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inquiries, information requests and related legal proceedings is difficult to predict, such matters can be expensive, time-consuming |
and distracting, and adverse resolutions or settlements of those matters may result in, among other things, modification of our business |
practices, reputational harm or costs and significant payments, any of which could negatively affect our business operations and financial |
position. We |
rely on the performance of members of management and highly skilled personnel, and if we are unable to attract, develop, motivate and |
retain well-qualified employees, our business could be harmed. We |
believe our success has depended, and continues to depend, on the members of our senior management teams. The loss of any of our senior |
management or other key employees could materially harm our business. Our future success also depends on our continuing ability to attract, |
develop, motivate and retain highly qualified and skilled employees, particularly mid-level managers and merchandising and technology |
personnel. The market for such positions is competitive. Qualified individuals are in high demand, and we may incur significant costs |
to attract them. Our inability to recruit and develop mid-level managers could materially adversely affect our ability to execute our |
business plan, and we may not be able to find adequate replacements. All of our officers and other U.S. employees are at-will employees, |
meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would |
be extremely difficult to replace. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, |
our business, financial condition and operating results may be materially adversely affected. 74 We |
are subject to risks related to online payment methods. We |
accept payments using a variety of methods, including credit card, debit card, PayPal, credit accounts and gift cards. As we offer new |
payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, |
including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower |
profitability. We are also subject to payment card association operating rules and certification requirements, including the Payment |
Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it |
difficult or impossible for us to comply. As our business changes, we may also be subject to different rules under existing standards, |
which may require new assessments that involve costs above what we currently pay for compliance. If we fail to comply with the rules |
or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights |
to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be |
subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card and debit |
card payments from consumers or to facilitate other types of online payments. If any of these events were to occur, our business, financial |
condition and operating results could be materially adversely affected. We |
occasionally receive orders placed with fraudulent credit card data. We may suffer losses as a result of orders placed with fraudulent |
credit card data even if the associated financial institution approved payment of the orders. Under current credit card practices, we |
may be liable for fraudulent credit card transactions. If we are unable to detect or control credit card fraud, our liability for these |
transactions could harm our business, financial condition and results of operations. We |
may not be able to adequately protect our intellectual property rights. We |
regard our customer lists, domain names, trade dress, trade secrets, trademarks, proprietary technology and similar intellectual property |
as critical to our success, and we rely on trade secret protection, agreements and other methods with our employees and others to protect |
our proprietary rights. We might not be able to obtain broad protection for all of our intellectual property. The protection of our intellectual |
property rights may require the expenditure of significant financial, managerial and operational resources. We may initiate claims or |
litigation against others for infringement, misappropriation or violation of our intellectual property rights or proprietary rights or |
to establish the validity of such rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense |
to us and divert the efforts of our technical and management personnel, which may materially adversely affect our business, financial |
condition and operating results. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights |
or prevent third parties from infringing or misappropriating our proprietary rights, and we may not be able to broadly enforce all of |
our intellectual property rights. Any of our intellectual property rights may be challenged by others or invalidated through administrative |
process or litigation. Additionally, the process of obtaining intellectual property protections is expensive and time-consuming, and |
we may not be able to pursue all necessary or desirable actions at a reasonable cost or in a timely manner. Even if issued, there can |
be no assurance that these protections will adequately safeguard our intellectual property, as the legal standards relating to the validity, |
enforceability and scope of protection of patent and other intellectual property rights are uncertain. We also cannot be certain that |
others will not independently develop or otherwise acquire equivalent or superior intellectual property rights. We may also be exposed |
to claims from third parties claiming infringement of their intellectual property rights. These claims could result in litigation that |
may materially affect our financial condition and operating results in a material and adverse way. We |
may be accused of infringing intellectual property rights of third parties. We |
may be subject to claims and litigation by third parties that we infringe on their intellectual property rights. The costs of supporting |
such litigation and disputes are considerable, and there can be no assurances that favorable outcomes will be obtained. As our business |
expands and the number of competitors in our market increases and overlaps occur, we expect that infringement claims may increase in |
number and significance. Any claims or proceedings against us, whether meritorious or not, could be time-consuming, result in considerable |
litigation costs, require significant amounts of management time or result in the diversion of significant operational resources, any |
of which could materially adversely affect our business, financial condition and operating results. We |
have received in the past, and we may receive in the future, communications alleging that certain items posted on or sold through our |
sites violate third-party copyrights, designs, marks and trade names or other intellectual property rights or other proprietary rights. |
Brand and content owners and other proprietary rights owners have actively asserted their purported rights against online companies. |
In addition to litigation from rights owners, we may be subject to regulatory, civil or criminal proceedings and penalties if governmental |
authorities believe we have aided and abetted in the sale of counterfeit or infringing products. 75 Such |
claims, whether or not meritorious, may result in the expenditure of significant financial, managerial and operational resources, injunctions |
against us or the payment of damages by us. We may need to obtain licenses from third parties who allege that we have violated their |
rights, but such licenses may not be available on terms acceptable to us, or at all. These risks have been amplified by the increase |
in third parties whose sole or primary business is to assert such claims. If |
we do not continue to negotiate and maintain favorable license arrangements, our sales or cost of revenues could suffer. We |
have entered into license agreements that enable us to manufacture and distribute prescription frames and sunglasses under certain names, |
including Dr. Dean Edell. These license agreements typically have terms of multiple years and may contain options for renewal for additional |
periods and require us to make guaranteed and contingent royalty payments to the licensor. Accordingly, if we are unable to negotiate |
and maintain satisfactory license arrangements with some of our designers, our growth prospects and financial results could materially |
suffer from a reduction in sales or an increase in advertising costs and royalty payments to designers. Existing |
or future government regulation could expose us to liabilities and costly changes in our business operations and could reduce customer |
demand for our products and services. We |
are subject to federal and state consumer protection laws and regulations, including laws protecting the privacy of customer non-public |
information and regulations prohibiting unfair and deceptive trade practices, as well as laws and regulations governing businesses in |
general and the Internet and e-commerce and certain environmental laws. Additional laws and regulations may be adopted with respect to |
the Internet. These laws may cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails and |
communications, other advertising and promotional practices, money transfers, pricing, content and quality of products and services, |
taxation, electronic contracts and other communications, intellectual property rights, and information security. Furthermore, it is not |
clear how existing laws such as those governing issues such as property ownership, sales and other taxes, trespass, data mining and collection, |
and personal privacy apply to the Internet and e-commerce. To the extent we expand into international markets, we will be faced with |
complying with local laws and regulations, some of which may be materially different than U.S. laws and regulations. Any such foreign |
law or regulation, any new U.S. law or regulation, or the interpretation or application of existing laws and regulations to our business |
may have a material adverse effect on our business, prospects, financial condition and results of operations by, among other things, |
subjecting us to fines, penalties, damages or other liabilities, requiring costly changes in our business operations and practices, and |
reducing customer demand for our products and services. We may not maintain sufficient, or any, insurance coverage to cover the types |
of claims or liabilities that could arise as a result of such regulation. Risks |
Related to Our Relationship with Our Manager Termination |
of the management services agreement will not affect our manager’s rights to receive profit allocations and removal of our manager |
may cause us to incur significant fees. Our |
manager owns all of our allocation shares, which generally will entitle our manager to receive a profit allocation as a form of preferred |
distribution. In general, this profit allocation is designed to pay our manager 20% of the excess of the gains upon dispositions of our |
subsidiaries, plus an amount equal to the net income of such subsidiaries since their acquisition by us, over an annualized hurdle rate. |
If our manager resigns or is removed, for any reason, it will remain the owner of our allocation shares. It will therefore remain entitled |
to all profit allocations while it holds our allocation shares regardless of whether it is terminated as our manager. If we terminate |
our manager, it may therefore be difficult or impossible for us to find a replacement to serve the function of our manager, because we |
would not be able to force our manager to transfer its allocation shares to a replacement manager so that the replacement manager could |
be entitled to a profit allocation. Therefore, as a practical matter, it may be difficult for us to replace our manager without its cooperation. |
If it becomes necessary to replace our manager and we are unable to replace our manager without its cooperation, we may be unable to |
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