| As of December 31, 2005, we had an accumulated deficit of dlra99cmam947cmam000 |
| We incurred net losses of dlra3cmam820cmam000, dlra3cmam791cmam000 and dlra6cmam369cmam000 for the years ended December 31, 2005, 2004 and 2003, respectively |
| We have incurred substantial costs to develop our Web site and infrastructure |
| In order to expand our business, we intend to invest in sales, marketing, merchandising, operations, information systems, site development and additional personnel to support these activities |
| Our ability to become profitable depends on our ability to generate and sustain substantially higher net sales while maintaining reasonable expense levels, both of which are uncertain |
| If we do achieve profitability, we cannot be certain that we would be able to sustain or increase profitability on a quarterly or annual basis in the future |
| Stockholders could be subject to significant dilution to the extent that we raise additional equity financing, as a result of both the issuance of additional equity securities, the potential conversion of the Notes, as described below, and the anti-dilution provisions of our Series B, C, D, E and F Preferred Stock described below, which provide for the issuance of additional securities to the holders thereof, under certain circumstances, to the extent that the Preferred Stock is converted at any time after a sale of Common Stock at less than dlra2dtta32 (in the case of the Series F preferred stock) or dlra0dtta76 per share (in the case of the Series B, C, D and E preferred stock) |
| Moreover, as of February 17, 2006, there were outstanding options to purchase 8cmam118cmam684 shares of our Common Stock issued under our Stock Option Plans, warrants to purchase 606cmam644 shares of our Common Stock issued to the Soros Funds, and additional warrants and options to purchase 1cmam376cmam749 shares of our Common Stock |
| In addition, as of such date, our outstanding Preferred Stock was convertible into an aggregate of 43cmam367cmam707 shares of our Common Stock (plus any shares of our Common Stock issued upon conversion in payment of any accrued and unpaid dividends) |
| The exercise of our outstanding options and warrants and/or the conversion of our outstanding Preferred Stock would dilute the then existing stockholders &apos percentage ownership of our Common Stock, and any sales in the public market of our Common Stock underlying such securities, could adversely affect prevailing market price of our Common Stock |
| In the event that all of the securities described above were converted to Common Stock, the holders of the Common Stock immediately prior to such conversion would own approximately 28prca of the outstanding Common Stock immediately after such conversion, excluding the effect of accrued dividends on Preferred Stock |
| Accrued dividends aggregated dlra18dtta6 million at December 31, 2005 |
| The Soros Funds also own the Notes, which bear interest at the rate of 12prca per annum and are convertible, at Soros Funds &apos option, into our equity securities sold in any subsequent round of financing at a price that is equal to the lowest price per share accepted by any investor (including the Soros Funds or any of their affiliates) in such subsequent round of financing |
| We have 92cmam000cmam000 shares of Common Stock authorized |
| As of December 31, 2005, we have 18cmam502cmam794 shares available for future issuance, after giving effect to the shares reserved for shares issuable upon exercise of convertible securities, but without giving effect to shares issuable in satisfaction of outstanding dividends on the Preferred Stock, which the company has the right to pay in cash or in shares of Common Stock |
| We intend to submit for approval by the holders of the Common Stock an increase in the number of authorized shares of Common Stock at our next annual meeting, which is scheduled for May 2006 |
| The inability to obtain such approval could constrain our future growth |
| As described above, our Series B, C, D and E Preferred Stock contain anti-dilution provisions pursuant to which, subject to certain exceptions, in the event that we issue or sell our Common Stock or new securities convertible into our Common Stock in the future for less than dlra0dtta76 per share, the conversion price of that preferred stock would be decreased to the price at which such Common Stock or other new securities are sold |
| In addition, our Series F Preferred Stock contains anti-dilution provisions pursuant to which, subject to certain exceptions, in the event that we issue or sell our Common Stock or new securities convertible into our Common Stock in the future for less than dlra2dtta32 per share, but for dlra1dtta50 or more per share, the conversion price of the Series F Preferred Stock would be decreased on a weighted average basis, taking into account the number of new shares issued and the price at which such shares are issued |
| In the event that we issue or sell our Common Stock or new securities convertible into our Common Stock in the future for less than dlra1dtta50 per share, the conversion price of the Series F Preferred Stock would be decreased to the price at which such Common Stock or other new securities are sold |
| The anti-dilution provisions of the Series F Preferred Stock are subject to the approval of our stockholders |
| We expect that approval to be obtained at our next shareholder meeting, as the Soros Funds have agreed to vote all of their shares of our stock (which represent a majority of the votes) in favor of such approval |
| As of February 17, 2006, through their holdings of our common stock, as well as our preferred stock, and warrants convertible into our common stock, the Soros Funds beneficially owned, in the aggregate, approximately 76prca of our common stock |
| The holders of our preferred stock vote on an "e as converted "e basis with the holders of our common stock |
| By virtue of their ownership of our Series A and B Preferred Stock, the Soros Funds have the right to appoint two designees to our Board of Directors, each of whom has seven votes on any matter voted upon by our Board of Directors |
| Collectively, these two designees have 14 out of 19 possible votes on each matter voted upon by our Board of Directors |
| In addition, we are required to obtain the approval of holders of our Series A, B, C, D and E preferred stock prior to taking certain actions, and the Soros Funds own a majority of the outstanding shares of each of these classes of stock |
| The holders of our Series A, B, C, D and E Preferred 6 Stock have certain pre-emptive rights to participate in future equity financings and, along with the holders of the Series F Preferred Stock, have certain anti-dilution rights described above that could result in the issuance of additional securities to such holders |
| In view of their large percentage of ownership and rights as the holders of our Preferred Stock, the Soros Funds effectively control our management and policies, such as the election of our directors, the appointment of new management and the approval of any other action requiring the approval of our stockholders, including any amendments to our certificate of incorporation, a sale of all or substantially all of our assets or a merger |
| In addition, the Soros Funds have demand registration rights with respect to the shares of our common stock that they beneficially own |
| Any decision by the Soros Funds to exercise such registration rights and to sell a significant amount of our shares in the public market could have an adverse effect on the price of our common stock |
| Under the terms of our loan facility, our lender has a first priority lien on substantially all of our assets, including our cash balances |
| In connection with the loan facility, we entered into a reimbursement agreement with one of the Soros Funds, pursuant to which it posted a dlra2dtta0 million letter of credit as additional collateral under the loan facility, and we agreed to reimburse it for any amounts it paid to our lender pursuant to such guarantee |
| We granted the Soros Fund a subordinated lien on substantially all of our assets, including our cash balances, in order to secure our reimbursement obligations |
| If we default under the loan facility, our lender and/or the Soros Fund would be entitled, among other things, to foreclose on our assets in order to satisfy our obligations under the loan facility |
| We are required to pay interest under our loan facility on a monthly basis and maintain minimum availability of dlra850cmam000 |
| Assuming we meet our business plan, we will be able to pay our interest and meet our minimum availability requirement |
| To a certain extent, however, our ability to meet our business plan, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, and therefore we cannot assure you that based on our business plan we will generate sufficient cash flow from operations to enable us to pay our indebtedness under the loan facility and maintain our minimum availability requirement throughout the term of the agreement |
| If we fall short of our business plan and are unable to raise additional capital, we could default under our loan facility |
| In the event of a default under the loan facility, our lender would be entitled, among other things, to foreclose on our assets (whether inside or outside a bankruptcy proceeding) in order to satisfy our obligations under the loan facility |
| We may seek to raise additional capital in order to further expand our customer acquisition efforts |
| Moreover, in the event that the marketing effort is not successful it may be necessary for us to raise additional capital in order to fund planned expenditures |
| The environment for raising investment capital has been difficult and there can be no assurance that additional financing or other capital will be available upon terms acceptable to us, or at all |
| In the event that we are unable to obtain additional financing, if needed, we could be forced to decrease expenses that we believe are necessary for us to realize on our long-term prospects for growth and profitability and/or liquidate inventory in order to generate cash |
| Moreover, any additional equity financing that we may raise could result in significant dilution to the existing holders of common stock |
| Because our business has not yet reached a mature stage, it is difficult for us to forecast our revenues accurately |
| We base our current and future expense levels and operating plans on expected revenues, but in the short-term a significant portion of our expenses are fixed |
| Accordingly, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall |
| This inability could cause our operating results in some future quarter to fall below the expectations of securities analysts and investors |
| In that event, the trading price of our common stock could decline significantly |
| In addition any such unexpected revenue shortfall could significantly affect our short-term cash flow and our net worth, which could require us to seek additional financing and/or cause a default under our loan facility |
| Our success depends on our ability to attract customers on cost-effective terms |
| We have relationships with online services, search engines, and other Web sites and e-commerce businesses to provide other links that direct customers to our Web site |
| In addition, during 2005 we launched our first national television and advertising campaign |
| Such campaigns are expensive and may not result in the cost effective acquisition of customers |
| We are relying on the campaign as a significant source of traffic to our Web site and new customers |
| If these campaigns and initiatives are not successful, our results of operations will be adversely affected |
| Unexpected Changes In Fashion Trends Could Cause Us To Have Either Excess or Insufficient Inventory |
| There can be no assurance that we will accurately anticipate shifts in fashion trends and adjust our merchandise mix to appeal to changing consumer tastes in a timely manner |
| If we misjudge the market for our products or are unsuccessful in responding to changes in fashion trends or in market demand, we could experience insufficient or excess inventory levels or higher markdowns, either of which would have a material adverse effect on our business, financial condition and results of operations |
| The apparel industry historically has been subject to substantial cyclical variations |
| Furthermore, Internet usage slows down in the summer months |
| We and other apparel vendors rely on the expenditure of discretionary income for most, if not all, sales |
| Economic downturns, whether real or perceived, in economic conditions or prospects could adversely affect consumer spending habits and, therefore, have a material adverse effect on our revenue, cash flow and results of operations |
| Alternatively, any improvement, whether real or perceived, in economic conditions or prospects could adversely impact our ability to acquire merchandise and, therefore, have a material adverse effect on our business, prospects, financial condition and results of operations, as our supply of merchandise is dependent on the inability of designers and retailers to sell their merchandise in full-price venues |
| We purchase merchandise both directly from brand owners and indirectly from retailers and third party distributors |
| The purchase of merchandise from parties other than the brand owners increases the risk that we will mistakenly purchase and sell non-authentic or damaged goods, which could result in potential liability under applicable laws, regulations, agreements and orders |
| Moreover, any claims by a brand owner, with or without merit, could be time consuming, result in costly litigation, generate bad publicity for us, and have a material adverse impact on our business, prospects, financial condition and results of operations |
| Our ability to receive and fulfill orders successfully and provide high-quality customer service, largely depends on the efficient and uninterrupted operation of our computer and communications hardware systems and fulfillment center |
| Substantially all of our computer and communications hardware is located at a single co-location facility owned by a third party in New York City |
| Primarily all of our inventory is held, and our customer orders are filled, at a third party distribution center located in Virginia, and a large majority of our customer service representatives are employees of a third party call center in Ohio |
| These operations are vulnerable to damage or interruption from fire, flood, storms, power loss, telecommunications failure, terrorist attacks, acts of war, break-ins, earthquake and similar events |
| We do not presently have redundant systems in multiple locations or a formal disaster recovery plan |
| Accordingly, a failure at one of these facilities could interrupt our business for a significant period of time, and our business interruption insurance may be insufficient to compensate us for losses that may occur |
| Any such interruption would negatively impact our sales, results of operations and cash flows for the period in which it occurred, and could have a long-term adverse effect on our relationships with our customers and suppliers |
| A fundamental requirement for online commerce and communications is the secure transmission of confidential information over public networks |
| There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments will not result in a compromise or breach of the algorithms we use to protect customer transaction and personal data contained in our customer database |
| A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations |
| If any such compromise of our security were to occur, it could have a material adverse effect on our reputation with customers, thereby affecting our long-term growth prospects |
| In addition, we may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches |
| Brand owners have implemented, and are likely to continue to implement, procedures to limit or control off-price retailers &apos ability to purchase products indirectly |
| In addition, several brand owners in the US have distinctive legal rights rendering them the only legal importer of their respective brands into the US If we acquire such product indirectly from distributors and other third parties who may not have complied with applicable customs laws and regulations, such goods could be subject to seizure from our inventory by US Customs Service, and the importer may have a civil action for damages against us |
| Historically, our growth has placed, and any further growth is likely to continue to place, a significant strain on our management and administrative resources |
| To be successful, we must continue to implement information management systems and improve our operating, administrative, financial and accounting systems and controls |
| We will also need to train new employees and maintain close coordination among our executive, accounting, finance, marketing, merchandising, operations and technology functions |
| Any failure to implement such systems and training, and to maintain such coordination, could affect our ability to plan for, and react quickly to, changes in our business and, accordingly, could cause an adverse impact on our cash flow and results of operations in the periods during which such changes occur |
| In addition, as our workforce grows, our exposure to potential employment liability issues increases, and we will need to continue to improve our human resources functions in order to protect against such increased exposure |
| Moreover, our business is dependent upon our ability to expand our third-party fulfillment operations, customer service operations, technology infrastructure, and inventory levels to accommodate increases in demand, particularly during the peak holiday selling season |
| Our planned expansion efforts in these areas could cause disruptions in our business |
| Any failure to expand our third-party fulfillment operations, customer service operations, technology infrastructure or inventory levels at the pace needed to support customer demand could have a material adverse effect on our cash flow and results of operations during the period in which such failures occur and could have a long-term effect on our reputation with our customers |
| We are heavily dependent upon our relationships with our fulfillment operations provider, third party call center and Web hosting provider, delivery companies like UPS and the United States Postal Service, and credit card processing companies such as Paymentech and Cybersource to service our customers &apos needs |
| To the extent that there is a slowdown in mail service or package delivery services, whether as a result of labor difficulties, terrorist activity or otherwise, our cash flow and results of operations would be negatively impacted during such slowdown, and the results of such slowdown could have a long-term negative effect on our reputation with our customers |
| The failure of our fulfillment operations provider, third party call center, credit card processors or Web hosting provider to properly perform their services for us could cause similar effects |
| Our business is also generally dependent upon our ability to obtain the services of other persons and entities necessary for the development and maintenance of our business |
| If we fail to obtain the services of any such person or entities upon which we are dependent on satisfactory terms, or we are unable to replace such relationship, we would have to expend additional resources to develop such capabilities ourselves, which could have a material adverse impact on our short-term cash flow and results of operations and our long-term prospects |
| Electronic commerce generally and, in particular, the online retail apparel and fashion accessories market, is a new, dynamic, high-growth market and is rapidly changing and intensely competitive |
| Our competition for customers comes from a variety of sources including: o existing land-based, full price retailers, that are using the Internet to expand their channels of distribution; o less established online companies; o internet sites; o traditional direct marketers; and o traditional off-price retail stores, which may or may not use the Internet to grow their customer base |
| 9 Competition in our industry has intensified, and we expect this trend to continue as the list of our competitors grows |
| Many of our competitors and potential competitors have longer operating histories, significantly greater resources, greater brand name recognition and more firmly established supply relationships |
| We believe that the principal competitive factors in our market include: o brand recognition; o merchandise selection; o price; o convenience; o customer service; o order delivery performance; and o site features |
| There can be no assurance that we will be able to compete successfully against competitors and future competitors, and competitive pressures faced by us could force us to increase expenses and/or decrease our prices at some point in the future |
| We do not have any agreements controlling the long-term availability of merchandise or the continuation of particular pricing practices |
| Our contracts with suppliers typically do not restrict such suppliers from selling products to other buyers |
| There can be no assurance that our current suppliers will continue to sell products to us on current terms or that we will be able to establish new or otherwise extend current supply relationships to ensure product acquisitions in a timely and efficient manner and on acceptable commercial terms |
| In addition, in order to entice new vendors to open up relationships with us, we sometimes are required to either make prepayments or agree to shortened payment terms |
| Our ability to develop and maintain relationships with reputable suppliers and obtain high quality merchandise is critical to our success |
| If we are unable to develop and maintain relationships with suppliers that would allow us to obtain a sufficient amount and variety of quality merchandise on acceptable commercial terms, our ability to satisfy our customers &apos needs, and therefore our long-term growth prospects, would be materially adversely affected |
| We Need To Further Establish Brand Name Recognition |
| We believe that further establishing, maintaining and enhancing our brand is a critical aspect of our efforts to attract and expand our online traffic |
| The number of Internet sites that offer competing services, many of which already have well established brands in online services or the retail apparel industry generally, increases the importance of establishing and maintaining brand name recognition |
| com will depend largely on our success in providing a high quality online experience supported by a high level of customer service, which cannot be assured |
| In addition, to attract and retain online users, and to promote and maintain Bluefly |
| com in response to competitive pressures, we may find it necessary to increase substantially our advertising and marketing expenditures |
| If we are unable to provide high quality online services or customer support, or otherwise fail to promote and maintain Bluefly |
| com, our long-term growth prospects, would be materially adversely affected |
| A key element of our strategy is to generate a high volume of traffic on, and use of, Bluefly |
| Accordingly, the satisfactory performance, reliability and availability of Bluefly |
| com, transaction processing systems and network infrastructure are critical to our reputation and our ability to attract and retain customers, as well as maintain adequate customer service levels |
| Our revenues will depend on the number of visitors who shop on Bluefly |
| Unavailability of our Web site or reduced order fulfillment performance would reduce the volume of goods sold and could also adversely affect consumer perception of our brand name |
| We may experience periodic system interruptions from time to time |
| com or the number of orders placed by customers, we will be required to expand and upgrade further our technology, transaction processing systems and network infrastructure |
| There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of Bluefly |
| com or expand and upgrade our systems and infrastructure to accommodate such increases on a timely 10 basis |
| In order to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of Bluefly |
| com, which is particularly challenging given the rapid rate at which new technologies, customer preferences and expectations and industry standards and practices are evolving in the online commerce industry |
| Accordingly, we redesign and enhance various functions on our Web site on a regular basis, and we may experience instability and performance issues as a result of these changes |
| We May Be Subject To Higher Return Rates |
| We recognize that purchases of apparel and fashion accessories over the Internet may be subject to higher return rates than traditional store bought merchandise |
| We have established a liberal return policy in order to accommodate our customers and overcome any hesitancy they may have with shopping via the Internet |
| As a result, our reserve for returns and credit card chargebacks for fiscal 2005, 2004 and 2003 has been 37dtta8prca, 36dtta6prca and 37dtta1prca, respectively |
| If return rates are higher than expected, our business, prospects, financial condition, cash flows and results of operations could be materially adversely affected |
| We believe our success will depend to a significant extent on the efforts and abilities of our executive personnel |
| In particular, we rely upon their strategic guidance, their relationships and credibility in the vendor and financial communities and their ability to recruit key operating personnel |
| Our current employment agreements with our Chief Executive Officer, Chief Financial Officer and Chief Marketing Officer run through March 2007, July 2006 and September 2008 respectively, however there can be no assurance that any of them will not terminate their employment earlier |
| The loss of the services of any of our executive officers could have a material adverse effect on our credibility in the vendor communities and our ability to recruit new key operating personnel |
| Our operations will also depend to a great extent on our ability to attract new key personnel with relevant experience and retain existing key personnel in the future |
| The market for qualified personnel is extremely competitive |
| Our failure to attract additional qualified employees could have a material adverse effect on our prospects for long-term growth |
| We may choose to expand our operations by developing new Web sites, promoting new or complementary products or sales formats, expanding the breadth and depth of products and services offered, expanding our market presence through relationships with third parties, adopting non-Internet based channels for distributing our products, or consummating acquisitions or investments |
| Expansion of our operations in this manner would require significant additional expenses and development, operations and editorial resources and would strain our management, financial and operational resources |
| For example, we have historically expended significant internal resources in connection with the redesign of our Web site and the implementation of our online strategic alliances |
| Moreover, in the event that we expand upon our efforts to open brick-and-mortar outlet stores, we will be required to devote significant internal resources and capital to such efforts |
| There can be no assurance that we would be able to expand our efforts and operations in a cost-effective or timely manner or that any such efforts would increase overall market acceptance |
| Furthermore, any new business or Web site that is not favorably received by consumer or trade customers could damage our reputation |
| Third parties may assert infringement claims against us |
| From time to time in the ordinary course of business we have been, and we expect to continue to be, subject to claims alleging infringement of the trademarks and other intellectual property rights of third parties |
| These claims and any resulting litigation, if it occurs, could subject us to significant liability for damages |
| In addition, even if we prevail, litigation could be time-consuming and expensive and could result in the diversion of our time and attention |
| Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims unless we are able to enter into agreements with the third parties making these claims |
| We May Be Liable for Product Liability Claims |
| We sell products manufactured by third parties, some of which may be defective |
| Our insurance coverage may not be adequate to cover every claim that could be asserted |
| If a successful claim were brought against the Company in excess of our insurance coverage, it could have a material adverse effect on our cash flow and on our reputation with customers |
| Unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our business |
| Our intellectual property is critical to our success, and we rely on trademark, copyright, domain names and trade secret protection to protect our proprietary rights |
| Third parties may 11 infringe or misappropriate our trademarks or other proprietary rights, which could have a material adverse effect on our business, prospects, results of operations or financial condition |
| While we enter into confidentiality agreements with our employees, consultants and strategic partners and generally control access to and distribution of our proprietary information, the steps we have taken to protect our proprietary rights may not prevent misappropriation |
| We are pursuing registration of various trademarks, service marks and domain names in the United States and abroad |
| Effective trademark, copyright and trade secret protection may not be available in every country, and there can be no assurance that the United States or foreign jurisdictions will afford us any protection for our intellectual property |
| There also can be no assurance that any of our intellectual property rights will not be challenged, invalidated or circumvented |
| In addition, we do not know whether we will be able to defend our proprietary rights since the validity, enforceability and scope of protection of proprietary rights in Internet-related industries is uncertain and still evolving |
| Moreover, even to the extent that we are successful in defending our rights, we could incur substantial costs in doing so |
| Our Business Could Be Harmed By Consumers &apos Concerns About The Security Of Transactions Over The Internet |
| Concerns over the security of transactions conducted on the Internet and commercial online services, the increase in identity theft and the privacy of users may also inhibit the growth of the Internet and commercial online services, especially as a means of conducting commercial transactions |
| Moreover, although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, failure to mitigate such fraud or breaches could have a material adverse effect on our business, prospects, financial condition and results of operations |
| We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally, and laws or regulations directly applicable to online commerce |
| However, it is possible that laws and regulations may be adopted that would apply to the Internet and other online services |
| Furthermore, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online |
| The adoption of any additional laws or regulations may increase our cost of doing business and/or decrease the demand for our products and services and increase our cost of doing business |
| The applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve |
| Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and online commerce could also increase our cost of doing business |
| In addition, if we were alleged to have violated federal, state or foreign, civil or criminal law, we could face material liability and damage to our reputation and, even if we successfully defend any such claim, we incur significant costs in connection with such defense |
| We are not currently required to pay sales or other similar taxes in respect of shipments of goods into states other than Virginia, Ohio, New Jersey and New York |
| However, state taxation laws and regulations may change in the future, and one or more states may seek to impose sales tax collection obligations on out-of-state companies such as our company that engage in online commerce |
| In addition, any new operation in states outside Virginia, Ohio, New Jersey and New York could subject shipments into such states to state sales taxes under current or future laws |
| A successful assertion by one or more states or any foreign country that the sale of merchandise by us is subject to sales or other taxes, could subject us to material liabilities and, to the extent that we pass such costs on to our customers, could decrease our sales |
| We have agreed with the Soros Funds, that for so long as any shares of their Series A, B, C, D or E Preferred Stock are outstanding, we will not take any action to approve or otherwise facilitate any merger, consolidation or change of control, unless provisions have been made for the holders of such Preferred Stock to receive from the acquirer an amount in cash equal to the respective aggregate liquidation preferences of such Preferred Stock |
| The aggregate liquidation preference of such Preferred Stock is equal to the greater of (i) approximately dlra48dtta3 million (plus any accrued and unpaid dividends) and (ii) the amount that the holders of shares of such Preferred Stock would receive if they were to convert such shares into Common Stock immediately prior to liquidation |
| While the Series F Preferred Stock does not have a change of control covenant, it has an aggregate liquidation preference of dlra5cmam300cmam000 Accordingly, the aggregate liquidation preference of all outstanding Preferred Stock, including accrued and unpaid preferred dividends at December 31, 2005 of dlra18dtta6 million, is dlra72dtta2 million |
| Our certificate of incorporation and by-laws, as amended, contain certain provisions that may delay, defer or prevent a takeover |
| Our Board of Directors has the authority to issue up to 15cmam479cmam250 additional shares of Preferred Stock, and to determine the price, rights, preferences and restrictions, including voting rights, of those shares, without any further vote or action by the stockholders |
| Accordingly, our Board of Directors is empowered, without approval of the holders of Common Stock, to issue preferred stock, for any reason and at any time, with such rates of dividends, redemption provisions, liquidation preferences, voting rights, conversion privileges and other characteristics as it may deem necessary or appropriate |
| The rights of holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future |
| Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and maintain an adequate internal control structure and procedures for financial reporting and assess on an on-going basis the design and operating effectiveness of our internal control structure and procedures for financial reporting |
| Our independent registered accounting firm may be required in the future to audit the design and operating effectiveness of our internal controls and attest to managementapstas assessment of the design and the effectiveness of our internal controls |
| It is possible that, as we prepare for this audit, we could discover certain deficiencies in the design and/or operation of our internal controls that could adversely affect our ability to record, process, summarize and report financial data |
| We have invested and will continue to invest significant resources in this process |
| Because managementapstas assessment of internal controls has not been required to be reported in the past, we are uncertain as to what impact a conclusion that deficiencies exist in our internal controls over financial reporting would have on the trading price of our common stock |
| Forward-Looking Statements and Associated Risks |
| This Annual Report contains "e forward-looking statements "e within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 |
| Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words "e believe, "e "e anticipate, "e "e expect, "e "e estimate, "e "e project, "e "e will be, "e "e will continue, "e "e will likely result, "e or words or phrases of similar meaning |
| Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the forward-looking statements ( "e Cautionary Statements "e ) |
| The risks and uncertainties include, but are not limited to those matters addressed herein under "e Risk Factors "e |
| All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements |
| Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates |
| We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise |