impact the market price of our common stock.
Our
net sales, inventory levels and earnings fluctuate on a seasonal basis, which makes
our business more susceptible to adverse events that occur during those
seasons.
Our net sales and
earnings are significantly higher during the first and fourth quarters each
year due to the importance of the Spring selling season, which includes Easter,
and the Fall selling season, which includes Christmas. Factors negatively
affecting us during the first and fourth quarters, including adverse weather
and unfavorable economic conditions, will have a greater adverse effect on our
financial condition than if our business were less seasonal. For example,
unseasonably cool weather in the weeks preceding Easter in 2007 negatively
impacted our net sales for the thirteen weeks ended May 5, 2007.
To prepare for the Spring
and Fall selling seasons, we must order and keep in stock significantly more
merchandise than during other parts of the year. This seasonality makes our
business more susceptible to the risk that our inventory will not satisfy
actual consumer demand. In addition, any unanticipated demand imbalances during
these peak shopping seasons could require us to sell excess inventory at a
substantial markdown or fail to satisfy our consumers. In either event, our net
sales and gross margins may be lower than historical levels, which could have a
material adverse effect on our business, financial condition and results of
operations.
7
We experience fluctuations and
variability in our comparable store sales and quarterly results of operations
and, as a result, the market price of our common stock may fluctuate or decline
substantially.
Our comparable store sales and quarterly results have
fluctuated significantly in the past based on a number of economic, seasonal
and competitive factors, and we expect them to continue to fluctuate in the
future. Since the beginning of fiscal 2003, our quarter-to-quarter comparable
store sales have ranged from a decrease of 3.3% to an increase of 25.0%. The
most significant fluctuations were due to the unusually high sales following
Hurricanes Katrina, Rita and Wilma with such positive post-hurricane impact on
sales lasting through the second quarter of fiscal 2006. In addition, some
fiscal years have 53 weeks versus the normal 52 weeks, and this timing shift
can have a significant impact on quarterly and fiscal year sales comparisons.
For example, we expect to see negatively impacted sales comparisons in the
fourth quarter of fiscal 2007, as this fiscal quarter will have 13 weeks, as
compared with 14 weeks in the fourth quarter of fiscal 2006. Similarly, we
expect to see negatively impacted sales comparisons in fiscal 2007, since this
fiscal year has 52 weeks, whereas fiscal 2006 had 53 weeks.
Also, we may be unable to maintain historical levels
of comparable store sales as we execute our growth strategy and expand our
business. This variability could cause our comparable store sales and quarterly
results to fall below the expectations of securities analysts or investors,
which could result in volatility of the market price of our common stock. If
our comparable store sales and quarterly results fail to meet the expectations
of the market generally, the market price of our common stock could decline
substantially.
Our
sales and revenues could decline as a result of general economic and other
factors outside of our control, such as changes in consumer spending patterns
and declines in employment levels.
Downturns, or the
expectation of a downturn, in general economic conditions could adversely
affect consumer spending patterns, our sales and our results of operations.
Because apparel generally is a discretionary purchase, declines in consumer
spending patterns may have a more negative effect on apparel retailers than
some other retailers. Therefore, we may not be able to maintain our historical
rate of growth in revenues and earnings, or remain as profitable, if there is a
decline in consumer spending patterns. In addition, since the majority of our
stores are located in the southeastern United States, our operations are more
susceptible to regional factors than the operations of our more geographically
diversified competitors. Therefore, any adverse economic conditions that have a
disproportionate effect on the southeastern United States could have a greater
negative effect on our sales, revenues and results of operations than on retailers
with a more geographically diversified store base.
If
we fail to protect our trademarks, there could be a negative effect on our
brand image and limitations on our ability to penetrate new markets.
We believe that our Citi
Trends trademark is integral to our store design and our success in building
consumer loyalty to our brand. We have registered this trademark with the U.S.
Patent and Trademark Office. We have also registered, or applied for
registration of, additional trademarks with the U.S. Patent and Trademark
Office that we believe are important to our business. We cannot assure you that
these registrations will prevent imitation of our name, merchandising concept,
store design or private label merchandise or the infringement of our other intellectual
property rights by others. Imitation of our name, concept, store design or
merchandise in a manner that projects lesser quality or carries a negative
connotation of our brand image could have a material adverse effect on our
business, financial condition and results of operations.
In addition, we cannot
assure you that others will not try to block the manufacture or sale of our
private label merchandise by claiming that our merchandise violates their
trademarks or other proprietary rights since other entities may have rights to
trademarks that contain the word Citi or may have rights in similar or
competing marks for apparel and/or accessories. Although we cannot currently
estimate the likelihood of success of any such lawsuit or ultimate resolution
of such a conflict, such a controversy could have a material adverse effect on
our business, financial condition and results of operations.
8
If we fail to implement and maintain
effective internal controls in our business, there could be a material adverse
effect on our business, financial condition, results of operations and stock
price.
Section 404 of the Sarbanes Oxley Act of 2002
requires an annual management assessment of the effectiveness of our internal
controls over financial reporting and a report by our independent registered
public accounting firm regarding the effectiveness of internal controls over
financial reporting. If we fail to maintain the adequacy of our internal
controls, we may be unable to conclude on an ongoing basis that we have effective
internal controls over financial reporting. Moreover, effective internal
controls, particularly those related to revenue recognition and accounting for
inventory/cost of sales, are necessary for us to produce reliable financial
reports and are important to our efforts to prevent financial fraud. If we
cannot produce reliable financial reports or prevent fraud, our business,
financial condition and results of operations could be harmed, investors could
lose confidence in our reported financial information, the market price of our
common stock could decline significantly and we may be unable to obtain
additional financing to operate and expand our business.
Adverse
trade restrictions may disrupt our supply of merchandise. We also face various
risks because much of our merchandise is imported from abroad.
We purchase the products
we sell directly from over 1,000 vendors, and a substantial portion of this
merchandise is manufactured outside of the United States and imported by our
vendors from countries such as China and other areas of the Far East, including
Taiwan and the Philippines. The countries in which our merchandise currently is
manufactured or may be manufactured in the future could become subject to new
trade restrictions imposed by the United States or other foreign governments.
Trade restrictions, including increased tariffs or quotas, embargoes, and
customs restrictions, against apparel items, as well as United States or
foreign labor strikes, work stoppages or boycotts, could increase the cost or
reduce the supply of apparel available to us and have a material adverse effect
on our business, financial condition and results of operations. In addition,
our merchandise supply could be impacted if our vendors imports become subject
to existing or future duties and quotas, or if our vendors face increased
competition from other companies for production facilities, import quota
capacity and shipping capacity.
We also face a variety of
other risks generally associated with relying on vendors that do business in
foreign markets and import merchandise from abroad, such as:
·
political
instability or the threat of terrorism, in particular in countries where our
vendors source merchandise such as Taiwan and the Philippines;
·
enhanced
security measures at United States and foreign ports, which could delay
delivery of imports;
·
imposition
of new or supplemental duties, taxes, and other charges on imports;
·
delayed
receipt or non-delivery of goods due to the failure of foreign-source suppliers
to comply with applicable import regulations;
·
delayed
receipt or non-delivery of goods due to organized labor strikes or unexpected
or significant port congestion at United States ports; and
·
local
business practice and political issues, including issues relating to compliance
with domestic or international labor standards, which may result in adverse
publicity.
The United States may
impose new initiatives that adversely affect the trading status of countries
where apparel is manufactured. These initiatives may include retaliatory duties
or other trade sanctions that, if enacted, would increase the cost of products
imported from countries where our vendors acquire merchandise. On March 30,
2007, the United States government announced that it would impose potentially
significant tariffs on Chinese manufactured products. We will continue to
monitor developments
9
in this regard and will
determine the impact of such action on our imports from China as developments
occur. Any of these factors could have a material adverse effect on our sales,
revenues and results of operations.
The
removal of import quotas on textiles and clothing in the future may adversely
affect our merchandise supply, impact our sales and reduce our cash flows.
On January 1, 2005,
in accordance with the World Trade Organization, or the WTO, Agreement on
Textiles and Clothing, the import quotas on textiles and clothing manufactured
by countries that are members of the WTO were eliminated. Subsequently, the
United States and Europe experienced a surge of imported goods from China, a
country that benefited from the removal of the quotas. In response, the United
States initially implemented new quotas against various textile and apparel
items from China and ultimately negotiated an agreement with the Chinese
government. The agreement between the United States and China went into effect
in November 2005 and will continue in effect through December 31, 2008.
During that time, China has agreed to specified quota limits on most textile
and apparel products, and the United States has agreed to use restraint in
exercising its right to impose additional safeguards. Beginning in January
2009, the U.S.-China agreement and the quotas against Chinese apparel will
expire. At that point, the United States would still have the ability to impose
safeguards under the WTO Agreement on Textiles and Clothing although the
requirements for doing so will be more stringent. The situation in 2009
potentially could be similar to the experience in 2005, with import surges and
a cycle of safeguards and negotiations. This could create logistical delays in
our ability to maintain required inventory levels and alter cost differentials
between vendors that source domestically and vendors that source more
extensively from overseas. We believe this could lower the cost of apparel
products and thereby reduce the average dollar amount of sales per customer in
our stores. Additionally, retaliatory trade actions could cause a disruption of
the supply chain of products from foreign markets, difficulty in predicting
accurately the prices of merchandise to be imported from a particular country
and adverse effects on our merchandise supply, sales and cash flows.
We
depend on the experience and expertise of our senior management team and key
employees, and accordingly, the loss of the services of R. Edward Anderson
or George A. Bellino could have a material adverse effect on our business
strategy, operating costs, financial condition and results of operations.
The success of our
business is dependent upon the close supervision of all aspects of our business
by our senior management, particularly the operation of our stores, the
selection of merchandise and the site selection for new stores. In addition, we
do not have non-competition agreements with R. Edward Anderson, our
Chairman and Chief Executive Officer, or George A. Bellino, our
President and Chief Merchandising Officer. Accordingly, Messrs. Anderson and/or
Bellino could leave us at any time to begin to work for our competitors or
otherwise, which loss of services could have a material adverse effect on our
business strategy, operating costs, financial condition and results of
operations.
Failure
to attract, train, assimilate and retain skilled personnel could have a
material adverse effect on our growth strategy and our financial condition.
Like most retailers, we
experience significant employee turnover rates, particularly among store sales
associates and managers, and our continued growth will require us to hire and
train even more new personnel. We therefore must continually attract, hire and
train new personnel to meet our staffing needs. We constantly compete for
qualified personnel with companies in our industry and in other industries. A
significant increase in the turnover rate among our store sales associates and
managers would increase our recruiting and training costs and could decrease
our operating efficiency and productivity. If we are unable to retain our
employees or attract, train, assimilate or retain other skilled personnel in
the future, we may not be able to service our customers as effectively, thus
reducing our ability to continue our growth and to operate our existing stores
as profitably as we have in the past.
10
Increases in the minimum wage could have a material adverse
effect on our business, financial condition and results of operations.
The Fair Minimum Wage Act
of 2007 became law on May 25, 2007. As a result, the federal minimum wage
increased to $5.85 per hour on or about July 24, 2007; and will increase to (i)
$6.55 per hour on or about July 24, 2008; and (ii) $7.25 per hour on or about
July 24, 2009. Additionally, from time
to time, legislative proposals are made to increase the minimum wage in certain
individual states. Wage rates for many of our employees are slightly above the
minimum wage. As minimum wage rates increase, we may need to increase not only
the wage rates of those employees whose wages are below the new minimums, but
the wages paid to our other hourly employees as well. Any increase in the cost
of our labor could have a material adverse effect on our operating costs,
financial condition and results of operations.
Any
failure of our management information systems or the inability of third parties
to continue to upgrade and maintain our systems could have a material adverse
effect on our business, financial condition and results
of operations.
We depend on the
accuracy, reliability and proper functioning of our management information
systems, including the systems used to track our sales and facilitate inventory
management. We also rely on our management information systems for merchandise
planning, replenishment and markdowns, as well as other key business functions.
These functions enhance our ability to optimize sales while limiting markdowns
and reducing inventory risk through properly marking down slow-selling styles,
reordering existing styles and effectively distributing new inventory to our
stores. We do not currently have redundant systems for all functions performed
by our management information systems. Any interruption in these systems could
impair our ability to manage our inventory effectively, which could have a
material adverse effect on our business, financial condition and results of
operations. To support our growth, we will need to expand our management
information systems, and our failure to link and maintain these systems
adequately could have a material adverse effect on our business, financial
condition and results of operations.
We depend on third-party
suppliers to maintain and periodically upgrade our management information
systems, including the software programs supporting our inventory management
functions. This software is licensed to us by third-party suppliers. If any of
these suppliers is unable to continue to maintain and upgrade these software
programs and/or if we are unable to convert to alternate systems in an
efficient and timely manner, it could result in a material adverse effect on
our business, financial condition and results of operations.
Our
ability to attract consumers to our stores depends on the success of the strip
shopping centers and downtown business districts where our stores are located.
We locate our stores in
strip shopping centers, street front locations and downtown business districts
where we believe our consumers and potential consumers shop. The success of an
individual store can depend on favorable placement within a given strip
shopping center or business district. We cannot control the development of
alternative shopping destinations near our existing stores or the availability
or cost of real estate within existing or new shopping destinations. If our
store locations fail to attract sufficient consumer traffic or we are unable to
locate replacement locations on terms acceptable to us, our business, financial
condition and results of operations could suffer. If one or more of the anchor
tenants located in the strip shopping centers or business districts where our
stores are located close or leave, or if there is significant deterioration of
the surrounding areas in which our stores are located, our business, financial
condition and results of operations may be adversely affected.
Risks relating to our common
stock
and offerings pursuant to
this prospectus
Our stock price is volatile, and you
may lose all or a part of your investment.
Our stock price is volatile. From our initial public offering in May
2005 through September 17, 2007, the trading price of our common stock has
ranged from $14.00 to $57.85 per share. As a result of this
11
volatility, investors may not be able to sell their common stock at or
above their respective purchase prices. The market price for our common stock
may be influenced by many factors, including:
·
actual
or anticipated fluctuations in our operating results;
·
changes
in securities analysts recommendations or estimates of our financial
performance;
·
publication
of research reports by analysts;
·
changes
in market valuations or operating performance of our competitors or companies
similar to ours;
·
announcements
by us, our competitors or other retailers;
·
additions
and departures of key personnel;
·
changes
in accounting principles;
·
the
passage of legislation or other developments affecting us or our industry;
·
the
trading volume of our common stock in the public market;
·
changes
in economic conditions;
·
financial
market conditions;
·
natural
disasters, terrorist acts, acts of war or periods of civil unrest; and
·
the
realization of some or all of the risks described in this section entitled Risk
Factors.
In addition, the stock
markets have experienced significant price and trading volume fluctuations from
time to time, and the market prices of the equity securities of retailers have
been extremely volatile and have recently experienced sharp price and trading
volume changes. These broad market fluctuations may adversely affect the market
price of our common stock. In the past, securities class action litigation has
often been instituted against companies following periods of volatility in
their stock price. This type of litigation, even if it does not result in
liability for us, could result in substantial costs to us and divert managements
attention and resources.
There
may be sales of substantial amounts of our common stock pursuant to this
prospectus, or otherwise, which could cause our stock price to fall.
The
selling stockholders hold 4,048,868 shares of our common stock. Upon the effectiveness of the registration
statement of which this prospectus is a part, the selling stockholders may
freely sell all of their shares in the public market and otherwise. As of September 12, 2007, 14,079,109 shares
of our common stock were outstanding. As of September 12, 2007,
581,691 additional shares of our common stock were subject to outstanding
stock options. All of the shares issued and sold in our initial public offering
consummated on May 18, 2005, our secondary offering consummated on
January 31, 2006 and our secondary offering consummated on June 18, 2007 are
freely tradable under the securities laws, except for any shares acquired by
our affiliates, as that term is defined in Rule 144 promulgated under
the Securities Act of 1933, as amended, or the Securities Act, which generally
includes officers, directors and holders of 10% or more of our common stock.
After the sale of all of the shares offered in this prospectus, less than 1% of
the shares of our common stock held by existing stockholders will be restricted
or control shares. Such shares may be
sold in the public market only if they are registered or if they qualify for an
exemption from registration under Rule 144 promulgated under the
Securities Act or otherwise. Future sales of a
12
substantial
number of shares of our common stock could cause our common stock price to
decline significantly and/or impair our ability to raise capital through the
sale of additional stock.
A significant amount of our common
stock is concentrated in the hands of one of our existing stockholders whose
interests may not coincide with yours.
As of September 12, 2007, Hampshire Equity Partners II, L.P. and
certain of its affiliates, which we refer to collectively as Hampshire Equity
Partners, owned approximately 28.8% of our common stock. Hampshire Equity
Partners are selling stockholders and may sell all of their holdings pursuant
to this prospectus, assuming that Hampshire Equity Partners sell all of their
shares covered by this prospectus and do not acquire additional shares of our
common stock. Until such time, Hampshire
Equity Partners have an ability to exercise significant influence over matters
requiring stockholder approval. These matters include the election of directors
and the approval of significant corporate transactions, including potential
mergers, consolidations or sales of all or substantially all of our assets.
Your interests as a holder of our common stock may differ from the interests of
Hampshire Equity Partners. In connection with our initial public offering
consummated on May 18, 2005, we entered into a nominating agreement with
Hampshire Equity Partners II, L.P. pursuant to which we, acting through
our nominating and corporate governance committee, agreed, subject to the
requirements of our directors fiduciary duties, that Hampshire Equity Partners
II, L.P. would be entitled to designate up to two directors to be nominated for
election to our board of directors as long as Hampshire Equity Partners II,
L.P. (together with any of its respective successors and permitted assigns)
maintains a certain percentage of our common stock. Assuming Hampshire Equity Partners sell all
of their shares of our common stock covered by this prospectus and do not
acquire additional shares of our common stock, Hampshire Equity Partners II,
L.P will not have the right to nominate any directors for election to our board
of directors. Notwithstanding the
foregoing, as of the date of this prospectus, Hampshire Equity Partners II,
L.P. does not have a designee on our board of directors.
Securities
analysts may not continue to cover our common stock or they may issue negative
reports, which may have a negative impact on the price of our common stock.
The
trading market for our common stock relies, in part, on the research and
reports that industry or financial analysts publish about our company or our
industry. Public statements by these
securities analysts may affect our stock price.
If any of the analysts who cover us downgrades the rating of our common stock,
our common stock price would likely decline.
If any of these analysts ceases coverage of our common stock, we could
lose visibility in the market, which in turn could cause our common stock price
to decline. Further, if no analysts
continue to cover our common stock, the lack of research coverage may depress
the market price of our common stock.
In
addition, rules mandated by the Sarbanes-Oxley Act of 2002 and a global
settlement between the Commission and securities analysts have caused a number
of fundamental changes in how securities analysts are reviewed and compensated.
In particular, many investment banking firms are now required to contract with
independent financial analysts for their stock research. In this environment, it may be difficult for
companies with smaller market capitalizations, such as our company, to attract
independent financial analysts to cover them, which could have a negative
effect on the market price of our common stock.
We
do not currently intend to pay dividends on our common stock.
We
have never declared or paid any cash dividends on our common stock and do not
currently intend to do so for the foreseeable future. We currently intend to
invest our future earnings, if any, to fund our growth. Therefore, you are not
likely to receive any dividends on your common stock for the foreseeable
future.
13
Provisions in our certificate of
incorporation and by-laws and Delaware law may delay, prevent or deter our
acquisition by a third party.
Our second amended and restated certificate of
incorporation, as amended, and our amended and restated by-laws, contain
several provisions that may make it more difficult for a third party to acquire
control of us without the approval of our board of directors. These provisions
include, among other things, a classified board of directors, advance notice
for raising business or making nominations at stockholder meetings and blank
check preferred stock. Blank check preferred stock enables our board of
directors, without stockholder approval, to designate and issue series of
preferred stock with such dividend, liquidation, conversion, voting or other
rights, including convertible securities with no limitations on conversion, as
our board of directors may determine, including rights to dividends and
proceeds in a liquidation that are senior to the common stock.
We are also subject to
several provisions of the Delaware General Corporation Law that could delay,
prevent or deter a merger, acquisition, tender offer, proxy contest or other
transaction that might otherwise result in our stockholders receiving a premium
over the market price for their common stock or may otherwise be in the best
interests of our stockholders.
Our
costs have increased and may continue to increase as a result of being a public
company, and complying with regulations applicable to public companies may adversely
affect our business.
As a public company, we
have incurred and will continue to incur significant legal, accounting and
other expenses that we did not incur as a private company. In addition, the
Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the
Commission and the Nasdaq Stock Market, have required changes in recent years
in the corporate governance practices of public companies. These rules and
regulations have significantly increased our legal and financial compliance costs
and made certain compliance activities more time-consuming and costly. We have
incurred and will continue to incur additional costs in, and dedicate
significant resources toward, complying with these requirements, which may
divert managements attention from, and which may in turn adversely affect, our
business. We also expect these laws, rules and regulations to make it more
difficult and more expensive for us to obtain director and officer liability
insurance and we may be required to accept reduced policy limits and coverage
or incur substantially higher costs to obtain the same or similar coverage. As
a result, it may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive officers. We continue
to evaluate and monitor developments with respect to these laws, rules and
regulations, and we cannot predict or estimate the amount of additional costs
we may incur or the timing of such costs. The costs of compliance or our
failure to comply with these laws, rules and regulations could adversely affect
our financial condition, results of operation and the price of our common
stock.
14
Special Note Regarding
Forward-Looking Statements
Some statements in, or
incorporated by reference into, this prospectus may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended, the Exchange Act. All
statements other than historical facts contained in this prospectus, including
statements regarding our future financial position, business policy and plans
and objectives and expectations of management for future operations, are
forward-looking statements. The words believe, may, could, estimate, continue,
anticipate, intend, expect, plan, project and similar expressions, as
they relate to us, are intended to identify forward-looking statements. For
example, our statements to the effect that we intend to open a specified number
of new stores in fiscal 2007 constitute forward-looking statements. We have
based these forward-looking statements largely on our current expectations and
projections about future events, including, among other things:
·
implementation
of our growth strategy;
·
our
ability to anticipate and respond to fashion trends;
·
competition
in our markets;
·
consumer
spending patterns;
·
actions
of our competitors or anchor tenants in the strip shopping centers where our
stores are located; and
·
anticipated
fluctuations in our operating results.
These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including those described in the section entitled Risk Factors and elsewhere
in this prospectus.
Because forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified, you should not rely upon forward-looking
statements as predictions of future events. The events and circumstances
reflected in the forward-looking statements may not be achieved or occur and
actual results could differ materially from those projected in the
forward-looking statements. These forward-looking statements speak only as of
the date of such statements. Except as required by applicable law, including
the securities laws of the United States and the rules and regulations of the
Commission, we do not plan to publicly update or revise any forward-looking
statements contained herein after we distribute this prospectus, whether as a
result of any new information, future events or otherwise.
Use of Proceeds
We will not receive
proceeds from any sale by any selling stockholder of shares of our common stock
offered under this prospectus.
15
Selling Stockholders
We are registering
4,048,868 shares of our common stock for resale by the selling
stockholders. The common stock offered
pursuant to this prospectus was issued to Hampshire Equity Partners II, L.P.
and its affiliates by us and each of the selling stockholders may resell all,
some or none of the shares of our common stock covered by this prospectus as
provided under the section of this prospectus entitled Plan of Distribution
and in any applicable prospectus supplement.
As discussed under the section entitled Plan of Distribution, the
selling stockholders may include certain of Hampshire Equity Partners II, L.P.
and its affiliates, pledgees, donees, transferees or other
successors-in-interest. The shares of
our common stock covered by this prospectus are being registered to permit
public secondary trading of such shares, and the selling stockholders may offer
such shares for resale from time to time or not at all.
The table below, which
was prepared based on information supplied to us by Hampshire Equity Partners,
sets forth information regarding beneficial ownership of our common stock by
Hampshire Equity Partners as of September 12, 2007. Please carefully read the
footnotes located below the table in conjunction with the information presented
in the table.
The number of shares
disclosed in the table below as beneficially owned are those beneficially
owned as determined under the rules of the Commission. Such information is not necessarily
indicative of ownership for any other purpose.
Under the rules of the Commission, a person is deemed to be a beneficial
owner of a security if that person has or shares voting power, which
includes the power to vote or to direct the voting of such security, or investment
power, which includes the power to dispose of or to direct the disposition of
such security. A person is also deemed
to be a beneficial owner of any securities of which that person has a right to
acquire beneficial ownership within 60 days.
Selling Stockholder
|
|
Number of
Shares
Beneficially
Owned
Prior to
Offering
|
|
Number of
Shares
Offered for
Sale under
this
Prospectus
(1)
|
|
Number of
Shares
Beneficially
Owned After
Offering
(2)
|
|
Percentage
of Shares
Beneficially
Owned
After
Offering
(2)
|
|
Hampshire Equity Partners (as defined)
(3)
520 Madison Avenue
New York, NY 10022
|
|
4,048,868
|
|
4,048,868
|
|
|
|
|
|
(1)
|
|
Represents the total number of the shares of our
common stock that the respective selling stockholders may offer under this
prospectus.
|
(2)
|
|
We do not know when or in what amounts the selling
stockholders may offer for sale the shares covered by this prospectus. The
selling stockholders may sell the shares covered by this prospectus from time
to time, and may also decide not to sell all, or any, of the shares covered
by this prospectus. Because the selling stockholders may offer all, some or
none of the shares covered by this prospectus, we cannot estimate the number
of shares of our common stock that the selling stockholders will actually own
after any sale of shares pursuant to this prospectus. For purposes of this
table, however, we have assumed that the selling stockholders will have sold
all of their respective shares covered by this prospectus and that no
additional shares of our common stock are acquired by the selling
stockholders. The percentage of shares beneficially owned after this offering
is based on 14,079,109 shares of our common stock outstanding as of September
12, 2007.
|
(3)
|
|
Hampshire Equity Partners refers to Hampshire Equity
Partners II, L.P., Hampshire Equity Partners Cayman D.B. II, L.P. and Hampshire
Equity Partners Cayman II, L.P. Hampshire Equity Partners II, L.P. currently
owns 3,465,869 shares of our common stock, and is offering to sell all
of its shares of our common stock pursuant to this prospectus. Hampshire
Equity Partners Cayman D.B. II, L.P. currently owns 571,568 shares of
our common stock and is offering to sell all of its shares of our common
stock pursuant to this prospectus. Hampshire Equity Partners Cayman II, L.P.
currently owns 11,431 shares of our common stock and is offering to sell
all of its shares of our common stock pursuant to this prospectus.
Lexington Equity Partners II, L.P. is the general partner of Hampshire Equity
Partners II, L.P. Lexington Equity Partners Cayman II, L.P. is the general
partner of each of Hampshire Equity Partners Cayman D.B. II, L.P. and
Hampshire Equity Partners Cayman II, L.P. The general partner of each of
Lexington Equity Partners II, L.P. and Lexington Equity Partners Cayman II,
L.P. is Lexington Equity Partners II, Inc., which has ultimate voting and
investment control over the shares of our common stock held by Hampshire
Equity Partners. Ms. Tracey Rudd, an employee of an affiliate of Hampshire
Equity Partners, is the President of Lexington Equity Partners II, Inc. and
Mr. Gregory P. Flynn, formerly one of our directors, is the Vice
President of Lexington Equity Partners II, Inc.
|
16
Certain
Relationships with Hampshire Equity Partners
Management Consulting Agreement
We were party to
an Amended and Restated Management Consulting Agreement effective as of
February 1, 2004, with Hampshire Management Company LLC, an affiliate of
Hampshire Equity Partners II, L.P., pursuant to which it provided us with
certain consulting services related to, but not limited to, our financial
affairs, relationships with our lenders, stockholders and other third-party
associates or affiliates, and the expansion of our business. In connection with
our initial public offering in May 2005, the parties terminated the consulting
agreement and we paid Hampshire Management Company LLC a one time termination
fee of $1.2 million in the second quarter of fiscal 2005.
Stockholders Agreement
Prior to our initial public offering, Hampshire Equity
Partners II, L.P., George Bellino and certain other management stockholders
were party to a Stockholders Agreement dated as of April 13, 1999. The
stockholders agreement provided, among other things, that four members of our
Board of Directors were to be designated by Hampshire Equity Partners
and its affiliates, the stockholders
agreed generally not to transfer their shares and the management stockholders
were granted tag-along rights in the event of a sale of 51% or more of our
stock. We agreed to register shares of our common stock held by the
stockholders under certain circumstances. In connection with our initial public
offering in May 2005, we terminated the stockholders agreement in its entirety.
Registration Rights Agreement
In
connection with our initial public offering, we entered into a Registration
Rights Agreement dated as of May 23, 2005, with Hampshire Equity
Partners II, L.P. Pursuant to the terms and provisions of the registration
rights agreement, Hampshire Equity Partners II, L.P. has the right, from
time to time, subject to certain restrictions, to cause us to register shares
of our common stock held by Hampshire Equity Partners II, L.P. for sale under
the Securities Act on Form S-1 or, if available, on Form S-3 or any
similar short-form registration statement. In addition, if at any time we
register additional shares of common stock, Hampshire Equity Partners II,
L.P. will be entitled to include its shares of our common stock in the
registration statement relating to that offering. The registration rights
agreement includes provisions for, among other things, underwritten offerings
of shares of our common stock held by Hampshire Equity Partners pursuant to an
underwriting agreement. We have filed
the shelf registration statement of which this prospectus is a part pursuant to
the registration rights agreement.
Nominating Agreement
In connection with our
initial public offering, we entered into a Nominating Agreement dated as of
May 23, 2005, with Hampshire Equity Partners II, L.P. pursuant to
which we, acting through our Nominating and Corporate Governance Committee, agreed,
subject to the requirements of our directors fiduciary duties, that
(i) Hampshire Equity Partners II, L.P. is entitled to designate up to
two directors to be nominated for election to our board of directors as long as
Hampshire Equity Partners II, L.P. (together with any of its respective
successors and permitted assigns) owns in the aggregate at least 40% of the
shares of the common stock which it owned immediately prior to the consummation
of our initial public offering or (ii) Hampshire Equity Partners II,
L.P. is entitled to designate one director to be nominated for election to the
board of directors as long as Hampshire Equity Partners II, L.P. (together
with any of its respective successors and permitted assigns) owns in the
aggregate less than 40% and at least 15% of the shares of our common stock
which it owned immediately prior to the consummation of the initial public
offering. If at any time Hampshire Equity Partners II, L.P. (together with
any of its respective successors and permitted assigns) owns less than 15%, it
will not have the right to nominate any directors for election to our board of
directors. Notwithstanding the
foregoing, as of the date of this prospectus, Hampshire Equity Partners II,
L.P. does not have a designee on our board of directors.
17
Plan of Distribution
We are registering the
shares of our common stock covered by this prospectus on behalf of the selling
stockholders. As used in this section of
the prospectus, the term selling stockholders includes Hampshire Equity Partners
and other potential selling stockholders as described in the section of this
prospectus entitled Selling Stockholders and any other transferees (including
pledgees and donees) of the shares, but only where the transfer is not made
pursuant to an effective registration statement or Rule 144 under the
Securities Act or pursuant to another exemption from registration under the
Securities Act pursuant to which the shares sold are thereafter freely
transferable without registration and without restriction under the Securities
Act, and only to such a transferee, and provided that the selling stockholder
complies with all applicable law with respect to the transfer of shares to such
transferee and gives us prompt notice of the transfer.
All costs, expenses and
fees in connection with the registration of the shares of our common stock
covered by this prospectus will be borne by us.
Underwriting discounts, brokerage commissions and similar selling
expenses, if any, attributable to the sale of such shares will be borne by the
selling stockholders.
Each of the
selling stockholders may sell their shares of our common stock covered by this
prospectus from time to time and may also decide not to sell all or any of such
shares. The selling stockholders will
act independently of us in making decisions as to the timing, manner and size
of each sale. The sales may be made on
the Nasdaq Global Select Market or any other national securities exchange or
any quotation system on which our common stock may be listed or quoted at the
time of sale, in the over-the-counter market or other than in such organized
and unorganized trading markets, in one or more transactions, at:
·
fixed prices,
which may be changed;
·
prevailing
market prices at the time of sale;
·
varying prices
determined at the time of sale; or
·
negotiated
prices.
The shares of our
common stock covered by this prospectus may be sold by one or more of the
following methods in addition to any other method permitted under this
prospectus:
·
a block trade in
which the broker-dealer so engaged may attempt to sell the shares as agent, but
may position and resell a portion of the block as principal to facilitate the
transaction;
·
a purchase by a
broker-dealer as principal and resale by such broker-dealer for its own account;
·
an ordinary
brokerage transaction or a transaction in which the broker solicits purchasers;
·
a privately
negotiated transaction;
·
an underwritten
offering;
·
securities
exchange or quotation system sale that complies with the rules of the exchange
or quotation system;
·
through short
sale transactions following which the shares are delivered to close out the
short position;
·
through the
writing of options relating to the shares;
18
·
any other method
pursuant to applicable law; or
·
through a combination
of the above methods of sale.
The selling stockholders
may effect such transactions by selling the shares covered by this prospectus
directly to purchasers, to or through broker-dealers, which may act as agents
for the seller and buyer or principals, or to underwriters who acquire such
shares for their own account and resell them in one or more transactions. Such broker-dealers or underwriters may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders and/or the purchasers of the shares for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions) and such discounts, concessions, or commissions may be
allowed or re-allowed or paid to dealers.
We have been advised by
Hampshire Equity Partners that they have not, as of the date of this
prospectus, entered into any agreements, understandings or arrangements with
underwriters or broker-dealers regarding the sale of their shares covered by
this prospectus and we have been advised that there is not an underwriter or
broker-dealer acting as of the date of this prospectus in connection with the
proposed sale of such shares by the selling stockholders.
The selling stockholders
and any broker-dealers that participate with the selling stockholders in the
sale of the shares covered by this prospectus may be deemed to be underwriters
within the meaning of Section 2(a)(11) of the Securities Act and any
commissions received by such broker-dealers and any profit on the resale of
such shares sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act.
The selling stockholders
and any broker-dealer that may be deemed to be underwriters within the
meaning of Section 2(a)(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act. We will make copies of this prospectus
available to the selling stockholders and have informed them of their
obligation to deliver copies of this prospectus to purchasers at or before the
time of any sale of shares covered by this prospectus. Such requirement may be satisfied by delivery
through the facilities of the Nasdaq Stock Market pursuant to Rule 153 under
the Securities Act.
The selling stockholders
may enter into derivative transactions with third parties, or sell securities
not covered by this prospectus to third parties in privately negotiated
transactions. In connection with those
derivatives, the third parties may sell the shares covered by this prospectus,
including in short sale transactions. If
so, the third party may use the shares pledged by the selling stockholders or
borrowed from the selling stockholders or others to settle those sales or to
close out any related open borrowings of our common stock, and may use the
shares received from the selling stockholders in settlement of those
derivatives to close out any related open borrowings of our common stock. We will file a supplement to this prospectus
to describe any derivative transaction effected by the selling stockholders and
to identify the third party in such transactions as an underwriter within the
meaning of Section 2(a)(11) of the Securities Act.
The selling stockholders
will be subject to applicable provisions of Regulation M of the Exchange Act,
which provisions may limit the timing of purchases and sales of any of the
shares by the selling stockholders. These
restrictions may affect the marketability of such shares.
In order to comply with
applicable securities laws of some states, the shares covered by this
prospectus may be sold in those jurisdictions only through registered or
licensed brokers or dealers. In
addition, in certain states the shares covered by this prospectus 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 requirements is
available.
The selling stockholders
also may resell all or a portion of the shares covered by this prospectus in
open market transactions in reliance upon Rule 144 under the Securities
Act or any other available exemption
19
from required
registration under the Securities Act, provided they meet the criteria and
conform to the requirements of such exemption.
We will file a
supplement to this prospectus, if required, pursuant to Rule 424(b) under
the Securities Act upon being notified by a selling stockholder that any
material arrangements have been entered into with a broker-dealer for the sale
of the shares covered by this prospectus through a block trade, special
offering, exchange or secondary distribution or a purchase by a
broker-dealer. Such supplement will
disclose:
·
the name of each
such selling stockholder and of the participating broker-dealer(s);
·
the number of
shares of our common stock involved;
·
the price at
which such shares were sold;
·
the commissions
paid or discounts or concessions allowed to such broker-dealer(s), where
applicable;
·
that such
broker-dealer(s) did not conduct any investigation to verify the information
set out or incorporated by reference in this prospectus; and
·
other facts
material to the transaction.
In addition, upon
receiving notice from a selling stockholder that a donee, pledgee or transferee
or other successor-in-interest intends to sell more than 500 of the shares
covered by this prospectus, we will file a supplement to this prospectus
pursuant to Rule 424(b) under the Securities Act to identify the non-sale
transferee.
Pursuant to our
registration rights agreement with Hampshire Equity Partners II, L.P., we have
agreed to use our reasonable best efforts to cause the registration statement
of which this prospectus is a part to become effective and to keep such
registration statement effective until all the shares covered by this
prospectus are sold by Hampshire Equity Partners or may be sold by Hampshire
Equity Partners without any restriction under Rule 144(k) of the Securities
Act.
The selling stockholders
are not restricted as to the price or prices at which they may sell their
shares covered by this prospectus. Sales
of such shares may have an adverse effect on the market price of our common
stock. Moreover, the selling
stockholders are not restricted as to the number of shares that may be sold at
any time, and it is possible that a significant number of the shares could be
sold at the same time, which may have an adverse effect on the market price of
our common stock.
Pursuant to our
registration rights agreement with Hampshire Equity Partners II, L.P., we have
agreed to indemnify and hold Hampshire Equity Partners harmless against certain
liabilities under the Securities Act that could arise in connection with the
sale by Hampshire Equity Partners of their shares covered by this
prospectus. The selling stockholders may
agree to indemnify any broker-dealer or agent that participates in transactions
involving sales of the shares against certain liabilities, including
liabilities arising under the Securities Act.
20
Legal Matters
The validity of the common stock offered hereby will
be passed upon for us by Alston & Bird LLP.
Experts
The financial statements
of Citi Trends, Inc. as of February 3, 2007 and January 28, 2006
and for the years ended February 3, 2007, January 28, 2006 and
January 29, 2005 and Citi Trends, Inc.s managements assessment of
the effectiveness of internal control over financial reporting as of
February 3, 2007 have been incorporated by reference herein in reliance
upon the reports of KPMG LLP, independent registered public accounting firm,
also incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing. The audit report covering the financial
statements as of February 3, 2007 and January 28, 2006 and for the
years ended February 3, 2007, January 28, 2006 and January 29,
2005 refers to the adoption of Statement of Financial Accounting Standards
No. 123R, Share-Based Payment as of January 29, 2006, Statement of
Financial Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity as of
July 6, 2003 and Financial Accounting Standards Board Interpretation
No. 47, Accounting for Conditional Asset Retirement Obligations as of
January 28, 2006.
Where You
Can Find More Information and
Incorporation of Certain I
nformation
by Reference
We file annual, quarterly and current reports, proxy
statements and other information with the Commission. The Commission allows us
to incorporate by reference the information we file with them, which means that
we can disclose important business and financial information to you that is not
included in or delivered with this prospectus by referring you to publicly
filed documents that contain the omitted information.
You may read and copy the information that we
incorporate by reference in this prospectus as well as other reports, proxy
statements and other information that we file with the Commission at the Public
Reference Room maintained by the Commission at 100 F Street, N.E., Washington,
D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. In addition, we are
required to file electronic versions of those materials with the Commission
through the Commissions EDGAR system. The Commission maintains a web site at
http://www.sec.gov
that contains reports,
proxy statements and other information that registrants, such as us, file
electronically with the Commission.
The information incorporated by reference is an
important part of this prospectus, and information we later file with the
Commission will automatically update and supersede earlier information. We
incorporate by reference the following documents filed with the Commission by
us and any future filings we make with the Commission under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of the offering of our common stock covered by this
prospectus (except for information furnished to the Commission that is not
deemed to be filed for purposes of the Exchange Act):
·
Our
Annual Report on Form 10-K for the fiscal year ended February 3, 2007;
·
Our
Quarterly Reports on Form 10-Q, for the fiscal quarter ended May 5, 2007
and the fiscal quarter ended August 4, 2007;
·
Our
Current Reports on Form 8-K filed March 30, 2007, April 2, 2007 and June 18,
2007; and
·
The
description of our common stock set forth in our Registration Statement on Form
8-A filed with the Commission on May 17, 2005, including any amendment or
report filed for the purpose of updating such description.
21
You may also request a copy of the information we
incorporate by reference in this prospectus at no cost by writing or
telephoning us at Citi Trends, 102 Fahm Street, Savannah, Georgia 31401, (912)
236-1561, Attention: Secretary.
Information about us is
also available on our web site at
www.cititrends.com
. Information contained in, or accessible
through, our website does not constitute part of this prospectus.
22