-
`
`'
`
`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. Any of these factors could have a material adverse effect on our business, financial condition and results
`of operations.
`
`We could be materially and adversely aflected ifour distribution operations were disrupted.
`To support our distribution of product throughout the world, we operate our main distribution facility and one significantly smaller
`distribution facility, both in Philadelphia, Pennsylvania. Finished garments from contractors and other manufacturers are inspected and stored for
`distribution. We do not have other distribution facilities to support our distribution needs. If our main Philadelphia distribution facility were to
`shut down or otherwise become inoperable or inaccessible for any reason (such as, for example, due to natural disasters, like the recent Hunicane
`Sandy, which affected our region in early fiscal 2013), we could incur significantly higher costs and longer lead times associated with the
`distribution of our products to our stores and to our third—party retailers during the time it takes to reopen or replace this facility. In light of our
`strategic emphasis on rapid replenishment as a competitive strength. a distribution disruption might have a disproportionately adverse effect on
`our operations and profitability relative to other retailers. In addition, the loss or material disruption of service from any ofour shippers for any
`reason, whether due to freight difficulties, strikes, natural disaster or other difficulties at our principal transport providers or otherwise, could have
`a material adverse impact on our business, financial condition and results of operations.
`
`We could be materially and adversely affected we are unable to obtain sufficient raw materials or maintain satisfactory manufacturing
`arrangements.
`
`We do not own any manufacturing facilities and therefore depend on third parties to nranufacture our products. We place our orders for
`production of merchandise and raw materials by purchase order and do not have any long-term contracts with any manufacturer or supplier. We
`compete with many other companies for production facilities and raw materials. Furthermore, we have received in the past, and may receive in the
`future, shipments of products from manufacturers that fail to conform to our quality control standards or environmental standards. In such event,
`unless we are able to obtain replacement products ir1 a timely manner, we may lose sales. We have no ability to control the environmental
`compliance (including compliance with climate change requirements) of these third—party manufacturers. If we fail to maintain favorable
`relationships with these third parties, or if we cannot obtain an adequate supply of quality raw materials on commercially reasonable terms, it could
`have a material adverse impact on our business, financial condition and results of operations.
`
`Fluctuations in commodity prices could result in an increase in component costs, delivery costs, and overall product costs.
`The results of our business operations could suffer due to significant increases or volatility in the prices of certain commodities, including
`but not limited to cotton, wool and other ingredients used in the production of fabric and accessories, as well as fuel, oil and natural gas. In
`addition, increases in the price of food and food commodities may result in increased labor rates related to textile and apparel production. Increases
`in prices of these commodities or other inflationary pressures may result in significant cost increases for our raw materials, product components
`and finished products, as well as increases in the cost of distributing merchandise to our retail locations and shipping products to our customers.
`For example, in the latter part of fiscal 2011 and for most of fiscal 2012, we experienced product cost of sales increases due, ir1 part, to the increased
`cost ofcotton as well as, to a lesser extent, increased labor rates in certain production countries. To the extent we are unable to offset any such
`increased costs through value engineering and similar initiatives, or through price increases, our profitability, cash flows and financial condition
`may be materially and adversely impacted. If we choose to increase prices to offset the increased costs, our unit sales volumes could be adversely
`impacted.
`
`23
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_023
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Our stores are heavily dependent on the customer traffic generated by shopping malls.
`We depend heavily on locating our stores in successful shopping malls in order to generate customer traffic. We cannot control the
`development of new shopping malls, the availability or cost of appropriate locations witl1ir1 existing or new shopping malls or the success of
`existing or new mall stores.
`The success of all of our mall stores will depend, in part, on the ability of each mall’s anchor tenants, such as large department stores. other
`tenants and area attractions to generate consumer traffic in the vicinity of our stores, and the continuing popularity of malls as shopping
`destinations. Many traditional enclosed malls are experiencing significantly lower levels of customer traffic than in the past, driven by overall poor
`economic conditions as well as the closure of certain mall anchor tenants. Sales volume and mall traffic may be materially and adversely affected by
`economic downturns in a particular area, the closing of anchor tenants or competition from non—mall retailers and other malls where we do not have
`stores.
`
`Our success depends‘ on our ability to identify and rapidly respond to fashion trends.
`The apparel industry is subject to rapidly changing fashion trends and shifting consumer demands. Accordingly, our success depends on
`the priority that our target customers place on fashion and our ability to anticipate, identify and capitalize upon emerging fashion trends. Our
`ability or our failure to anticipate, identify or react appropriately to changes in styles or trends could lead to, among other things, excess
`inventories and higher markdowns, as well as the decreased appeal of our brands. Particular fashion trends, or an inaccuracy of our forecasts
`regarding fashion trends, could have a material adverse effect on our business, financial condition and results of operations. For example, in fiscal
`2007 we were negatively impacted from the popularity of certain styles in the non-matemity women’s apparel market, such as trapeze and baby-doll
`dresses and tops, which can more readily fit a pregnant woman early in her pregnancy than typical non-maternity fashions.
`
`Thefailure to attract and retain highly skilled and qualified senior management personnel could have a material adverse impact on our
`business, financial condition and results of operations.
`Our business requires disciplined execution at all levels ofour organization in order to timely deliver and display fashionable merchandise in
`appropriate quantities in our stores. This execution requires experienced and talented management. We currently have a management team with a
`great deal of experience with us and in apparel retailing. If we were to lose the benefit of this experience, our business, financial condition and
`results of operations could be materially and adversely affected.
`In addition, as our business expands, we believe that our success will depend greatly on our continued ability to attract and retain highly
`skilled and qualified personnel. There is a high level of competition for personnel in the retail industry. 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 iii other industries. A significant increase ir1 the turnover rate among our 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, which could impair our ability to increase sales and could otherwise harm our business.
`
`Our quarterly operating results and inventory levels may fluctuate significantly as a result ofseasonality in our business.
`Our business, like that of other retailers, is seasonal. Results for any quarter are not necessarily indicative of the results that may be
`achieved for a full fiscal year. Quarterly results may fluctuate materially depending upon, among other things, increases or decreases in comparable
`sales, the timing of new retail location openings, the timing of retail location closings, net sales and profitability contributed by new retail
`locations, the timing of the fulfillment of purchase orders under our product and license arrangements, adverse weather conditions, shifts
`24
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_O24
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`in tlie timi11g ofcertain holidays and promotions, changes i11 inventory and production levels and the timing of deliveries ofinventory, and
`changes in our merchandise mix. Our quarterly net sales have historically been highest in our third fiscal quarter, corresponding to the peak Spring
`selling season. Given the historically higher sales level in our third fiscal quarter and the relatively fixed nature of most of our operating expenses
`and interest expense, we have typically generated a very significant percentage of our full year operating i11comc and 11et income during our third
`fiscal quarter. Thus, any factors which result in a material reduction of our sales for the third quarter could have a material adverse effect on our
`results of operations for our fiscal year as a whole. Seasonal lluctuations in sales also affect our inventory levels, as we usually order merchandise
`in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer purchases. We must carry a significant
`amount of inventory, especially before the peak Spring selling season. If we are not successful in selling our inventory during this period, we may
`be forced to rely 011 markdowns or promotional sales to sell the excess inventory or we may not be able to sell the inventory at all, which could
`have a material adverse effect on our business, financial condition and results of operations.
`
`If an independent manufacturer violates labor or other laws, or is accused ofviolating any such laws, or iftheir labor practices diverge from
`those generally accepted as ethical, it could harm our business and braml image.
`While we maintain policies and guidelines with respect to labor practices that independent manufacturers that produce goods for us are
`contractually required to follow, and while we have an independent firm and Company employees inspect certain manufacturing sites to monitor
`compliance, we cannot control the actions of such manufacturers or the public's perceptions of them, nor can we assure that these manufacturers
`will conduct their businesses using ethical or legal labor practices. Apparel companies can be held jointly liable for the wrongdoings of the
`manufacturers of their products. While many of our independent manufacturers are routinely monitored by buying representatives. who assist us
`in the areas ofcompliance, garment quality and delivery, we do not control the manufacturers’ business practices or their employees’ employment
`conditions, and manufacturers act in their own interest which may be in a manner that results in negative public perceptions of us, and/or
`employee allegations against us, or court determinations that we are jointly liable. 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 sales to decline.
`
`We may be unable to protect our trademarks and other intellectualproperty and may be subject to liability if we are alleged to have infringed
`on anoth er party ’s intellectual property.
`We believe that our trademarks, service marks and other intellectual property are important to our continued success and our competitive
`position due to their recognition with our customers. We devote substantial resources to the establishment and protection of our trademarks.
`service marks and other intellectual property. Although we actively protect our intellectual property, there can be no assurance that the actions
`that we have taken to establish and protect our trademarks, service 111arks a11d other intellectual property, including o11r rights i11 o11r 1na11age111e11t
`information systems and our proprietary rights in products for which we have applied for or received patent protection (for example, our Secret Fit
`Belly® innovation), will be adequate to prevent imitation of our marks, products or services by others or to prevent others from seeking to block
`sales of our products as a violation of their trademarks. service marks or other proprietary rights. For example. in October 2012 we filed a lawsuit
`against Target Corporation and others for infringement of our proprietary patented Secret Fit Belly technology. There is no guarantee that this
`effort to enforce our rights will be successfill. Also, others may assert rights in, or ownership of, o11r trademarks and other proprietary rights or
`may allege that we have or are infringing on their intellectual property rights and we may not be able to successfully resolve these types of
`conflicts. In addition, the laws of certain foreign countries may not protect our trademarks and proprietary rights to the same extent as do the laws
`of the United States. 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 111an11er 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. Additionally, the high expense in
`25
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_O25
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`both prosecuting and defending against, and pote11tial liability related to, alleged infringements of intellectual property rights could be substantial
`and could have a material adverse effect 011 our business, financial condition and results of operations.
`
`any thirdparty with whom we have a leased or licensed
`If climate change lmvs or regulations were to become applicable to our business, or
`relationship imposed reporting or other obligations on us due to their own compliance programs, we could incur additional expense to meet
`the requirements and ourfailure to comply could have a material adverse effect on our business.
`With respect to manufacturing within the United States, United States Environmental Protection Agency (“EPA”) greenhouse gas (“GHG”)
`emission reporting rules require certain United States manufacturers to report GI IG emissions. These rules are unlikely to require reporting of our
`third—party contract apparel manufacturers because the amount of emissions from retail stores and apparel n1an11fact11ri11g facilities are currently
`estimated to be below the EPA reporting threshold. With respect to manufacturing outside ofthe United States, international treaties, such as |.he
`Kyoto Protocol and the Copenhagen Protocol, do not currently require the countries in which our non—United States contract apparel
`manufacturers are located to control GHG emissions and it is unlikely that climate change requirements in the foreseeable future will require
`significant GI IG emission reductions on our non—United States contract apparel manufacturers. Our manufacturers are required to follow all
`applicable laws, including climate change laws. Ifdomestic or international laws or regulations were expanded to require GI-IG emission reporting or
`reduction by us or our third—party contract apparel manufacturers, or if we engage third-party contract manufacturers in countries that have
`existing GHG emission reporting or reduction laws or regulations, we would need to expend financial and other resources to comply with such
`regulations and/or monitor our third—party contract apparel manufacturers’ compliance with such regulations. In addition, we cannot control the
`actions of our third—party manufacturers or the public’s perceptions ofthcm, nor can we assure that these manufacturers will conduct their
`businesses using climate change proactive or sustainable practices. Violations of climate change laws or regulations by third parties with whom we
`do business could result in negative public perception of us and/or 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 sales to decline.
`Some retailers have adopted “sustainability” or other policies that encourage or require suppliers to report and/or reduce GIIG emissions. No
`third party with whom we l1ave a leased or licensed relationship currently requires us to report GHG emissions to them. However, we expect that
`certain of these third parties may do so in the future, which would require us to expend financial and other resources to comply with such
`requirements. In addition, if such requirements are imposed on us, our relationship with such third parties could be damaged if we were unable to
`comply.
`
`Changes in the health care regulatory environment could cause us to incur additional expense and ourfailure to comply with related legal
`requirements could have a material adverse effect on our business.
`In 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law
`in tlic United States. This legislation expands health care coverage to many uninsured individuals and expands coverage to those already insured.
`The changes required by this legislation could cause us to incur additional health care and other costs, but we do not expect any material short-
`term impact o11 our financial results as a result of the legislation.
`The costs and other effects of other new legal requirements cannot be determined with certainty. For example, new legislation or regulations
`may result in increased costs directly for our compliance or indirectly to the extent such requirements increase prices of goods and services
`because of increased compliance costs or reduced availability ofraw materials.
`
`War or acts ofterrorism or the threat of either may negatively impact availability ofmerchandise and otherwise adversely impact our
`business.
`
`I11 the event of war or acts ofterrorism, or ifeither is threatened. our ability to obtain merchandise available for sale and consumer demand
`for o11r merchandise may be negatively affected. A substantial portion of o11r
`26
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_026
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`merchandise is imported from other countries. In addition, we not only generate sales in the United States and Canada through our own retail
`locations, but also in foreign countries through our international franchise relationships. If goods become difficult or impossible to import into the
`United States, and if we cannot obtain such merchandise from other sources at similar costs, our sales and profit margins may be materially and
`adversely affected. Further, if consumer demand in any country where we do business is negatively affected, our sales in such country would
`suffer. In the event that commercial transportation is curtailed or substantially delayed, our business may be materially and adversely impacted, as
`we may have difficulty shipping merchandise to our main distribution facility and retail locations, as well as fulfilling Internet orders.
`
`The terms of our debt instruments imposefinancial and operating restrictions.
`Our new credit facility contains restrictive covenants that limit our ability to engage in activities that may be in our long term best interests.
`These covenants limit or restrict, among other things, our ability to:
`-
`incur additional indebtedness;
`-
`pay dividends or make other distributions in respect of our equity securities, or purchase or redeem capital stock, or make certain
`investments;
`- have our subsidiaries pay dividends, make loans or transfer assets to us;
`-
`sell assets, including the capital stock of our subsidiaries;
`-
`enter into any transactions with our affiliates;
`-
`transfer any capital stock of any subsidiary or permit any subsidiary to issue capital stock;
`-
`create liens;
`-
`enter into certain sale/leaseback transactions;
`
`effect a coirsolidation or merger or transfer of all or substantially all of our assets; and
`-
`engage in other lines ofbusiness unless reasonably related to our existing business.
`-
`These limitations and restrictions may materially and adversely affect our ability to finance our future operations or capital needs or engage
`in other business activities that may be in our best interests. In addition, our ability to borrow under the credit facility is subject to borrowing base
`requirements. If we breach any of the covenants in our credit facility. we may be in default under our credit facility. If we default, the lender under
`our credit facility could declare all borrowings owed to them, including accrued interest and other fees, to be due and payable.
`
`Our charter documents contain certain anti-takeover provisions, and we are entitled to certain otherprotective provisions under Delaware
`law.
`
`We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to
`acquire control of the Company, even if a change of control would be henefi cial to our existing stockholders. \Ve also have adopted a stockholder
`rights plan, connnonly known as a “poison pill,” that entitles our stockholders to acquire additional shares of us, or a potential acquirer of us, at a
`substantial discount to their market value in the event of an attempted takeover. In addition, our amended and restated certificate of incorporation
`and bylaws contain provisions that may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider
`favorable by, among other things:
`-
`authorizing the issuance of preferred stock, the terms of which may be determined at the discretion of our Board of Directors;
`-
`restricting the ability of stockholders to call special meetings of stockholders; and
`-
`establishing advance notice requireinents for rionririations for election to our Board of Directors or for proposing rnatters that can be acted
`on by stockholders at meetings.
`These provisions may also reduce the market value of our common stock.
`27
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_O27
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Ifwe are unable to pay quarterly dividends at intended levels or
`reputation and stock price may be harmed
`
`our Board ofDirectors decides to reduce the level of our dividend, our
`
`Our quarterly cash dividend is currently $0.175 per con1mo11 share. The dividends declared and paid by us to date meet all requirements
`under the terms of our debt agreements and applicable law; however, any future payment of dividends will be at the discretion of our Board of
`Directors and the ability to pay any such future dividends. or to pay such dividends at the current level. will be based upon certain restrictive
`financial covenants, earnings, capital requirements and our financial condition, among other factors, at the time any such dividend is considered.
`In addition, our ability or decision to pay dividends at all or at the current level may be subject to certain economic, financial, competitive and other
`factors (such as the level of taxation of dividends) that are beyond our control. Our Board of Directors may, at its discretion, decrease the intended
`level of dividends or entirely discontinue the payment of dividends at any time. Any failure to pay dividends after we have announced our
`intention to do so may negatively impact our reputation and investor confidence in us. and may also negatively impact our stock price.
`
`The increase in our sales and marketing efforts that target markets outside the United States and Canada expose us to additional risks
`associated with international operations.
`Although an immaterial amount of our sales are currently derived from international sales outside of Canada, we are actively seeking to
`expand our international presence, and we have begun to do so through franchise arrangements in the Middle East, India and South Korea. We
`may not be successful in these efforts. Inter11ational operations and sales subject us to risks and challenges that we would otherwise not face if we
`conducted o11r business only i11 the United States. For example, we may depend on third parties to market our products through foreign sales
`channels, and we may be challenged by laws and business practices favoring local competitors. I11 addition, our ability to succeed in foreign
`markets will depend on our ability to protect our intellectual property. We must also adapt our pricing structure to address different pricing
`environments and may face difficulty in enforcing revenue collection internationally. Emerging markets are a significant focus of our international
`growth strategy. The developing nature of these markets presents a number ofrisks. Deterioration of social, political, labor or economic conditions
`ill a specific countiy or region and difficulties i11 staffing and managing foreign operations may also materially and adversely affect our operations
`or financial results or those of our franchisees. Operations outside the United States may be affected by changes in trade protection laws, policies
`and measures, and other regulatory requirements affecting trade and investment, including the Foreign Corrupt Practices Act and local laws
`prohibiting corrupt payments. To the extent we achieve significant sales outside of the United States in the future, we may have significant
`exposure to fluctuating foreign currency exchange rates.
`
`We could havefailures in our system of internal controls‘ causing us to inaccurately report ourfinancial results or to fail to preventfraud
`We maintain a documented system of internal controls which is reviewed and monitored by management, who meet regularly with our Audit
`Committee of the Board of Directors. We believe we have a well—designed system to maintain adequate internal controls over the business. We
`cannot assure you that there will not be any control dcficicncics in thc futurc. Should we become aware of any control dcficicncics, we would
`report them to the Audit Committee and, if significant, recommend prompt remediation. We devote significant resources to document, test, monitor
`and improve our internal controls a11d will conti11ue to do so; however, we cannot be certain that these measures will ensure that our co11trols are
`adequate in the future or that adequate controls will be effective in preventing fraud. If we fail to maintain an effective system of internal controls,
`we may not be able to accurately report our financial results or prevent fraud. Any failures i11 the effectiveness of our internal controls could have
`a material adverse effect 011 our financial condition or operating rcsults or cause us to fail to mcct rcporting obligations.
`
`Item 1B.
`
`Unresolved Staff Comments
`
`Not applicable.
`
`28
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_O28
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Properties
`Item 2.
`We own our principal executive offices and distribution facility, which is located at 456 North Fifth Street, Philadelphia. Pennsylvania. This
`facility consists of approximately 318,000 square feet, of which approximately 45,000 square feet is dedicated to office space and the remaining
`square footage is used for finished goods warehousing and distribution. In August 2002, we entered into a te11-year lease, with renewal options for
`two successive five year terms, for a facility located at 2001 Kitty Hawk Avenue, Philadelphia, Pennsylvania in the Philadelphia Naval Business
`Center. In May 2012, we amended the lease to extend the initial term for one additional year to August 2013. The area leased at this facility, which
`we use for some finished goods warehousing and distribution, raw material cutting and warehousing, and office space consists of approximately
`69,000 square feet of space, of which 8,000 square feet is dedicated to office space. From time to time we may also utilize third-party warehousing
`services in the Philadelphia, Pennsylvania area when we have increased storage requirements. These services essentially operate o11 a montl1-to-
`month basis. We believe that these facilities will be adequate to support our anticipated distribution needs for the 11ear term and, potentially,
`longer. In the event we need additional space to meet our future distribution needs, we believe that such space would be readily available. Our
`facilities are subject to state and local regulations that range from building codes to health and safety regulations.
`We lease our store premises for initial terms averaging from five to ten years. Certain leases allow us to terminate or reduce o11r obligations at
`specified points in time in the event that the applicable store does not achieve a specified sales volume. Some of our store leases also provide for
`contingent payments based on sales volume, escalations of the base rent, as well as increases i11 operating costs, marketing costs and real estate
`taxes.
`
`As of September 30, 2012, the following numbers of store leases are set to expire as listed in the table below. We do 11ot expect the expiration
`of any leases to have a material adverse impact on our business or operations.
`
`Fiscal Year Leases Egpire
`2013
`2014
`2015
`2016
`2017
`2018 and later
`Total
`
`Number
`of
`store;
`145
`163
`91
`53
`47
`126
`625
`
`In addition to the stores we operate, we have arrangements with department and specialty stores, including Macy’s, Sears, buybuy BABY,
`Gordmans and Boscov's to operate maternity apparel departments in their stores. These leased departments typically involve the lease partner
`collecting all of the revenue from the leased department. The revenue is remitted to us, less a fixed percentage of the net sales earned by the lease
`partner as stipulated in the agreement. We provide at lcast some amount of staffing for each of tlic lcascd departments, with the amount varying
`depending on the specific arrangement. Generally, under each of our leased department agreements, o11r lease partner has the right to terminate
`any or all ofour rights to operate our leased departments in their stores subject to varying notice requirements.
`
`Legal Proceedings
`Item 3.
`Fiom time to ti111e, we are 11an1ed as a defendant i11 legal actions arising from our 11o1n1al business activities. Litigation is inherently
`unpredictable and although the amount of any liability that could arise with respect to currently pending actions cannot be accurately predicted,
`we do not believe that the resolution of any pending action will have a ma