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
www.cititrends.com
. Information
contained in, or accessible through, our website does not constitute part of
this prospectus.
3
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
4
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
5
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.
6
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.
7
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
8
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.
9
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 October 8, 2007,
the trading price of our common stock has ranged from $14.00 to $57.85 per
share. As a result of this volatility,
10
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
this 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 October 8, 2007, 14,091,059 shares of our common stock were outstanding.
As of October 8, 2007, 569,141 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
substantial number of
11
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 October 8, 2007,
Hampshire Equity Partners II, L.P. and certain of its affiliates, which we
refer to collectively as Hampshire Equity Partners, owned approximately 28.7%
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.
12
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.
13
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.
14
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, pledges, 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 October 8, 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 14,091,059 shares of our
common stock outstanding as of October 8, 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.
15
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.
16
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;
17
·
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
18
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.
19