UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




Washington, D.C.
20549




FORM
10-K




x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2008





OR




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




FOR
      THE TRANSITION PERIOD FROM _______ TO
_______




0-10593


(Commission
File Number)


ICONIX BRAND GROUP,
INC.


(Exact
name of registrant as specified in its charter)




Delaware
            
            11-2481903(State
      or other jurisdiction
              of
      incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)





1450 Broadway, New York, New
York 10018


(Address
of principal executive offices) ( zip code)





Registrant's
telephone number, including area code: (212) 730-0030


Securities
registered pursuant to Section 12(b) of the Act:




Title of each
      class
              
              Name
      of each exchange on which registeredCommon
      Stock, $.001 Par Value
                Preferred
      Share Purchase Rights
              
              The
      NASDAQ Stock Market LLC
                (NASDAQ
      Global Market)





Securities
registered pursuant to Section 12(g) of the Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes   o
No   x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes   o  No   x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. xYesoNo





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.o








Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filerx
                    Accelerated filero
                    Non-accelerated filero
                    Smaller reporting companyo(Do not check if a smallerreporting company)




Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act). Yeso
Nox




The
aggregate market value of the registrant's Common Stock held by non-affiliates
of the registrant as of the close of business on June 30, 2008 was approximately
$643.4 million. As of February 26, 2009, 58,063,752 shares of the registrant's
Common Stock, par value $.001 per share, were outstanding.





DOCUMENTS INCORPORATED BY
REFERENCE: None.


2





ICONIX
BRAND GROUP, INC. -FORM 10-K





TABLE
OF CONTENTS




PagePART
      I
                    
                    
                    
                    4Item
      1.
                    
                    Business
                    
                    4Item
      1A.
                    
                    Risk
      Factors
                    
                    13Item
      1B.
                    
                    Unresolved
      Staff Comments
                    
                    20Item
      2.
                    
                    Properties
                    
                    20Item
      3.
                    
                    Legal
      Proceedings
                    
                    20Item
      4.
                    
                    Submission
      of Matters to a Vote of Security Holders
                    
                    22PART
      II
                    
                    
                    
                    22Item
      5.
                    
                    Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    
                    22Item
      6.
                    
                    Selected
      Financial Data
                    
                    23Item
      7.
                    
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    24Item
      7A.
                    
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    
                    33Item
      8.
                    
                    Financial
      Statements and Supplementary Data
                    
                    33Item
      9.
                    
                    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                    
                    34Item
      9A.
                    
                    Controls
      and Procedures
                    
                    34Item
      9B.
                    
                    Other
      Information
                    
                    37PART
      III
                    
                    
                    
                    38Item
      10.
                    
                    Directors,
      Executive Officers and Corporate Governance
                    
                    38Item
      11.
                    
                    Executive
      Compensation
                    
                    41Item
      12.
                    
                    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                    
                    61Item
      13.
                    
                    Certain
      Relationships and Related Transactions, and Director
      Independence
                    
                    65Item
      14.
                    
                    Principal
      Accounting Fees and Services
                    
                    66PART
      IV
                    
                    
                    
                    67Item
      15.
                    
                    Exhibits,
      Financial Statement Schedules
                    
                    67Signatures
                    
                    68Consolidated
      Financial Statements
                    
                    75


3





Unless the
context requires otherwise, references in this Form 10-K to the “Company”,
“Iconix”, “we”, “us”, “our”, or similar pronouns refer to Iconix Brand Group,
Inc. and its consolidated subsidiaries, including: IP Holdings LLC, which is
referred to as IP Holdings; Bright Star Footwear, Inc., which is referred to as
Bright Star; Badgley Mischka Licensing LLC, which is referred to as Badgley
Mischka Licensing; Mossimo Holdings LLC, which is referred to as Mossimo
Holdings; OP Holdings LLC, which is referred to as OP Holdings; Studio IP
Holdings LLC, which is referred to as Studio IP Holdings; and Official-Pillowtex
LLC, which is referred to as Official-Pillowtex or Pillowtex, and Scion LLC,
which is referred to as Scion.





PART
I




Item 1. Business





General




The
Company is a brand management company engaged in licensing, marketing and
providing trend direction for a portfolio of owned consumer brands. The Company
currently owns 17 brands, Candie's®, Bongo®, Badgley Mischka®, Joe Boxer®,
Rampage®, Mudd®, London Fog®, Mossimo®, Ocean Pacific®/OP®, Danskin®, Rocawear®,
Cannon®, Royal Velvet®, Fieldcrest®, Charisma®, Starter® and Waverly®, which it
licenses directly to leading retailers, herein referred to as
direct-to-retail, wholesalers and suppliers for use across a wide range of
product categories, including apparel, footwear, sportswear, fashion
accessories, home products and decor, and beauty and fragrance. In addition,
Scion LLC, a joint venture in which the Company has a 50% investment, owns the
Artful DodgerTM brand.  The Company’s brands are sold across a variety
of distribution channels, from the mass tier to the luxury market. The Company
supports its brands with innovative advertising and promotional campaigns
designed to increase brand awareness, and provides its licensees with
coordinated trend direction to enhance product appeal and help maintain and
build brand integrity.





The
Company has a business strategy designed to maximize the value of its brands by
entering into strategic licenses with partners that have the responsibility for
manufacturing and selling the licensed products.  Licensees are
selected based upon the Company's belief that they will be able to produce and
sell quality products in the categories of their specific expertise and that
they are capable of exceeding minimum sales targets and royalties that the
Company generally requires.





The
Company plans to continue to build its portfolio by acquiring additional brands.
In assessing potential acquisitions, the Company primarily evaluates the
strength of the target brand and the viability of future royalty streams. The
Company believes that this focused approach allows it to screen a wide pool of
consumer brand candidates, quickly evaluate acquisition targets and efficiently
complete due diligence for potential acquisitions.





In
addition, the Company also seeks to monetize its brands through international
licenses, partnerships and other arrangements, such as joint
ventures.





The
Company also continues to arrange, as agent, through its wholly-owned
subsidiary, Bright Star, for the manufacture of footwear products for mass
market and discount retailers under their private label brands. Bright Star has
no inventory and earns commissions on sales.




Since
October 2004, the Company has acquired the following 15 brands:




Date
      acquired
            
            BrandOctober
      2004
            
            Badgley
      MischkaJuly
      2005
            
            Joe
      BoxerSeptember
      2005
            
            RampageApril
      2006
            
            MuddAugust
      2006
            
            London
      FogOctober
      2006
            
            MossimoNovember
      2006
            
            Ocean
      Pacific/OPMarch
      2007
            
            DanskinMarch
      2007
            
            RocawearOctober
      2007
            
            Official-Pillowtex
      brands  (Cannon, Royal Velvet, Fieldcrest and
    Charisma)December
      2007
            
            StarterOctober
      2008
            
            Waverly







4





Through
its licensing model, the Company has eliminated inventory risk and substantially
reduced the operating exposure associated with traditional operating companies,
improved its cash flows and net income margins, and benefited from the
model's scalability, all of which enables the Company to leverage new licenses
with its existing infrastructure. The Company's objective is to capitalize on
its brand management expertise and relationships and continue to build a
diversified portfolio of consumer brands that generate increasing
revenues.




Additional
information




The
Company was incorporated under the laws of the state of Delaware in 1978. Its
principal executive offices are located at 1450 Broadway, New York, New York
10018 and its telephone number is (212) 730-0300. The Company’s website
address is www.iconixbrand.com. The information on the Company’s website does
not constitute part of this Form 10-K. The Company has included its website
address in this document as an inactive textual reference only. Candie’s®,
Bongo®, Joe Boxer®, Rampage®, Mudd® and London Fog® are the registered
trademarks of the Company’s wholly-owned subsidiary, IP Holdings; Badgley
Mischka® is the registered trademark of the Company’s wholly-owned
subsidiary, Badgley Mischka Licensing; Mossimo® is the registered trademark of
the Company’s wholly-owned subsidiary, Mossimo Holdings; Ocean Pacific®  and OP®  are the registered trademarks of the Company’s
wholly-owned subsidiary, OP Holdings; Danskin®, Danskin Now®, Rocawear®,
Starter® and Waverly® are the registered trademarks of the Company’s
wholly-owned subsidiary, Studio IP Holdings; and Fieldcrest®, Royal Velvet®,
Cannon® and Charisma® are the registered trademarks of the Company’s
wholly-owned subsidiary, Official-Pillowtex. Each of the other trademarks, trade
names or service marks of other companies appearing in this Form 10-K is the
property of its respective owner.




The Company's
brands





The
Company’s objective is to continue to develop and build a diversified portfolio
of iconic consumer brands by organically growing its existing portfolio and by
acquiring new brands that leverage the Company’s brand management expertise and
existing infrastructure. To achieve this objective, the Company intends
to:




·
            extend its existing
      brands by adding additional product categories, expanding the
      brands’ distribution and retail presence and optimizing its licensees’
      sales through innovative marketing that increases consumer awareness and
      loyalty;




·
            continue its international
      expansion through additional licenses, partnerships, joint ventures
      and other arrangements with leading retailers and wholesalers worldwide;
      and




·
            continue acquiring consumer
      brands with high consumer awareness, broad appeal, applicability to
      a range of product categories and an ability to diversify the Company’s
      portfolio.




In
managing its brands, the Company seeks to capitalize on the brands’ histories,
while simultaneously working to keep them relevant to today’s
consumer.





As of
December 31, 2008, the Company’s brand portfolio consisted of the following 17
iconic consumer brands:





Candie’s.
Candie’s is known primarily as a junior lifestyle brand, with products in the
footwear, apparel and accessories categories, and has achieved brand recognition
for its flirty and fun image, value prices and affiliations with celebrity
spokespeople. The Company purchased the brand from a predecessor company in
1993, making it the Company’s longest held trademark. The primary licensee for
Candie’s is Kohl’s Department Stores, Inc., herein referred to as Kohl’s, which
commenced the roll out of the brand in July 2005 in all of its stores with a
multi-category line of Candie’s lifestyle products, including sportswear, denim,
footwear, handbags, intimate apparel, children’s apparel, fragrance and home
accessories. In 2008, Candie’s shop-in-shops opened in all Kohl’s stores,
creating a brand specific shopping experience.  Celebrity spokespeople
for the Candie’s brand over the past two decades have included Jenny McCarthy,
Destiny’s Child, Alyssa Milano, Kelly Clarkson, Ashlee Simpson, Hilary Duff, Pat
Benatar, Fergie, and most recently, Hayden Panettiere.




Bongo. The
Bongo brand is positioned as a California lifestyle brand, with a broad range of
women’s and children’s casual apparel and accessories, including denim,
sportswear, eyewear, fragrance and watches. The brand was established in 1982
and was purchased by the Company in 1998. Bongo products are sold primarily
through mid-tier department stores, such as JC Penney, Kohl’s and Sears. The
Company has 10 Bongo licenses, including licenses in South America and Central
America. Celebrity spokespeople for the Bongo brand have included Liv Tyler,
Rachel Bilson, Nicole Richie, the stars of the top rated MTV television reality
showLaguna Beach,
Vanessa Minnillo, Kim Kardashian and Jesse McCartney.


5





Badgley
Mischka. The Badgley Mischka brand is known as one of the premiere
couture eveningwear brands. The brand was established in 1988 and was acquired
by the Company in October 2004. Badgley Mischka products are sold in luxury
department and specialty stores, including Bergdorf Goodman, Neiman Marcus and
Saks Fifth Avenue, with its largest retail categories being women’s apparel and
accessories. The Company has 19 Badgley Mischka licenses. Badgley Mischka
designs have been worn bysuch
celebrities as Angelina Jolie, Catherine Zeta Jones, Halle Berry, Kate Winslet,
Ashley and Mary Kate Olsen, and most recently, Teri Hatcher.




Joe Boxer.
Joe Boxer is a highly recognized underwear, sleepwear and loungewear brand known
for its irreverent and humorous image and provocative promotional events. The
brand was established in 1985 and was acquired by the Company in July 2005.
Since August 2001, Kmart Corporation, herein referred to as Kmart, a
wholly-owned subsidiary of Sears Holding Corporation, has held the exclusive
license for the brand in the United States covering apparel, fashion accessories
and home products for men, women, teens and children. In September 2006, the
Company expanded the license with Kmart to extend the brand into Sears stores.
The brand is also being developed internationally, with current licenses in
Canada, Mexico and Scandinavia.




Rampage.
Rampage was established in 1982 and is known as a contemporary/junior women’s
sportswear brand. The brand was acquired by the Company in September 2005.
Rampage products are sold through better department stores such as Macy’s, with
the largest retail categories being sportswear, footwear, intimate apparel and
swimwear. The Company licenses the brand to 12 wholesalers in the United States
and to partners in Chile, Thailand and the Middle East. Supermodel Petra Nemcova
has been the spokesperson for the Rampage brand and has modeled for its
campaigns for the past few seasons.  Currently, the spokesperson for
the brand is Gisele Bundchen.




Mudd. Mudd
is a highly recognizable junior apparel brand, particularly in the denim and
footwear categories. It was established in 1995 and acquired by the Company in
April 2006. In November 2008, the Company entered into a multi-year licensing
agreement with Kohl’s under which Kohl’s will be the exclusive U.S. retailer for
apparel, fashion accessories, jewelry and eyewear beginning Fall
2009.  Mudd footwear will continue to be distributed through mid-level
department stores such as JC Penney, Kohl’s and specialty stores.




London
Fog. London Fog is a classic brand known worldwide for its outerwear,
cold weather accessories, umbrellas, luggage and travel products. The brand was
established over 80 years ago and was acquired by the Company in August 2006.
The brand is sold primarily through the better department store channel. The
Company has 13 London Fog licenses, including a direct-to-retail license
agreement with Hudson’s Bay Corporation in Canada, covering apparel, accessories
and lifestyle products.




Mossimo.
Mossimo is known as a contemporary, active and youthful lifestyle brand and is
one of the largest apparel brands in the U.S.. The brand was established in 1986
and acquired by the Company in October 2006. Since 2000, Target Corporation,
herein referred to as Target, has held the exclusive Mossimo license in the
U.S., covering apparel products for men, women and children, including casual
sportswear, denim, swimwear, bodywear, watches, handbags and other fashion
accessories. The brand is also licensed to six wholesale partners in Australia,
New Zealand, South America, Mexico, the Philippines, and Japan.




Ocean
Pacific/OP. Ocean Pacific and OP are global action-sports lifestyle
apparel brands which trace their heritage to Ocean Pacific’s roots as a 1960’s
surfboard label. The Company acquired the Ocean Pacific brands in November 2006
at which time it assumed 15 domestic licenses covering such product categories
as footwear, sunglasses, kids’ apparel and fragrance. In 2008, the U.S. OP
business was converted to a direct-to-retail license with Wal-Mart Stores, Inc.,
herein referred to as Wal-Mart. In Spring 2008, OP launched exclusively in 1,000
Wal-Mart stores in the U.S, and will be rolling out to all stores in the U.S.,
Canada and Mexico for Spring 2009. Wal-Mart also holds the OP license for
Brazil, India and China. For 2008, the marketing campaign to support the
Wal-Mart launch featured seven young Hollywood celebrities including Rumer
Willis, Kristin Cavallari, Christina Milian, Josie Maran, Pete Wentz, Corbin
Bleu and Wilmer Valderrama.




Danskin.
Danskin, the Company’s oldest brand, is a 126 year-old iconic brand of women's
activewear, legwear, dancewear, yoga apparel and fitness equipment, which the
Company acquired in March 2007. The Danskin brand is sold through better
department, specialty and sporting goods stores and through freestanding Danskin
boutiques and Danskin.com. In addition, the Company has a direct-to-retail
license with Wal-Mart for its Danskin Now® brand for apparel and fitness
equipment.  The Danskin Now brand was repositioned and relaunched in
January 2009 with an expanded assortment of products and new spokesperson
Gabrielle Reece.




Rocawear.
Rocawear is a leading urban lifestyle apparel brand established by Shawn “Jay-Z”
Carter, Damon Dash and Kareem Burke in 1999. The Company acquired the Rocawear
brand in March 2007. There are 27 licenses for Rocawear products, including
men’s, women’s and kids’ apparel, outerwear, footwear, jewelry, handbags and
fragrance. Rocawear products are sold through better department and specialty
stores. The founder, Jay-Z, remains actively involved in the brand as an owner
of the core licensee, and serves as the brand’s creative director pursuant to an
endorsement and services agreement signed in March 2007.  Jay-Z was
featured in Rocawear’s 2008 advertising campaign.


6




Cannon.
Cannon is one of the most recognizable brands in home textiles with a strong
heritage and history and is known as the first textile brand to sew logos onto
products. When the Company acquired Cannon, it was distributed in over 1,000
regional department stores, including Meijer, ShopKo, Mervyn’s and Steinmart, as
well as in Wal-Mart and Costco. In February 2008, the Company signed a
direct-to-retail license with Kmart for Cannon to be sold exclusively in both
Kmart and Sears stores.  Cannon was established in 1887, making it the
Company’s third oldest brand.




Royal
Velvet. Royal Velvet is a distinctive luxury home textile brand that
strives to deliver the highest quality to consumers.  Royal Velvet
products include towels, sheets, rugs and shams.  The Royal Velvet
towel has been an industry standard since 1954. The core licensee for Royal
Velvet is Li & Fung Limited, which in February 2008 established an exclusive
distribution arrangement with Bed Bath & Beyond Inc.  Brooke
Shields and her family were featured in the most recent Royal Velvet advertising
campaign.




Fieldcrest.
Fieldcrest is a brand of contemporary relevance to the mass channel consumer.
The brand is known for quality bed and bath textiles that are easy care, soft,
easy to coordinate and classic in style. Fieldcrest home products are sold
through the mass channel, with Target having the exclusive direct-to-retail
license in the United States since Spring 2005. The Fieldcrest brand was created
in 1883, making it the Company’s second oldest brand.




Charisma.
Charisma home textiles were introduced in the 1970's and are known for their
quality materials and classic designs. Charisma products are currently
distributed through better department stores such as
Bloomingdales.  Our most recent advertising campaign featured Ivanka
Trump.




Starter.  Starter,
founded in 1971, is one of the original brands in licensed team merchandise and
is a highly recognized brand of athletic apparel and footwear. The Company
acquired Starter in December 2007.  At the time of the acquisition,
the brand was distributed in the United States primarily at Wal-Mart through a
number of different wholesale licensees. In July 2008, the brand was licensed to
Wal-Mart on a direct-to-retail basis. The Starter brand will have an expanded
re-launch in all U.S. Wal-Mart stores in Spring 2009, supported by an
advertising campaign featuring Tony Romo, quarterback of the Dallas Cowboys.
Starter is also licensed internationally and sold through retailers including
Carrefour and Metro.





Waverly.
Founded in 1923, Waverly is a premier home fashion and lifestyle brand and one
of the most recognized names in home decor. Waverly has two direct-to-retail
agreements, Waverly Home with Target and Waverly Home Classics with Lowe's
Companies, Inc. for a variety of select home furnishings.  Waverly
also has licenses for products including fabric, window treatments and bedding
that are sold through retailers such as Jo-Ann’s and JC Penney as well as
interior design rooms.




Scion
LLC





Scion is
a brand management and licensing company formed by the Company with Shawn
“Jay-Z” Carter in March 2007 to buy, create, develop and license brands across a
spectrum of consumer product categories. On November 7, 2007, Scion completed
its first brand acquisition when its wholly-owned subsidiary, Artful Holdings
LLC purchased Artful
Dodger, a high end urban apparel brand for a purchase price of $15.0
million. Concurrent with the acquisition of Artful Dodger, the brand was
licensed in the United States for all major apparel categories.  In 2008,
Artful Dodger shop-in-shops opened nationally in select Macy’s stores, creating
a brand specific shopping experience.  Artful Dodger has also been
licensed to wholesale partners and distributors in Canada and
Europe.





Iconix
China





On
September 5, 2008, the Company and Novel Fashions Holdings Limited, herein
referred to as Novel, formed a joint venture, herein referred to as Iconix
China, to develop, exploit and market the Company's brands in the People’s
Republic of China, Hong Kong, Macau and Taiwan, herein referred to as the China
territory. Pursuant to the terms of this transaction, the Company contributed to
Iconix China substantially all rights to its brands in the China territory and
committed to contribute $5.0 million, and Novel committed to contribute $20
million.  Upon closing of the transaction, the Company contributed
$2.0 million and Novel contributed $8.0 million.  The balance of the
parties’ respective contributions are due in 2009 and
2010.





Iconix
Latin America





In
December 2008, the Company contributed substantially all rights to its brands in
Mexico, Central America, South America, and the Caribbean, herein referred to as
the Latin America territory to Iconix Latin America LLC, herein referred to as
Iconix Latin America, a newly formed wholly-owned subsidiary.  On
December 29, 2008, New Brands America LLC, herein referred to as New Brands, an
affiliate of the Falic Group, purchased a 50% interest in Iconix Latin America,
which will assist the Company in developing, exploiting, marketing and
licensing the Company's brands in the Latin America territory.  In
consideration for its 50% interest in Iconix Latin America, New Brands agreed to
pay $6 million to the Company.  New Brands paid $1.0 million upon
closing of this transaction and has committed to pay an additional $5.0 million
over the 30 month period following closing.  As of December 31, 2008,
of this $5.0 million receivable, the current portion of $2.0 million (of which
$0.5 million was paid in February 2009) is included in the consolidated balance
sheet in accounts receivable and the long term portion of $3.0 million is
included in Other assets – non-current.


7


Bright
Star




Bright
Star provides design direction and arranges for the manufacturing and
distribution of men’s private label footwear products primarily for Wal-Mart
under its private labels. Bright Star acts solely as an agent and never assumes
ownership of the goods. For the years ended December 31, 2008, 2007, and 2006
Bright Star’s agency commissions represented approximately 1%, 2% and 3%,
respectively, of the Company’s revenues.




Transition
to a brand management company





Commencing
in May 2003, the Company began to implement a shift in its business
model designed to transform it from a wholesaler and retailer of jeanswear and
footwear products to a brand management company focused on licensing and
marketing its portfolio of consumer brands. In May 2003, the Company licensed
out both its Bongo footwear business and its Candie’s footwear business to third
party licensees, and, by the end of 2003, it had eliminated all of its Candie’s
retail concept stores. Effective in August 2004, the Company also licensed out
its Bongo jeanswear operations, which were previously conducted through its
wholly-owned subsidiary, Unzipped Apparel, LLC, herein referred to as Unzipped.
Beginning January 2005, the Company also changed its business practices with
respect to its Bright Star subsidiary, as a result of which Bright Star began
acting solely as an agent for, as opposed to an indirect wholesaler to, its
private label footwear clients. As a result of these changes to its operations,
since the end of 2004, the Company has had no wholesale or retail operations or
product inventory and has operated solely as a brand management
company.





Since
October 2004, the Company has acquired 15 new brands, bringing its total number
of iconic brands to 17 as of December 31, 2008, and, since July 2005, when the
Company entered into its first multi-category retail license with Kohl’s, the
Company has entered into or acquired multi-category retail licenses with a
number of other retailers, such as Target, Kmart and Wal-Mart. As of December
31, 2008, the Company had granted approximately 200 wholesale and retail
licenses.





Licensing
and other relationships




The
Company's business strategy is to maximize the value of its brands by entering
into strategic licenses with partners who have the responsibility for
manufacturing and selling the licensed products. The Company licenses its brands
with respect to a broad range of products, including apparel, footwear, fashion
accessories, sportswear, home products and décor, and beauty and fragrance. The
Company seeks licensees with the ability to produce and sell quality products in
their licensed categories and the demonstrated ability to meet and exceed
minimum sales thresholds and royalty payments to the Company.





The
Company maintains direct-to-retail and traditional wholesale licenses.
Typically, in a direct-to-retail license, the Company grants exclusive rights to
one of its brands to a single national retailer for a broad range of product
categories. For example, the Candie’s brand is licensed exclusively to Kohl’s in
the United States across approximately 25 product categories. Direct-to-retail
licenses provide retailers with proprietary rights to national brands
and favorable economics. Proprietary brands also typically receive greater
support from retailers, including premium shelf space and strong in-store
presentations.  In a traditional wholesale license, the Company grants
rights to a single or small group of related product categories to a wholesale
supplier, who is permitted to sell licensed products to multiple stores within
an approved channel of distribution. For example, the Company licenses the
Rocawear brand to numerous wholesale suppliers for products ranging from
footwear and apparel to handbags and fragrances, for sale and distribution to
department and specialty stores.





Each of
the Company’s licenses has a stipulated territory or territories, as well as
distribution channels in which the licensed products may be sold. Currently,
most of the Company’s licenses are U.S. based licenses, but the Company also
seeks to monetize its trademarks internationally through licenses, partnerships,
and other arrangements, such as joint ventures.  In 2008, the Company
entered into two international joint ventures.  For further
information, see above for discussion on Iconix China and Iconix Latin
America.





The
Company's licenses typically require the licensee to pay the Company royalties
based upon net sales with guaranteed minimum royalties in the event that net
sales do not reach certain specified targets. The Company's licenses also
typically require the licensees to pay to the Company certain minimum amounts
for the advertising and marketing of the respective licensed brands. As of
January 1, 2009 the Company had a contractual right to receive over $500 million
of aggregate minimum royalty revenue through the balance of all of our current
licenses, excluding any renewals.




The
Company believes that coordination of brand presentation across product
categories is critical to maintaining the strength and integrity of its brands.
Accordingly, the Company maintains the right in its licenses to preview and
approve all product, packaging and presentation of the licensed mark. Moreover,
in most licenses, prior to each season, representatives of the Company supply
licensees with trend guidance as to the “look and feel” of the current trends
for the season, including colors, fabrics, silhouettes and an overall style
sensibility, and then work with licensees to coordinate the licensed products
across the categories to maintain the cohesiveness of the brand's overall
presentation in the market place. Thereafter, the Company obtains and approves
(or objects and requires modification to) product and packaging provided by each
licensee on an on-going basis. In addition, the Company communicates with its
licensees throughout the year to obtain and review reporting of sales and the
calculation and payment of royalties.


8





For the
year ended December 31, 2008, the Company’s largest direct-to-retail licenses
were with Target for the Mossimo brand, Kohl’s for the Candie’s brand, and Kmart
for the Joe Boxer brand, which collectively represented 19% of total revenue for
the period.  The Company’s largest wholesale licenses were for
Rocawear’s men’s apparel and junior sportswear, and Royal Velvet and Cannon home
furnishings, which collectively represented 22% of total revenue for the
period.





Key
direct-to-retail licenses




Target
licenses




Mossimo.  As part
of the Company's acquisition of the Mossimo trademarks in October
2006, the Company acquired the license with Target, which was originally signed
in 2000 and was subsequently amended and restated in March 2006. Pursuant
to this license, Target has the exclusive right to produce and distribute
substantially all Mossimo-branded products sold in the United States, its
territories and possessions through Target retail stores. In January 2009,
Target renewed its license through January 31, 2012. If Target is current with
payments of its obligations under the license, Target has the right to renew the
license on the same terms and conditions for successive additional terms of two
years each.




Under the
Target license, Target pays royalty fees based on certain percentages of its net
sales of Mossimo-branded products, subject to its obligation to pay a guaranteed
minimum royalty for each contract year.  The revenue generated by this
license totaled 9%, 13% and 5% of the Company’s overall revenue in the years
ended December 31, 2008, 2007 and 2006, respectively.





Fieldcrest.  As
part of the Company's acquisition of Official-Pillowtex in October 2007,
the Company acquired the license with Target for the Fieldcrest brand, which
commenced in March 2004. Pursuant to this license, Target has the exclusive
right to produce and distribute substantially all Fieldcrest-branded home
furnishing products sold in the United States, its territories and possessions
through Target retail stores. The initial term of this license expires on July
31, 2010, subject to Target’s option to renew it for an additional term of five
years.





Waverly.  As part
of the Company's acquisition of Waverly in October 2008, the Company
acquired the license with Target for the Waverly brand, which was originally
signed in April 2005 and was subsequently amended and restated in February 2008,
and again in September 2008. Pursuant to this license, Target has the exclusive
right to produce and distribute substantially all Waverly Home-branded home
furnishing products sold in the United States, its territories and possessions
through Target retail stores. The current term of this license expires on
January 31, 2011, subject to Target’s option to renew it for two consecutive
additional terms of one year.





Kohl’s
licenses




Candie’s.  In
December 2004, the Company entered into a license agreement with Kohl’s.
Pursuant to this license, the Company granted Kohl’s the exclusive right to
design, manufacture, sell and distribute a broad range of products under the
Candie’s trademark, including women’s, juniors’ and children’s apparel,
accessories (except prescription eyewear), beauty and personal care products,
home accessories and electronics. Kohl’s was also granted the non-exclusive
right to sell footwear and handbags bearing the Candie’s brand through December
31, 2006, which rights became exclusive to Kohl’s on January 1, 2007. The
initial term of the Kohl’s license expires on January 29, 2011, subject to
Kohl’s option to renew it for up to three additional terms of five years, each
contingent on Kohl's meeting specified performance and minimum sale standards.
The agreement also provides for minimum royalties that Kohl’s is obligated to
pay the Company for each contract year (the first contract year ended December
31, 2006).




The
revenue generated from this license totaled 5%, 8%, and 14% of the
Company’s overall revenue for the years ended December 31, 2008, 2007 and 2006
respectively. Kohl’s does not have the right to sell Candie’s ophthalmic eyewear
(currently sold predominantly in doctors’ offices), which has been licensed to
Viva International Group, Inc. since 1998.




Mudd.  In November
2008, the Company entered into a license agreement with Kohl’s granting Kohl’s
the exclusive right to design, manufacture, sell and distribute a broad range of
Mudd-branded apparel and accessories in the United States and its territories.
The initial term of this license expires on January 31, 2015, subject to Kohl’s
option to renew for up to three additional consecutive terms of five
years.  The agreement also provides for minimum royalties that Kohl’s
is obligated to pay the Company for each contract year.





Kmart/Sears
licenses




Joe Boxer.  As part
of the Company's acquisition of Joe Boxer in July 2005, the Company acquired the
license with Kmart, which commenced in August 2001, pursuant to which Kmart
was granted the exclusive right to manufacture, market and sell through Kmart
stores located in the United States and its territories a broad range of
products under the Joe Boxer trademark, including men’s, women’s and children’s
underwear, apparel, apparel-related accessories, footwear and home products, for
an initial term that was due to expire in December 2007.




9





In
September 2006, the Company entered into a new license with Kmart that extended
the initial term through December 31, 2010, subject to Kmart’s option to renew
the license for up to four additional terms of five years. The new license also
provides for guaranteed annual minimums and provides for the expansion of Joe
Boxer’s distribution into Sears stores. The revenue generated from this license
with Kmart totaled 5%, 6%, and 24% of the Company’s overall revenue in the years
ended December 31, 2008, 2007 and 2006, respectively.





Cannon.  In
February 2008, the Company entered into a license agreement with Kmart granting
Kmart the exclusive right to design, manufacture, sell and distribute a broad
range of home furnishings under the Cannon trademark in the United States and
Canada. The initial term of this license expires on February 1, 2014, subject to
Kmart’s option to renew for up to three additional consecutive terms of five
years, each contingent on Kmart meeting specified performance and minimum sale
standards.  The agreement also provides for minimum royalties that
Kmart is obligated to pay the Company for each contract year.  A full
launch for the Cannon brand in both Kmart and Sears stores is scheduled for
April 2009.





Wal-Mart
licenses





Ocean
Pacific/OP.  In August 2007, the Company entered into an
exclusive license agreement with Wal-Mart granting Wal-Mart the right to design,
manufacture, sell and distribute a broad range of apparel and accessories under
the Ocean Pacific/OP marks in the United States. The agreement also grants
Wal-Mart rights to use the brands in Brazil, China and India, as well as the
right of first negotiation with respect to other international territories. The
initial term of this license expires on June 30, 2011, subject to Wal-Mart’s
option to renew for up to three additional two year terms, each contingent on
Wal-Mart meeting specified performance and minimum sales
standards.  The agreement also provides for minimum royalties that
Wal-Mart is obligated to pay the Company for each contract year.





Danskin Now.  As
part of the Danskin brand acquisition in March 2007, the Company acquired a
license with Wal-Mart, which commenced in 2003, pursuant to which Wal-Mart
was granted the exclusive right to manufacture, market and sell through Wal-Mart
stores located in the United States and its territories a broad range of active
apparel and related products under the Danskin Now trademark, for an initial
term expiring in December 2008. The license provided for guaranteed minimum
payments to the Company through December 2008.




In July
2008, the Company entered into a new license agreement with Wal-Mart for the
period commencing January 1, 2009 and continuing through December 31, 2010,
subject to Wal-Mart’s option to renew for up to three additional three year
terms, each contingent on Wal-Mart meeting specified performance and minimum
sales standards. Further, the licensed territory was expanded from the prior
agreement to include Canada, Central America and Argentina.  The new
license also provides for guaranteed annual minimum royalties that Wal-Mart is
obligated to pay the Company for each contract year.





Starter.  In
December 2007, the Company entered into a license agreement with Wal-Mart
granting Wal-Mart the exclusive right to design, manufacture, sell and
distribute a broad range of apparel and accessories under the Starter trademark
in the United States, Canada and Mexico. The initial term of this license
expires on December 31, 2013, subject to Wal-Mart’s option to renew for up to
three additional consecutive terms of five years, each contingent on Wal-Mart
meeting specified performance and minimum sales standards.  The
agreement also provides for minimum royalties that Wal-Mart is obligated to pay
the Company for each contract year.





Key
wholesale licenses





Li & Fung USA. As
part of the Company's acquisition of Official-Pillowtex in October 2007,
the Company acquired the licenses with Li & Fung USA for the Royal Velvet
and Cannon brands. Pursuant to these licenses, Li & Fung USA has
the exclusive right to produce and distribute Cannon branded home
furnishing products in certain countries outside of the United States and Canada
and the worldwide right to produce and distribute home furnishing products under
the Royal Velvet marks. The initial terms of the licenses expire on December 31,
2013, subject to Li & Fung USA's option to renew for additional three years
terms for Royal Velvet and additional five year terms for Cannon.





Marketing




The
Company believes that marketing is a critical element in maximizing brand value
to its licensees and to the Company. The Company’s in-house marketing team
tailors advertising for each of the Company’s brands, and each year the Company
develops new advertising campaigns that incorporate the design aesthetic of each
brand.




The
Company believes that its innovative national advertising campaigns, including
those featuring celebrities and performers, result in increased sales and
consumer awareness of its brands. Because of the Company’s established
relationships with celebrities, performers, agents, magazine publishers and the
media in general, the Company has been able to leverage advertising dollars into
successful public relations campaigns that reach tens of millions of
consumers.


10


The
Company’s advertising expenditures for each of its brands are dedicated largely
to creating and developing creative advertising concepts, reaching appropriate
arrangements with key celebrities or other models and participants,
advertisements in magazines and trade publications, running Internet
advertisements and promoting public relations events, securing product
placements and developing sweepstakes and media contests often featuring
personal appearances and concerts. The advertisements for the Company’s various
brands have appeared in fashion magazines such asInStyle,Seventeen andVogue, as well as in popular
lifestyle and entertainment magazines such asUs andIn Touch, in newspapers and
on outdoor billboards. The Company also uses television commercials to promote
certain of its brands, partnering with licensees to create and air commercials
that will generate excitement for its brands with consumers. In 2008, television
commercials aired featuring Hayden Panettierre for Candie’s at Kohl’s and the
newly launched Rocawear fragrance by Elizabeth Arden.  Further, the
Company markets certain of its brands online, through email blasts, banner
advertisements, online sweepstakes and gift with purchase
programs.  The Company maintains a website (www.iconixbrand.com)
to further market its brands by providing brand materials and examples of
current advertising campaigns. In addition, the Company has established an
intranet with approved vendors and service providers who can access additional
materials and download them through a secure network. The Company also
maintains, in some cases through its licensees, separate, dedicated sites for
its brands.




A
majority of the Company’s license agreements require the payment of an
advertising royalty by the licensee. In certain cases, the Company’s licensees
supplement the marketing of the Company’s brands by performing additional
advertising through trade, cooperative or other sources.




The
Company has organized its brand management and marketing functions to foster the
ability to develop innovative and creative marketing and brand support for each
existing brand. This structure can be leveraged to support future acquisitions
with minimal growth in expense. Typically, each brand is staffed with a brand
manager who is supported by a fashion and product development team and who works
closely with the creative and graphic groups in the advertising department.
Although each brand’s creative direction and image is developed independently,
the creative team meets together on a regular basis to share ideas that might
work across multiple or all brands. Licensees are provided information both
through group meetings and individual sessions, as well as through intranet
sites, where creative ideas, brand marketing campaigns and graphics are
accessible and easy to download and use in an authorized manner.




Trend
direction




The
Company’s in-house trend direction teams support the brands by providing
licensees with unified trend direction and guidance and by coordinating the
brand image across licensees and product categories. The Company’s trend
direction personnel are focused on identifying and interpreting the most current
trends, both domestically and internationally, and helping forecast the future
design and product demands of the respective brands’ customers. Typically, the
Company develops a trend guide, including colors, fabrics, silhouettes and an
overall style sensibility for each brand and for each product season, and then
works with licensees to maintain consistency with the overall brand presentation
across product categories. In addition, the Company has product approval rights
in most licenses and further controls the look and mix of products its licensees
produce through that process. With respect to Badgley Mischka, Mossimo and
Rocawear, the Company has contracted the exclusive services of the designers who
founded the respective brands to control creative direction.




The
Company Website




The
Company maintains a website atwww.iconixbrand.com,
which provides a wide variety of information on each of its brands, including
brand books and examples of current advertising campaigns. The Company also
makes available free of charge on its website its annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments
to those reports filed with or furnished to the Securities and Exchange
Commission, herein referred to as the SEC, under applicable law as soon as
reasonably practicable after it files such material. The Company’s website also
contains information about its history, investor relations, governance and links
to access copies of its publicly filed documents.  Further, the
Company has established an intranet with approved vendors and service providers
who can access additional materials and download them through a secure network.
In addition, there are websites for most of the Company’s brands, operated by
the Company or its licensees, for example, atwww.candies.com, www.badgleymischka.com,
www.joeboxer.com and
www.rocawear.com. The
information regarding the Company’s website address and/or those established for
its brands is provided for convenience, and the Company is not including the
information contained on the Company’s and brands’ websites as part of, or
incorporating it by reference into, this Annual Report on Form
10-K.




Competition




The
Company’s brands are all subject to extensive competition by various domestic
and foreign brands. Each of its brands has many competitors within each of its
specific distribution channels that span a broad variety of product categories
including the apparel and home furnishings and decor industries. For
example, while Rampage may compete with Guess and XOXO in the mid-tier jeanswear
business, Joe Boxer competes with Hanes, Calvin Klein and Jockey with respect to
underwear in the mass tier, and Badgley Mischka competes with other couture
apparel and bridal brands in the luxury market, such as Vera Wang. Other of our
brands (such as Danskin), which are distributed both at the mass level (through
the diffusion brand Danskin Now) and at the department and specialty store
level, may have many competitors in different or numerous distribution channels.
These competitors have the ability to compete with the Company’s licensees in
terms of fashion, quality, price and/or advertising.


11




In
addition, the Company faces competition for retail licenses and brand
acquisitions. Companies owning established brands may decide to enter into
licensing arrangements with retailers similar to the ones the Company currently
has in place, thus creating direct competition. Similarly, the retailers to
which the Company currently, or may otherwise, licenses its brands, may decide
to develop or purchase brands rather than enter into license agreements with the
Company. The Company also competes with traditional apparel and consumer brand
companies and with other brand management companies for
acquisitions.





Trademarks





The
Company’s trademarks are owned by six subsidiaries. IP Holdings owns the
Candie’s, Bongo, Joe Boxer, Rampage, Mudd and London Fog related trademarks.
Badgley Mischka Licensing owns the Badgley Mischka related trademarks; Mossimo
Holdings owns the Mossimo related trademarks; OP Holdings owns the Ocean
Pacific/OP related trademarks; Studio IP Holdings owns the Danskin, Rocawear,
Starter and Waverly related trademarks; and Official-Pillowtex owns the
Fieldcrest, Royal Velvet, Cannon and Charisma trademarks, each for numerous
categories of goods. These trademarks and associated marks are registered or
pending registration with the U.S. Patent and Trademark Office in block letter
and/or logo formats, as well as in combination with a variety of ancillary marks
for use with respect to, depending on the brand, a variety of product
categories, including footwear, apparel, fragrance, handbags, watches and
various other goods and services, including in some cases, home accessories and
electronics. The Company intends to renew these registrations as appropriate
prior to expiration. In addition, the Company’s subsidiaries register their
trademarks in other countries and regions around the world.




The
Company monitors on an ongoing basis unauthorized use and filings of the
Company’s trademarks, and the Company relies primarily upon a combination of
federal, state, and local laws, as well as contractual restrictions to protect
its intellectual property rights both domestically and
internationally.




Seasonality





The
majority of the products manufactured and sold under the Company's brands and
licenses are for apparel, accessories, footwear and home products and decor,
which sales vary as a result of holidays, weather, and the timing of product
shipments. Accordingly, a portion of the Company’s revenue from its licensees,
particularly from those licensees whose actual sales royalties exceed minimum
royalties, is subject to seasonal fluctuations. The results of operations in any
quarter therefore will not necessarily be indicative of the results that may be
achieved for a full fiscal year or any future quarter.




Employees




As of
December 31, 2008, the Company had a total of 82 full-time employees. Of these
82 employees, 4 were named executive officers of the Company.  The
remaining employees are senior managers, middle management, marketing, and
administrative personnel. None of the Company’s employees are represented by a
labor union. The Company considers its relationship with its employees to be
satisfactory.




Financial information about
geographical areas





Revenues
from external customers related to operations in the United States and foreign
countries are as follows:




Year Ended
                    
                    Year Ended
                    
                    Year EndedDecember 31,
                    
                    December 31,
                    
                    December 31,(000's omitted)
                    
                    2008
                    
                    2007
                    
                    2006Revenues
      from external customers:United
      States
                    
                    
                    $
                    195,856
                    
                    
                    $
                    150,376
                    
                    
                    $
                    77,564Foreign
      countries
                    
                    
                    
                    20,905
                    
                    
                    
                    9,628
                    
                    
                    
                    3,130$
                    216,761
                    
                    
                    $
                    160,004
                    
                    
                    $
                    80,694


12





Item
1.A. Risk Factors




We
operate in a changing environment that involves numerous known and unknown risks
and uncertainties that could impact our operations. The following highlights
some of the factors that have affected, and in the future, could affect our
operations:




The
failure of our licensees to adequately produce, market and sell products bearing
our brand names in their license categories or to pay their obligations under
their license agreements could result in a decline in our results of
operations.




Our
revenues are almost entirely dependent on royalty payments made to us under our
licensing agreements. Although the licensing agreements for our brands usually
require the advance payment to us of a portion of the licensing fees and in most
cases provide for guaranteed minimum royalty payments to us, the failure of our
licensees to satisfy their obligations under these agreements or their inability
to operate successfully or at all, could result in their breach and/or the early
termination of such agreements, their non-renewal of such agreements or our
decision to amend such agreements to reduce the guaranteed minimums due
thereunder, thereby eliminating some or all of that stream of revenue. Moreover,
during the terms of the license agreements, we are substantially dependent upon
the abilities of our licensees to maintain the quality and marketability of the
products bearing our trademarks, as their failure to do so could materially
tarnish our brands, thereby harming our future growth and prospects. In
addition, the failure of our licensees to meet their production, manufacturing
and distribution requirements could cause a decline in their sales and
potentially decrease the amount of royalty payments (over and above the
guaranteed minimums) due to us. A weak economy or softness in the apparel and
retail sectors could exacerbate this risk. This, in turn, could decrease our
potential revenues. Moreover, the concurrent failure by several of our material
licensees to meet their financial obligations to us could jeopardize our ability
to meet the debt service coverage ratios required in connection with our senior
secured term loan facility, herein referred to as our term loan facility, and
the asset-backed notes issued by our subsidiary IP Holdings, herein referred to
as our asset-backed notes, and/or our ability or IP Holdings’ ability to make
required payments with respect to such indebtedness. The failure to meet such
debt service coverage ratios or to make such required payments would, with
respect to our term loan facility, give the lenders thereunder the right to
foreclose on the Ocean Pacific/OP, Danskin, Rocawear, Mossimo, Starter and
Waverly trademarks, the trademarks acquired by us in the Official-Pillowtex
acquisition and other related intellectual property assets securing the debt
outstanding under such facility and, with respect to the asset-backed notes,
give the holders of such notes the right to foreclose on the Candie’s, Bongo,
Joe Boxer, Rampage, Mudd and London Fog trademarks and other related
intellectual property assets securing such notes.




Our
business is dependent on continued market acceptance of our brands and the
products of our licensees bearing these brands.




Although
most of our licensees guarantee minimum net sales and minimum royalties to us, a
failure of our brands or of products bearing our brands to achieve or maintain
market acceptance could cause a reduction of our licensing revenues, and could
further cause existing licensees not to renew their agreements. Such failure
could also cause the devaluation of our trademarks, which are our primary
assets, making it more difficult for us to renew our current licenses upon their
expiration or enter into new or additional licenses for our trademarks. In
addition, if such devaluation of our trademarks were to occur, a material
impairment in the carrying value of one or more of our trademarks could also
occur and be charged as an expense to our operating results. Continued market
acceptance of our brands and our licensees’ products, as well as market
acceptance of any future products bearing our brands, is subject to a high
degree of uncertainty, made more so by constantly changing consumer tastes and
preferences. Maintaining market acceptance of our licensees’ products and
creating market acceptance of new products and categories of products bearing
our marks will require our continuing and substantial marketing efforts, which
may, from time to time, also include our expenditure of significant additional
funds to keep pace with changing consumer demands. Additional marketing efforts
and expenditures may not, however, result in either increased market acceptance
of, or additional licenses for, our trademarks or increased market acceptance,
or sales, of our licensees’ products. Furthermore, while we believe that we
currently maintain sufficient control over the products our licensees’ produce
under our brand names through the provision of trend direction and our right to
preview and approve a majority of such products, including their presentation
and packaging, we do not actually design or manufacture products bearing our
marks and therefore have more limited control over such products’ quality and
design than a traditional product manufacturer might have.




Our
existing and future debt obligations could impair our liquidity and financial
condition, and in the event we are unable to meet our debt obligations we could
lose title to our trademarks.





As of
December 31, 2008, we had consolidated debt of approximately $668.0 million,
including secured debt of $372.4 million ($255.3 million under our term loan
facility and $117.1 million under asset-backed notes issued by our subsidiary,
IP Holdings), primarily all of which was incurred in connection with our
acquisition activities. We may also assume or incur additional debt, including
secured debt, in the future in connection with, or to fund, future acquisitions.
Our debt obligations:




·
            could
      impair our liquidity;




·
            could
      make it more difficult for us to satisfy our other
      obligations;





13




·
              require
      us to dedicate a substantial portion of our cash flow to payments on our
      debt obligations, which reduces the availability of our cash flow to fund
      working capital, capital expenditures and other corporate
      requirements;
  ·
              could
      impede us from obtaining additional financing in the future for working
      capital, capital expenditures, acquisitions and general corporate
      purposes;
  ·
              impose
      restrictions on us with respect to the use of our available cash,
      including in connection with future
  acquisitions;
 
 ·
              make
      us more vulnerable in the event of a downturn in our business prospects
      and could limit our flexibility to plan for, or react to, changes in our
      licensing markets; and
  ·
              place
      us at a competitive disadvantage when compared to our competitors who have
      less debt.




While we
believe that by virtue of the guaranteed minimum royalty payments due to us
under our licenses we will generate sufficient revenues from our licensing
operations to satisfy our obligations for the foreseeable future, in the event
that we were to fail in the future to make any required payment under agreements
governing our indebtedness or fail to comply with the financial and operating
covenants contained in those agreements, we would be in default regarding that
indebtedness. A debt default could significantly diminish the market value and
marketability of our common stock and could result in the acceleration of the
payment obligations under all or a portion of our consolidated indebtedness. In
the case of our term loan facility, it would enable the lenders to foreclose on
the assets securing such debt, including the Ocean Pacific/OP, Danskin,
Rocawear, Starter, Mossimo and Waverly trademarks, as well as the trademarks
acquired by us in connection with the Official-Pillowtex acquisition, and, in
the case of the asset-backed notes, it would enable the holders of such notes to
foreclose on the assets securing such notes, including the Candie’s, Bongo, Joe
Boxer, Rampage, Mudd and London Fog trademarks.





We
have experienced rapid growth in recent years. If we fail to manage this or any
future growth, our business and operating results could be harmed.




Our
business has grown dramatically over the past several years. For example, our
revenue increased from $80.7 million for the year ended December 31, 2006 to
$216.8 million for the year ended December 31, 2008. Our growth has largely
resulted from our acquisition of new brands of various sizes. Since October
2004, we acquired 15 of the 17 iconic brands we currently own and increased our
total number of licenses from approximately 18 to approximately 200.
Furthermore, we continue to evaluate and pursue appropriate acquisition
opportunities to the extent that we believe that such opportunities would be in
the best interests of the Company and its shareholders.




This
significant growth has placed considerable demands on our management and other
resources and continued growth could place additional demands on such resources.
Our ability to compete effectively and to manage future growth, if any, will
depend on the sufficiency and adequacy of our current resources and
infrastructure and our ability to continue to identify, attract and retain
personnel to manage our brands. There can be no assurance that our personnel,
systems, procedures and controls will be adequate to support our operations and
properly oversee our brands. The failure to support our operations effectively
and properly oversee our brands could cause harm to our brands and have a
material adverse effect on our business, financial condition and results of
operations. In addition, we may be unable to leverage our core competencies in
managing apparel brands to managing brands in new product
categories.




Also,
there can be no assurance that we will be able to sustain our recent growth. Our
growth may be limited by a number of factors including increased competition for
retail license and brand acquisitions, insufficient capitalization for future
acquisitions and the lack of attractive acquisition targets, each as described
further below. In addition, as we continue to grow larger, we will likely need
to make additional and larger acquisitions to continue to grow at our current
pace.




If
we are unable to identify and successfully acquire additional trademarks, our
growth may be limited, and, even if additional trademarks are acquired, we may
not realize anticipated benefits due to integration or licensing
difficulties.




A key
component of our growth strategy is the acquisition of additional trademarks.
Historically, we have been involved in numerous acquisitions of varying sizes.
We continue to explore new acquisitions. As our competitors continue to pursue
our brand management model, acquisitions may become more expensive and suitable
acquisition candidates could become more difficult to find. In addition, even if
we successfully acquire additional trademarks, we may not be able to achieve or
maintain profitability levels that justify our investment in, or realize planned
benefits with respect to, those additional brands. Although we seek to temper
our acquisition risks by following acquisition guidelines relating to the
existing strength of the brand, its diversification benefits to us, its
potential licensing scale and the projected rate of return on our investment,
acquisitions, whether they be of additional intellectual property assets or of
the companies that own them, entail numerous risks, any of which could
detrimentally affect our results of operations and/or the value of our equity.
These risks include, among others:


14




·
              unanticipated
      costs;
 
 ·
              negative
      effects on reported results of operations from acquisition related charges
      and amortization of acquired
intangibles;
 
 ·
              diversion
      of management’s attention from other business
  concerns;
 
 ·
              the
      challenges of maintaining focus on, and continuing to execute, core
      strategies and business plans as our brand and license portfolio grows and
      becomes more diversified;
 
 ·
              adverse
      effects on existing licensing
relationships;
 
 ·
              potential
      difficulties associated with the retention of key employees, and the
      assimilation of any other employees, that may be retained by us in
      connection with or as a result of our acquisitions;
  and
 
 ·
              risks
      of entering new domestic and international licensing markets (whether it
      be with respect to new licensed product categories or new licensed product
      distribution channels) or markets in which we have limited prior
      experience.




Acquiring
additional trademarks could also have a significant effect on our financial
position and could cause substantial fluctuations in our quarterly and yearly
operating results. Acquisitions could result in the recording of significant
goodwill and intangible assets on our financial statements, the amortization or
impairment of which would reduce our reported earnings in subsequent years. No
assurance can be given with respect to the timing, likelihood or financial or
business effect of any possible transaction. Moreover, as discussed below, our
ability to grow through the acquisition of additional trademarks will also
depend on the availability of capital to complete the necessary acquisition
arrangements. In the event that we are unable to obtain debt financing on
acceptable terms for a particular acquisition, we may elect to pursue the
acquisition through the issuance by us of shares of our common stock (and in
certain cases, convertible securities) as equity consideration which could
dilute our common stock because it could reduce our earnings per share, and any
such dilution could reduce the market price of our common stock unless and until
we were able to achieve revenue growth or cost savings and other business
economies sufficient to offset the effect of such an issuance. As a result,
there is no guarantee that our stockholders will achieve greater returns as a
result of any future acquisitions we complete.




We
may require additional capital to finance the acquisition of additional brands
and our inability to raise such capital on beneficial terms or at all could
restrict our growth.




We may,
in the future, require additional capital to help fund all or part of potential
acquisitions. If, at the time required, we do not have sufficient cash to
finance those additional capital needs, we will need to raise additional funds
through equity and/or debt financing. We cannot guarantee that, if and when
needed, additional financing will be available to us on acceptable terms or at
all. If additional capital is needed and is either unavailable or cost
prohibitive, our growth may be limited as we may need to change our business
strategy to slow the rate of, or eliminate, our expansion plans. In addition,
any additional financing we undertake could impose additional covenants upon us
that restrict our operating flexibility, and, if we issue equity securities to
raise capital, our existing stockholders may experience dilution or the new
securities may have rights senior to those of our common stock.




Because
of the intense competition within our licensees’ markets and the strength of
some of their competitors, we and our licensees may not be able to continue to
compete successfully.




Currently,
most of our trademark licenses are for products in the apparel, fashion
accessories, footwear, beauty and fragrance, and home products and
decor industries, in which our licensees face intense competition,
including from our other brands and licensees. In general, competitive factors
include quality, price, style, name recognition and service. In addition,
various fads and the limited availability of shelf space could affect
competition for our licensees’ products. Many of our licensees’ competitors have
greater financial, distribution, marketing and other resources than our
licensees and have achieved significant name recognition for their brand names.
Our licensees may be unable to successfully compete in the markets for their
products, and we may not be able to continue to compete successfully with
respect to our licensing arrangements.


15





If
our competition for retail licenses and brand acquisitions increases, our growth
plans could be slowed.




We may
face increasing competition in the future for retail licenses as other companies
owning established brands may decide to enter into licensing arrangements with
retailers similar to the ones we currently have in place. Furthermore, our
current or potential direct-to-retail licensees may decide to develop or
purchase brands rather than maintain or enter into license agreements with us.
We also compete with traditional apparel and consumer brand companies, other
brand management companies and private equity groups for brand acquisitions. If
our competition for retail licenses and brand acquisitions increases, it may
take us longer to procure additional retail licenses and/or acquire additional
brands, which could slow down our growth rate.




Our
licensees are subject to risks and uncertainties of foreign manufacturing that
could interrupt their operations or increase their operating costs, thereby
affecting their ability to deliver goods to the market, reduce or delay their
sales and decrease our potential royalty revenues.




Substantially
all of the products sold by our licensees are manufactured overseas. There are
substantial risks associated with foreign manufacturing, including changes in
laws relating to quotas, and the payment of tariffs and duties, fluctuations in
foreign currency exchange rates, shipping delays and international political,
regulatory and economic developments. Any of these risks could increase our
licensees’ operating costs. Our licensees also import finished products and
assume all risk of loss and damage with respect to these goods once they are
shipped by their suppliers. If these goods are destroyed or damaged during
shipment, the revenues of our licensees, and thus our royalty revenues over and
above the guaranteed minimums, could be reduced as a result of our licensees’
inability to deliver or their delay in delivering their products.




Our
failure to protect our proprietary rights could compromise our competitive
position and decrease the value of our brands.




We own,
through our wholly-owned subsidiaries, U.S. federal trademark registrations and
foreign trademark registrations for our brands that are vital to the success and
further growth of our business and which we believe have significant value. We
monitor on an ongoing basis unauthorized filings of our trademarks and
imitations thereof, and rely primarily upon a combination of trademarks,
copyrights and contractual restrictions to protect and enforce our intellectual
property rights domestically and internationally. We believe that such measures
afford only limited protection and, accordingly, there can be no assurance that
the actions taken by us to establish, protect and enforce our trademarks and
other proprietary rights will prevent infringement of our intellectual property
rights by others, or prevent the loss of licensing revenue or other damages
caused therefrom.




For
instance, despite our efforts to protect and enforce our intellectual property
rights, unauthorized parties may attempt to copy aspects of our intellectual
property, which could harm the reputation of our brands, decrease their value
and/or cause a decline in our licensees’ sales and thus our revenues. Further,
we and our licensees may not be able to detect infringement of our intellectual
property rights quickly or at all, and at times we or our licensees may not be
successful combating counterfeit, infringing or knockoff products, thereby
damaging our competitive position. In addition, we depend upon the laws of the
countries where our licensees’ products are sold to protect our intellectual
property. Intellectual property rights may be unavailable or limited in some
countries because standards of registerability vary internationally.
Consequently, in certain foreign jurisdictions, we have elected or may elect not
to apply for trademark registrations. While we generally apply for trademarks in
most countries where we license or intend to license our trademarks, we may not
accurately predict all of the countries where trademark protection will
ultimately be desirable. If we fail to timely file a trademark application in
any such country, we may be precluded from obtaining a trademark registration in
such country at a later date. Failure to adequately pursue and enforce our
trademark rights could damage our brands, enable others to compete with our
brands and impair our ability to compete effectively.  Further, the
rights to our brands in Latin America and Greater China are controlled primarily
through our joint ventures in these regions and while we believe that our
partnerships in these areas will enable us to better protect our trademarks in
countries covered by the ventures, we do not control either joint venture
company and thus most decisions relating to the use and enforcement of the marks
in these countries will be subject to the approval of our local
partners.




In
addition, in the future, we may be required to assert infringement claims
against third parties, and there can be no assurance that one or more parties
will not assert infringement claims against us. Any resulting litigation or
proceeding could result in significant expense to us and divert the efforts of
our management personnel, whether or not such litigation or proceeding is
determined in our favor. In addition, to the extent that any of our trademarks
were ever deemed to violate the proprietary rights of others in any litigation
or proceeding or as a result of any claim, we may be prevented from using them,
which could cause a termination of our licensing arrangements, and thus our
revenue stream, with respect to those trademarks. Litigation could also result
in a judgment or monetary damages being levied against us.


16





A
substantial portion of our licensing revenue is concentrated with a limited
number of licensees such that the loss of any of such licensees could decrease
our revenue and impair our cash flows.




Our
licensees Target, Kohl's, Kmart and Wal-Mart were our four largest
direct-to-retail licensees during fiscal 2008, representing approximately 11%,
6%, 5% and 3%, respectively, of our total revenue for such period, while Li
& Fung USA was our largest wholesale licensee, representing approximately
11% of our total revenue for such period. Our license agreement with Target for
the Mossimo trademark grants it the exclusive U.S. license for substantially all
Mossimo-branded products for a term expiring in January 2012; our second license
agreement with Target for the Fieldcrest mark grants it the exclusive U.S.
license for substantially all Fieldcrest-branded products for an initial term
expiring in July 2010; and our third license agreement with Target grants it the
exclusive U.S. license for Waverly Home for a broad range of Waverly
Home-branded products for a term expiring in January 2011.  Our
license agreement with Kohl's grants it the exclusive U.S. license with respect
to the Candie's trademark for a wide variety of product categories for a term
expiring in January 2011.  Our license agreement with Kmart grants it
the exclusive U.S. license with respect to the Joe Boxer trademark for a wide
variety of product categories for a term expiring in December
2010.  Our license agreement with Wal-Mart for the Ocean Pacific and
OP trademarks grants it the exclusive license in the U.S., China, India and
Brazil for substantially all Ocean Pacific/OP-branded products for an term
expiring June 30, 2011; our second license agreement with Wal-Mart for the
Danskin Now trademark grants it the exclusive license in the U.S. Canada,
Argentina, and Central America for substantially all Danskin Now-branded
products for an initial term expiring December 2010; and, our third license
agreement with Wal-Mart for the Starter trademark grants it the exclusive
license in the U.S., Canada and Mexico for substantially all Starter-branded
products for an initial term expiring December 2013. Our license agreements with
Li & Fung USA grant it the exclusive worldwide license with respect to our
Royal Velvet trademarks for a variety of products, and the exclusive
license (outside of the U.S. and Canada) for the Cannon trademark for a variety
of products. The term for each of these licenses with Li & Fung USA expires
on December 31, 2013. Because we are dependent on these licensees for a
significant portion of our licensing revenue, if any of them were to have
financial difficulties affecting its ability to make guaranteed payments, or if
any of these licensees decides not to renew or extend its existing agreement
with us, our revenue and cash flows could be reduced substantially. For example,
as of September 2006, Kmart had not approached the sales levels of Joe Boxer
products needed to trigger royalty payments in excess of its guaranteed minimums
since 2004, and, as a result, when we entered into the current license agreement
with Kmart in September 2006 expanding its scope to include Sears stores and
extending its term from December 2007 to December 2010, we agreed to reduce the
guaranteed annual royalty minimums by approximately half, as a result of which
our revenues from this license were substantially reduced.




We
are dependent upon our president and other key executives. If we lose the
services of these individuals we may not be able to fully implement our business
plan and future growth strategy, which would harm our business and
prospects.




Our
success as a marketer and licensor of intellectual property is largely due to
the efforts of Neil Cole, our president, chief executive officer and chairman.
Our continued success is largely dependent upon his continued efforts and those
of the other key executives he has assembled. Although we have entered into an
employment agreement with Mr. Cole, expiring on December 31, 2012, as well
as employment agreements with other of our key executives, there is no guarantee
that we will not lose their services. To the extent that any of their services
become unavailable to us, we will be required to hire other qualified
executives, and we may not be successful in finding or hiring adequate
replacements. This could impede our ability to fully implement our business plan
and future growth strategy, which would harm our business and
prospects.




Our
license agreement with Target could be terminated by Target in the event we were
to lose the services of Mossimo Giannulli as our creative director with respect
to Mossimo-branded products, thereby significantly devaluing the assets acquired
by us in the Mossimo merger and decreasing our expected revenues and cash
flows.




Target,
the primary licensee of our Mossimo brand, has the right at its option to
terminate its license agreement with us if the services of Mossimo Giannulli as
creative director for Mossimo-branded products are no longer available to
Target, upon his death or permanent disability or in the event a morals clause
in the agreement relating to his future actions and behavior is breached.
Although we have entered into an agreement with Mr. Giannulli in which he
has agreed to continue to provide us with his creative director services,
including those which could be required by Target under the Target license, for
a term expiring on January 31, 2012, there can be no assurance that if his
services are required by Target he will provide such services or that in the
event we, and thus Target, were to lose the ability to draw on such services,
Target would continue its license agreement with us. The loss of the Target
license would significantly devalue the assets acquired by us in the Mossimo
merger and decrease our expected revenues and cash flows until we were able to
enter into one or more replacement licenses.




We
have a material amount of goodwill and other intangible assets, including our
trademarks, recorded on our balance sheet. As a result of changes in market
conditions and declines in the estimated fair value of these assets, we may, in
the future, be required to write down a portion of this goodwill and other
intangible assets and such write-down would, as applicable, either decrease our
net income or increase our net loss.




As of
December 31, 2008, goodwill represented approximately $144.7 million, or
approximately 10% of our total assets, and trademarks and other intangible
assets represented approximately $1,060.5 million, or approximately 75% of
our total assets. Under SFAS No. 142, goodwill and indefinite life
intangible assets, including some of our trademarks, are no longer amortized,
but instead are subject to impairment evaluation based on related estimated fair
values, with such testing to be done at least annually. While, to date, no
impairment write-downs have been necessary, any write-down of goodwill or
intangible assets resulting from future periodic evaluations would, as
applicable, either decrease our net income or increase our net loss, and those
decreases or increases could be material.


17





We
may not be able to pay the cash portion of the conversion price upon any
conversion of the $287.5 million principal amount of our outstanding convertible
senior subordinated notes, which would constitute an event of default with
respect to such notes and could also constitute a default under the terms of our
other debt.




We may
not have sufficient cash to pay, or may not be permitted to pay, the cash
portion of the consideration that we will be required to pay when our 1.875%
convertible senior subordinated notes become due in June 2012, herein referred
to as our convertible notes. Upon conversion of the convertible notes, we
will be required to pay to the holder of such notes a cash payment equal to the
par value of the notes. This part of the payment must be made in cash, not in
shares of our common stock. As a result, we will be required to pay a minimum of
$287.5 million  in cash to holders of the convertible notes upon their
conversion.




If we do
not have sufficient cash on hand at the time of conversion, we may have to raise
funds through debt or equity financing. Our ability to raise such financing will
depend on prevailing market conditions. Further, we may not be able to raise
such financing within the period required to satisfy our obligation to make
timely payment upon any conversion. In addition, the terms of any current or
future debt may prohibit us from making these cash payments or otherwise
restrict our ability to make such payments and/or may restrict our ability to
raise any such financing. In particular, the terms of our outstanding term loan
facility restrict the amount of proceeds from collateral pledged to secure our
obligations thereunder that may be used by us to make payments in cash under
certain circumstances, including payments to the convertible notes holders upon
conversion. A failure to pay the required cash consideration upon
conversion would constitute an event of default under the indenture governing
the convertible notes, which might constitute a default under the terms of our
other debt.




Changes
in the accounting method for business combinations will have an adverse impact
on our reported or future financial results.




For the
years ended December 31, 2008 and prior, in accordance with Statement of
Financial Accounting Standard 141 “Business Combinations” all
acquisition-related costs such as attorney’s fees and accountant’s fees, as well
as contingent consideration to the seller, are capitalized as part of the
purchase price.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations”, which requires an acquirer to do the following: expense
acquisition related costs as incurred; record contingent consideration at fair
value at the acquisition date with subsequent changes in fair value to be
recognized in the income statement; and recognize any adjustments to the
purchase price allocation as a period cost in the income statement. This
statement applies prospectively to business combinations for which the
acquisition date is on or after beginning of the first annual reporting period
beginning on or after December 15, 2008. Earlier application is prohibited. At
the date of adoption, this statement is expected to have a material impact on
our results of operations and our financial position due to our acquisition
strategy.





Changes
in effective tax rates or adverse outcomes resulting from examination of our
income or other tax returns could adversely affect our results.




Our
future effective tax rates could be adversely affected by changes in the
valuation of our deferred tax assets and liabilities, or by changes in tax laws
or interpretations thereof. In addition, we are subject to the continuous
examination of our income tax returns by the Internal Revenue Service and other
tax authorities. We regularly assess the likelihood of recovering the amount of
deferred tax assets recorded on the balance sheet and the likelihood of adverse
outcomes resulting from examinations by various taxing authorities in order to
determine the adequacy of our provision for income taxes. We cannot guarantee
that the outcomes of these evaluations and continuous examinations will not harm
our reported operating results and financial conditions.





The
market price of our common stock has been, and may continue to be, volatile,
which could reduce the market price of our common stock.




The
publicly traded shares of our common stock have experienced, and may continue to
experience, significant price and volume fluctuations. This market volatility
could reduce the market price of our common stock, regardless of our operating
performance. In addition, the trading price of our common stock could change
significantly over short periods of time in response to actual or anticipated
variations in our quarterly operating results, announcements by us, our
licensees or our respective competitors, factors affecting our licensees’
markets generally and/or changes in national or regional economic conditions,
making it more difficult for shares of our common stock to be sold at a
favorable price or at all. The market price of our common stock could also be
reduced by general market price declines or market volatility in the future or
future declines or volatility in the prices of stocks for companies in the
trademark licensing business or companies in the industries in which our
licensees compete.


18





Convertible
note hedge and warrant transactions that we have entered into may affect the
value of our common stock.




In
connection with the initial sale of our convertible notes, we entered into
convertible note hedges with affiliates of Merrill Lynch and Lehman Brothers,
herein referred to as the counterparties, which hedging transactions are
expected, but are not guaranteed, to eliminate the potential dilution upon
conversion of the convertible notes. At the same time, we entered into sold
warrant transactions with the hedge counterparties. In connection with such
transactions, the hedge counterparties entered into various over-the-counter
derivative transactions with respect to our common stock and purchased our
common stock; and they may enter into or unwind various over-the-counter
derivatives and/or purchase or sell our common stock in secondary market
transactions in the future.




Such
activities could have the effect of increasing, or preventing a decline in, the
price of our common stock. Such effect is expected to be greater in the event we
elect to settle converted notes entirely in cash. The hedge counterparties are
likely to modify their hedge positions from time to time prior to conversion or
maturity of the convertible notes or termination of the transactions by
purchasing and selling shares of our common stock, other of our securities, or
other instruments they may wish to use in connection with such hedging. In
particular, such hedging modification may occur during any conversion reference
period for a conversion of notes. In addition, we intend to exercise options we
hold under the convertible note hedge transactions whenever notes are converted
and we have elected, with respect to such conversion, to pay a portion of the
consideration then due by us to the note holder in shares of our common stock.
In order to unwind their hedge positions with respect to those exercised
options, the hedge counterparties will likely sell shares of our common stock in
secondary market transactions or unwind various over-the-counter derivative
transactions with respect to our common stock during the conversion reference
period for the converted notes.




The
effect, if any, of any of these transactions and activities on the trading price
of our common stock will depend in part on market conditions and cannot be
ascertained at this time, but any of these activities could adversely affect the
value of our common stock. Also, the sold warrant transaction could have a
dilutive effect on our earnings per share to the extent that the price of our
common stock exceeds the strike price of the warrants.





On
September 15, 2008 and October 3, 2008, respectively, Lehman Holdings and Lehman
OTC, filed for protection under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court in the Southern District of New
York.  We currently believe, although there can be no assurance, that
the bankruptcy filings and their potential impact on these entities will not
have a material adverse effect on our financial position, results of operations
or cash flows. We will continue to monitor the bankruptcy filings of Lehman
Holdings and Lehman OTC.




Future
sales of our common stock may cause the prevailing market price of our shares to
decrease.




We have
issued a substantial number of shares of common stock that are eligible for
resale under Rule 144 of the Securities Act of 1933, as amended, or Securities
Act, and that may become freely tradable. We have also already registered a
substantial number of shares of common stock that are issuable upon the exercise
of options and warrants and have registered for resale a substantial number of
restricted shares of common stock issued in connection with our acquisitions. If
the holders of our options and warrants choose to exercise their purchase rights
and sell the underlying shares of common stock in the public market, or if
holders of currently restricted shares of our common stock choose to sell such
shares in the public market under Rule 144 or otherwise, the prevailing market
price for our common stock may decline. The sale of shares issued upon the
exercise of our derivative securities could also further dilute the holdings of
our then existing stockholders, including holders of the notes that receive
shares of our common stock upon conversion of their notes. In addition, future
public sales of shares of our common stock could impair our ability to raise
capital by offering equity securities.




Provisions
in our charter and in our share purchase rights plan and Delaware law could make
it more difficult for a third party to acquire us, discourage a takeover and
adversely affect our stockholders.




Certain
provisions of our certificate of incorporation and our share purchase rights
plan, either alone or in combination with each other, could have the effect of
making more difficult, delaying or deterring unsolicited attempts by others to
obtain control of our company, even when these attempts may be in the best
interests of our stockholders. Our certificate of incorporation currently
authorizes 150,000,000 shares of common stock to be issued. Based on our
outstanding capitalization at December 31, 2008, and assuming the exercise of
all outstanding options and warrants and the issuance of the maximum number of
shares of common stock issuable upon conversion of all of our outstanding
convertible notes, there are still a substantial number of shares of common
stock available for issuance by our board of directors without stockholder
approval. Our certificate of incorporation also authorizes our board of
directors, without stockholder approval, to issue up to 5,000,000 shares of
preferred stock, in one or more series, which could have voting and conversion
rights that adversely affect or dilute the voting power of the holders of our
common stock, none of which has been issued to date. Furthermore, under our
share purchase rights plan, often referred to as a “poison pill,” if anyone
acquires 15% or more of our outstanding shares, all of our stockholders (other
than the acquirer) have the right to purchase additional shares of our common
stock for a fixed price. We are also subject to the provisions of
Section 203 of the Delaware General Corporation Law, which could prevent us
from engaging in a business combination with a 15% or greater stockholder for a
period of three years from the date it acquired that status unless appropriate
board or stockholder approvals are obtained.




These
provisions could deter unsolicited takeovers or delay or prevent changes in our
control or management, including transactions in which stockholders might
otherwise receive a premium for their shares over the then current market price.
These provisions may also limit the ability of stockholders to approve
transactions that they may deem to be in their best interests.


19





Due
to the recent downturn in the market, certain of the marketable securities we
own may take longer to auction than initially anticipated, if at
all.





Marketable
securities consist of auction rate securities. From the third quarter of 2007 to
the present, our balance of auction rate securities failed to auction due to
sell orders exceeding buy orders. These funds will not be available to us until
a successful auction occurs or a buyer is found outside the auction process. As
a result, $13.0 million of auction rate securities have been written down to
approximately $7.5 million, based on our analysis, as an unrealized pre-tax loss
to reflect a temporary decrease in fair value, reflected as an accumulated other
comprehensive loss of $5.5 million in the stockholders’ equity section of our
consolidated balance sheet. We estimated the fair value of our auction rate
securities using a discounted cash flow model where we used the expected rate of
interest to be received.  We believe this decrease in fair value is
temporary due to general macroeconomic market conditions, and interest is being
paid in full as scheduled.  Further, we have the ability to hold the
securities until an anticipated full redemption, and we have no reason to
believe that any of the underlying issuers of these auction rate securities or
its third-party insurers are presently at risk of default.  However,
there are no assurances that a successful auction will occur, or that we can
find a buyer outside the auction process.





A
decline in general economic conditions resulting in a decrease in
consumer-spending levels and an inability to access capital may adversely affect
our business.





Many
economic factors beyond our control may impact our forecasts and actual
performance. These factors include consumer confidence, consumer spending
levels, employment levels, availability of consumer credit, recession,
deflation, inflation, a general slowdown of the U.S. economy or an uncertain
economic outlook. Furthermore, changes in the credit and capital markets,
including market disruptions, limited liquidity and interest rate fluctuations,
may increase the cost of financing or restrict our access to potential sources
of capital for future acquisitions.





Item
1B. Unresolved Staff Comments




None.





Item
2. Properties




On
November 9, 2007, the Company entered into a new lease with respect to the
Company’s current and future offices at 1450 Broadway in New York, New York. The
lease, among other things, covers approximately 30,550 square feet of office and
showroom space, herein referred to as the new headquarters, that the Company
intends to occupy following the date that the landlord completes certain work in
the space and delivers it to the Company, herein referred to as the delivery
date, which is expected to occur prior to June 1, 2009. With respect to the new
headquarters, the lease will expire 15 years after the delivery date, providing
for rental payments to commence on the 181st day
following the delivery date, herein referred to as the rent commencement date,
and provides for total aggregate annual base rental payments for such space of
approximately $27.4 million (ranging from approximately $1.5 million for the
first year following the rent commencement date to approximately $2.2 million in
the last year of the lease). The lease also provides for the temporary rental by
the Company of (i) the approximately 15,000 square feet of office space
currently occupied by the Company in the building for a term expiring on the
91st  day
after the rent commencement date at an annual rent of approximately $0.5
million and gives the Company the right to extend the term of the lease
with respect to such space such that it ends co-terminus with that of the new
headquarters for an annual rent of approximately $0.8 million and (ii)
approximately 7,000 square feet of temporary office space on another floor of
the building for a term expiring on the rent commencement date at an annual rent
of $0.3 million. The Company will also be required to pay its proportionate
share of any increased taxes attributed to the premises.




In
addition, in connection with the Starter acquisition, the Company assumed a
lease for office space at 1350 Broadway, which covers approximately 13,090
square feet of office and showroom space with an annual rent of $476,000, which
expires on October 31, 2011, as well as a lease for approximately 7,900 square
feet of office space in Bentonville, Arkansas with an annual rent of $149,000,
which will terminate on July 1, 2009. The Company began subletting the office
space at 1350 Broadway beginning January 1, 2009.  The Company also
acquired 5,994 square feet of office space in Santa Monica, California in
connection with the Mossimo merger, pursuant to a lease that expires July 31,
2009. The Company sublets half of this space pursuant to a sublease that will
expire concurrent with the lease.  The Company also acquired
approximately 4,500 square feet of office space at 261 Fifth Ave in New
York, New York in connection with the Waverly acquisition with an annual
rent of approximately $0.2 million. The Company intends to sublet this
space.




Bright
Star currently occupies approximately 2,269 square feet of office space in Mt.
Arlington, New Jersey, pursuant to a lease that expires on March 14,
2009.




Item
3. Legal Proceedings




Sweet
Sportswear/Unzipped litigation





On August
5, 2004, the Company, along with its subsidiaries, Unzipped, Michael Caruso
& Co., referred to as Caruso, and IP Holdings, collectively referred to as
the plaintiffs, commenced a lawsuit in the Superior Court of California, Los
Angeles County, against Unzipped's former manager, former supplier and former
distributor, Sweet Sportswear, LLC, herein referred to as Sweet, Azteca
Productions International Inc., herein referred to as Azteca, and Apparel
Distribution Service LLC, herein referred to as ADS, respectively, and a
principal of these entities and former member of the Company's board of
directors, Hubert Guez, collectively referred to as the Guez defendants. The
Company pursued numerous causes of action against the Guez defendants, including
breach of contract, breach of fiduciary duty, trademark infringement and others
and sought damages in excess of $20 million. On March 10, 2005, Sweet, Azteca
and ADS, collectively referred to as cross-complainants, filed a cross-complaint
against the Company claiming damages resulting from a variety of alleged
contractual breaches, among other things.


20





In
January 2007, a jury trial was commenced, and on April 10, 2007, the jury
returned a verdict of approximately $45 million in favor of the Company and its
subsidiaries, finding in favor of the Company and its subsidiaries on every
claim that they pursued, and against the Guez defendants on every counterclaim
asserted. Additionally, the jury found that all of the Guez defendants acted
with malice, fraud or oppression with regard to each of the tort claims asserted
by the Company and its subsidiaries, and on April 16, 2007, awarded plaintiffs
$5 million in punitive damages against Mr. Guez personally. The Guez defendants
filed post-trial motions seeking, among other things, a new trial. Through a set
of preliminary rulings dated September 27, 2007, the Court granted in part, and
denied in part, the Guez defendants’ post trial motions, and denied plaintiffs’
request that the Court enhance the damages awarded against the Guez defendants
arising from their infringement of plaintiffs’ trademarks. Through these
rulings, the Court, among other things, reduced the amount of punitive damages
assessed against Mr. Guez to $4 million, and reduced the total damages awarded
against the Guez defendants by approximately 50%.




The Court
adopted these preliminary rulings as final on November 16, 2007. On the same
day, the Court entered judgment against Mr. Guez in the amount of $10,964,730
and ADS in the amount of $1,272,420, and against each of the Guez defendants
with regard to each and every claim that they pursued in the litigation
including, without limitation, ADS’s and Azteca’s unsuccessful efforts to
recover against Unzipped any account balances claimed to be owed, totaling
approximately $3.5 million including interest, collectively referred to as the
judgments. In entering the judgments, the Court upheld the jury’s verdict in
favor of the Company relating to its write-down of the senior subordinated note
due June 2012, issued by the Company to Sweet in connection with the Company’s
acquisition of Unzipped for Unzipped’s 2004 fiscal year and disallowed the
Company’s write-down of the note for Unzipped’s 2005 fiscal year. The monetary
portion of the Judgments accrues interest at a rate of 10% per annum from the
date of the judgments’ entry. Also on November 16, 2007, the Court issued a
memorandum order wherein it upheld an aggregate of approximately $6,800,000 of
the jury’s verdicts against Sweet and Azteca, but declined to enter judgment
against these entities since it had ordered a new trial with regard to certain
other damage awards entered against these entities by the jury.





On
November 21, 2007, the Guez defendants filed a notice of appeal. They also filed
a $49,090,491 undertaking with the Court, consisting primarily of a $43,380,491
personal surety given jointly by Gerard Guez and Jacqueline Rose Guez, bonding
the monetary portions of the Judgments. By Order dated December 17, 2008 the
Court determined that the undertaking was adequate absent changed circumstances.
This determination serves to prevent the Company and its subsidiaries from
pursuing collection of the monetary portions of the Judgments during the
pendency of the appeal. The Company and its subsidiaries filed a notice of
appeal on November 26, 2007, appealing, among other things, those parts of the
jury’s verdicts vacated by the Court in connection with the Guez defendants’
post-trial motions.  The Company and its subsidiaries intend to
vigorously pursue their appeals, and vigorously defend against the Guez parties’
appeal.





On March
7, 2008, the Court commenced a hearing with regard to plaintiffs’ petition
seeking in excess of $15.0 million attorneys’ fees and costs, which hearing was
concluded on April 18, 2008. By order dated May 6, 2008, the Court awarded
plaintiffs certain statutory costs against the Guez defendants. The Court also
determined that plaintiffs were entitled to pursue recovery of their
non-statutory costs, comprised primarily of expert witness fees, incurred in
connection with this action. The hearing with regard to plaintiffs’ recovery of
non-statutory costs was conducted on August 7 and 8, 2008.




By final
order dated October 31, 2008, the plaintiffs’ petition for attorneys’ fees was
granted with respect to $7,663,456 of fees. The Court did not award any
non-statutory costs.  On December 1, 2008, the Judgments were amended
to include the $647,712.69 in statutory costs awarded by the Court on May 8,
2008, as well as $100,000 of the attorneys’ fees awarded by the Court on October
31, 2008.  On December 5, 2008, the Company filed a notice of appeal
from the Court’s orders relating to attorneys’ fees, statutory costs and
non-statutory costs.





Bader/Unzipped
litigation





This
lawsuit was settled and discontinued with prejudice on March 25, 2008. The
lawsuit was commenced on November 5, 2004, when Unzipped filed a complaint in
the Supreme Court of New York, New York County, against Unzipped's former
president of sales, Gary Bader, alleging that Mr. Bader breached certain
fiduciary duties owed to Unzipped as its president of sales, unfairly competed
with Unzipped and tortiously interfered with Unzipped's contractual
relationships with its employees. On October 5, 2005, Unzipped amended its
complaint to assert identical claims against Bader's company, Sportswear
Mercenaries, Ltd. On October 14, 2005, Bader and Sportswear Mercenaries filed an
answer containing counterclaims to Unzipped's amended complaint, and a
third-party complaint, which was dismissed in its entirety on June 9, 2006,
except with respect to a single claim that it owed Bader and Sportswear
Mercenaries $72,000.


21





Bongo
Apparel, Inc. litigation





On or
about June 12, 2006, Bongo Apparel, Inc., herein referred to as BAI, filed suit
in the Supreme Court of the State of New York, County of New York, against the
Company and IP Holdings alleging certain breaches of contract and other claims
and seeks, among other things, damages of at least $25 million. Additionally, on
or about October 6, 2006, the Company and IP Holdings filed suit in the United
States District Court for the Southern District of New York against BAI and its
guarantor, TKO Apparel, Inc., herein referred to as TKO. In that complaint, the
Company and IP Holdings asserted various contract, tort and trademark claims
that arose as a result of the failures of BAI with regard to the Bongo men's
jeanswear business and its wrongful conduct with regard to the Bongo women's
jeanswear business. The Company and IP Holdings sought monetary damages in an
amount in excess of $10 million and a permanent injunction with respect to the
use of the Bongo trademark.





By
Agreement and Mutual General Release dated September 15, 2008, the Company, IP
Holdings, BAI, and TKO entered into an Agreement and Mutual General Release
settling their disputes identified or that could have been identified in the
actions set forth above, herein referred to as the settlement agreement. Among
other things, the settlement agreement requires TKO to pay to the Company a
total of $1,000,000 over an eight year period, and obligated the parties to
dismiss all of the actions identified above with prejudice, which has occurred.
Also, by Personal Guaranty dated September 15, 2008, J. Kenneth Tate and James
D. Tate personally guaranteed TKO’s payment obligations arising pursuant to the
settlement agreement.





Normal
Course litigation





From time
to time, the Company is also made a party to litigation incurred in the normal
course of business. While any litigation has an element of uncertainty, the
Company believes that the final outcome of any of these routine matters will not
have a material effect on the Company’s financial position or future
liquidity.





Item 4. Submission of Matters to a Vote of
Security Holders.





None.





PART
II




Item 5. Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities





The
Company's common stock, $0.001 par value per share, its only class of common
equity, is quoted on the NASDAQ Global Market tier of The NASDAQ Stock Market
LLC, herein referred to as NASDAQ, under the symbol “ICON”. The following table
sets forth the high and low sales prices per share of the Company's common stock
for the periods indicated, as reported on NASDAQ:




High
                                          
                                          
                                          LowYear
      Ended December 31, 2008Fourth
      Quarter
                                          
                                          $
                                          14.13
                                          
                                          
                                          $
                                          5.11Third
      Quarter
                                          
                                          
                                          14.40
                                          
                                          
                                          
                                          10.26Second
      Quarter
                                          
                                          
                                          19.23
                                          
                                          
                                          
                                          11.86First
      Quarter
                                          
                                          
                                          22.80
                                          
                                          
                                          
                                          15.96Year
      Ended December 31, 2007Fourth
      Quarter
                                          
                                          $
                                          24.04
                                          
                                          
                                          $
                                          18.61Third
      Quarter
                                          
                                          
                                          24.48
                                          
                                          
                                          
                                          18.41Second
      Quarter
                                          
                                          
                                          23.37
                                          
                                          
                                          
                                          18.84First
      Quarter
                                          
                                          
                                          23.13
                                          
                                          
                                          
                                          18.01




As of
February 18, 2009 there were 2,112 holders of record of the Company's common
stock.





The
Company has never declared or paid any cash dividends on its common stock and
the Company does not anticipate paying any such cash dividends in the
foreseeable future. Payment of cash dividends, if any, will be at the discretion
of the Company's Board of Directors and will depend upon the Company's financial
condition, operating results, capital requirements, contractual restrictions,
restrictions imposed by applicable law and other factors its Board of Directors
deems relevant. The Company's ability to pay dividends on its common stock and
repurchase of its common stock is restricted by certain of its current
indebtedness and may be restricted or prohibited under future
indebtedness.


22




ISSUER PURCHASES OF EQUITY
      SECURITIES2008
                                                  
                                                  Total Number of
                                                    Shares Purchased(1)
                                                  
                                                  
                                                  Average Price
      Paid
                                                    per
    Share
                                                  
                                                  
                                                  Total Number of
                                                    Shares Purchased as
                                                    Part of Publicly
                                                    Announced Plan(1)
                                                  
                                                  
                                                  Maximum Dollar
                                                    Value of Shares that
                                                    May Yet be Purchased
                                                    Under the
    PlanJanuary 1 - January
      31
                                                  
                                                  
                                                  13,541
                                                  
                                                  
                                                  $
                                                  19.04
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -February 1 - February
      29
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -March 1 - March
      31
                                                  
                                                  
                                                  330
                                                  
                                                  
                                                  
                                                  17.55
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -April 1 - April
      30
                                                  
                                                  
                                                  6,908
                                                  
                                                  
                                                  
                                                  14.82
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -May 1 - May
    31
                                                  
                                                  
                                                  1,267
                                                  
                                                  
                                                  
                                                  14.50
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -June 1 - June
      30
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -July 1 - July
      31
                                                  
                                                  
                                                  308
                                                  
                                                  
                                                  
                                                  11.03
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -August 1 - August
      31
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -September 1 - September
      30
                                                  
                                                  
                                                  3,413
                                                  
                                                  
                                                  
                                                  13.08
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -October 1 - October
      31
                                                  
                                                  
                                                  4,897
                                                  
                                                  
                                                  
                                                  9.96
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -November 1 - November
      30
                                                  
                                                  
                                                  252,113
                                                  
                                                  
                                                  
                                                  6.89
                                                  
                                                  
                                                  
                                                  250,000
                                                  
                                                  
                                                  $
                                                  73,284,360December 1 - December
      31
                                                  
                                                  
                                                  19,139
                                                  
                                                  
                                                  
                                                  7.34
                                                  
                                                  
                                                  
                                                  15,404
                                                  
                                                  
                                                  
                                                  73,177,253Total
                                                  
                                                  
                                                  301,916
                                                  
                                                  
                                                  $
                                                  12.69
                                                  
                                                  
                                                  
                                                  265,404
                                                  
                                                  
                                                  $
                                                  73,177,253





(1)   On November
3, 2008, the Company announced that the Board of Directors authorized the
repurchase of up to $75 million of the Company's common stock over a period
ending October 30, 2011. This authorization replaces any prior plan or
authorization. The current plan does not obligate the Company to repurchase any
specific number of shares and may be suspended at any time at management's
discretion. Amounts not purchased under the stock repurchase program
represent shares surrendered to the Company to pay withholding taxes due upon
the vesting of restricted stock.




During
the year ended December 31, 2008, the Company repurchased 265,404 shares for
approximately $1.8 million at a weighted average price of $6.85 per
share. At December 31, 2008, $73,177,253 of the Company's common stock
may yet be purchased under this plan. No shares were repurchased
by the Company during the years ended December 31, 2007 and 2006.





See
“Item-12” - “Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters” for certain information concerning
securities issued under the Company's equity compensation plans.





Item 6. Selected Financial
Data





Changes
in our financial reporting





On
December 7, 2004, the Company announced that beginning January 1, 2005, it had
changed its fiscal year ending on January 31, to a calendar year beginning on
January 1st  and
ending on December 31st. The
change was designed to align the Company's financial reporting with that of its
licensees. As a result, the Company reported on an 11-month year for the period
February 1, 2004 through December 31, 2004 (the “11-month 2004 period”). The
Company's current reporting period is for the 12-month period January 1, 2008
through December 31, 2008 (“fiscal 2008”), as are the prior year reporting
periods from January 1, 2007 through December 31, 2007 (“fiscal 2007”), from
January 1, 2006 through December 31, 2006 (“fiscal 2006”), and from January 1,
2005 through December 31, 2005 (“fiscal 2005”).




Commencing
with fiscal 2005, revenues from Bright Star are recognized solely from its net
agent commissions and no longer from gross product sales as they were prior to
the change in the Company’s business practices with respect to Bright Star
described above. In addition, for the fiscal years ending prior to fiscal 2005,
the Company had both licensing/commission/footwear operations and apparel
operations. As a result of the Company’s shift in business model, including its
licensing of the activities associated with its former Candie’s and Bongo
footwear and apparel operations, the Company now has only licensing and
commission revenues, which includes the licensing revenues for all of its brands
and Bright Star’s net commission revenues.




As a
result of the Company’s transition to a brand management business, and to a
lesser extent, its change in fiscal year end, its operating results for the
periods after the 11-month 2004 period are not, and are not expected to be,
comparable to prior years. Further, as a result of the Company’s Joe Boxer and
Rampage acquisitions and to a lesser extent the change in Bright Star revenue
recognition, the Company’s operating results for fiscal 2005 are not comparable
to prior years; as a result of the Company’s acquisitions in fiscal 2006, the
Company’s operating results for fiscal 2006 are not comparable to prior periods;
as a result of the Company’s acquisitions in fiscal 2007, the Company’s
operating results for fiscal 2007 are not comparable to prior periods; and as a
result of the Company’s acquisition in fiscal 2008, the Company’s operating
results for fiscal 2008 are not comparable to prior periods.





Selected
Historical Financial Data


(amounts
in tables but not footnotes in thousands, except earnings per share
amounts)





The
following table presents selected historical financial data of the Company for
the periods indicated. The selected historical financial information is derived
from the audited consolidated financial statements of the Company referred to
under Item 8 of this Annual Report on Form 10-K, and previously published
historical financial statements not included in this Annual Report on Form 10-K.
The following selected financial data should be read in conjunction with Item 7
- Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's consolidated financial statements, including the
notes thereto, included elsewhere herein.


23





Year Ended
                                                  December 31,
                                                  2008(2)
                                                
                                                
                                                Year Ended
                                                  December 31,
                                                  2007
                                                
                                                
                                                Year Ended
                                                  December 31,
                                                  2006
                                                
                                                
                                                Year Ended
                                                  December 31,
                                                  2005
                                                
                                                
                                                11-Months
                                                  Ended
                                                  December 31,
                                                  2004Income
      Statement DataLicensing
      and other revenue
                                                
                                                $
                                                216,761
                                                
                                                
                                                $
                                                160,004
                                                
                                                
                                                $
                                                80,694
                                                
                                                
                                                $
                                                30,156
                                                
                                                
                                                $
                                                10,553Net
      sales
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                58,427Net
      revenues
                                                
                                                
                                                216,761
                                                
                                                
                                                
                                                160,004
                                                
                                                
                                                
                                                80,694
                                                
                                                
                                                
                                                30,156
                                                
                                                
                                                
                                                68,980Operating
      income (1)
                                                
                                                
                                                142,052
                                                
                                                
                                                
                                                121,789
                                                
                                                
                                                
                                                53,673
                                                
                                                
                                                
                                                15,361
                                                
                                                
                                                
                                                2,942Other
      expenses - net
                                                
                                                
                                                33,126
                                                
                                                
                                                
                                                25,512
                                                
                                                
                                                
                                                13,837
                                                
                                                
                                                
                                                4,453
                                                
                                                
                                                
                                                2,701Net
      income (3)
                                                
                                                
                                                70,153
                                                
                                                
                                                
                                                63,755
                                                
                                                
                                                
                                                32,501
                                                
                                                
                                                
                                                15,943
                                                
                                                
                                                
                                                241Earnings
      per share:Basic
                                                
                                                $
                                                1.21
                                                
                                                
                                                $
                                                1.12
                                                
                                                
                                                $
                                                0.81
                                                
                                                
                                                $
                                                0.51
                                                
                                                
                                                $
                                                0.01Diluted
                                                
                                                $
                                                1.15
                                                
                                                
                                                $
                                                1.04
                                                
                                                
                                                $
                                                0.72
                                                
                                                
                                                $
                                                0.46
                                                
                                                
                                                $
                                                0.01Weighted
      average number of common shares outstanding:Basic
                                                
                                                
                                                57,810
                                                
                                                
                                                
                                                56,694
                                                
                                                
                                                
                                                39,937
                                                
                                                
                                                
                                                31,284
                                                
                                                
                                                
                                                26,851Diluted
                                                
                                                
                                                61,248
                                                
                                                
                                                
                                                61,426
                                                
                                                
                                                
                                                45,274
                                                
                                                
                                                
                                                34,773
                                                
                                                
                                                
                                                28,706




At December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Balance
      Sheet DataCurrent
      Assets
                  
                  $
                  130,363
                  
                  
                  $
                  95,868
                  
                  
                  $
                  99,829
                  
                  
                  $
                  22,345
                  
                  
                  $
                  9,627Working
      capital (deficit)
                  
                  
                  27,170
                  
                  
                  
                  19,458
                  
                  
                  
                  64,124
                  
                  
                  
                  (4,388
                  )
                  
                  
                  (5,894
                  )Trademarks
      and other intangibles, net
                  
                  
                  1,060,460
                  
                  
                  
                  1,038,201
                  
                  
                  
                  467,688
                  
                  
                  
                  139,281
                  
                  
                  
                  16,591Total
      assets
                  
                  
                  1,420,259
                  
                  
                  
                  1,336,130
                  
                  
                  
                  696,244
                  
                  
                  
                  217,244
                  
                  
                  
                  60,160Long-term
      debt
                  
                  
                  668,027
                  
                  
                  
                  702,156
                  
                  
                  
                  162,808
                  
                  
                  
                  99,119
                  
                  
                  
                  22,488Total
      stockholders' equity
                  
                  
                  613,526
                  
                  
                  
                  527,920
                  
                  
                  
                  465,457
                  
                  
                  
                  100,896
                  
                  
                  
                  24,258





(1)
            Includes
      expenses related to specific litigation (formerly known as special
      charges) of $893,000 in fiscal 2008, a net benefit from expenses related
      to specific litigation of $6.0 million in fiscal 2007, and expenses
      related to specific litigation of $2.5 million in fiscal 2006, $1.5
      million in fiscal 2005, and $0.3 million in the 11-month 2004
      period. Further, included in operating income for the 11-month 2004 period
      and fiscal 2005 was an adjustment for the shortfall payment related to
      Unzipped of $7.6 million, and $0.5 million, respectively (see Notes 9 and
      10 of Notes to Consolidated Financial
  Statements).





(2)
            During
      fiscal 2008, fiscal 2007, fiscal 2006, fiscal 2005, and the 11-month 2004
      period, the Company made one, four, four, two and one acquisition,
      respectively. See Note 2 of Notes to Consolidated Financial Statements for
      information about the Company’s fiscal 2008
  acquisition.





(3)
            In
      fiscal 2006 and fiscal 2005, the Company recognized a net non-cash tax
      benefit of $6.2 million and $5.0 million, respectively, by reducing the
      valuation allowance on the deferred tax asset related to the Company's net
      operating loss
carryforwards.




Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations




Safe
Harbor Statement under the Private Securities Litigation Reform Act of 1995.
This Annual Report on Form 10-K, including this Item 7, includes
“forward-looking statements” based on the Company's current expectations,
assumptions, estimates and projections about its business and its industry.
These statements include those relating to future events, performance and/or
achievements, and include those relating to, among other things, the Company's
future revenues, expenses and profitability, the future development and expected
growth of the Company's business, its projected capital expenditures, future
outcomes of litigation and/or regulatory proceedings, competition, expectations
regarding the retail sales environment, continued market acceptance of the
Company's current brands and its ability to market and license brands it
acquires, the Company's ability to continue identifying, pursuing and making
acquisitions, the ability of the Company to obtain financing for acquisitions,
the ability of the Company's current licensees to continue executing their
business plans with respect to their product lines and the ability to pay
contractually obligated royalties, and the Company's ability to continue
sourcing licensees that can design, distribute, manufacture and sell their own
product lines.


24





These
statements are only predictions and are not guarantees of future performance.
They are subject to known and unknown risks, uncertainties and other factors,
some of which are beyond the Company's control and difficult to predict and
could cause its actual results to differ materially from those expressed or
forecasted in, or implied by, the forward-looking statements. In evaluating
these forward-looking statements, the risks and uncertainties described in “Item
1A. Risk Factors” above and elsewhere in this report and in the Company's other
SEC filings should be carefully considered.




Words
such as “may,” “should,” “will,” “could,” “estimate,” “predict,” “potential,”
“continue,” “anticipate,” “believe,” “plan,” “expect,” “future” and “intend” or
the negative of these terms or other comparable expressions are intended to
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of the date
the statement was made.




Overview




The
Company is a brand management company engaged in licensing, marketing and
providing trend direction for a diversified and growing consumer brand
portfolio. The Company’s brands are sold across every major segment of retail
distribution, from luxury to mass. As of December 31, 2008, the Company
owned 17 iconic consumer brands: Candie’s, Bongo, Badgley Mischka, Joe Boxer,
Rampage, Mudd, London Fog, Mossimo, Ocean Pacific/OP, Danskin, Rocawear, Cannon,
Royal Velvet, Fieldcrest, Charisma, Starter, and Waverly. In addition, Scion
LLC, a joint venture in which the Company has a 50% investment, owns the
Artful Dodger brand. The Company licenses its brands worldwide through
approximately 200 direct-to-retail and wholesale licenses for use across a wide
range of product categories, including footwear, fashion accessories,
sportswear, home products and décor, and beauty and fragrance. The Company’s
business model allows it to focus on its core competencies of marketing and
managing brands without many of the risks and investment requirements associated
with a more traditional operating company. Its licensing agreements with leading
retail and wholesale partners throughout the world provide the Company with a
predictable stream of guaranteed minimum royalties.




The
Company’s growth strategy is focused on increasing licensing revenue from its
existing portfolio of brands through adding new product categories, expanding
the retail penetration of its existing brands and optimizing the sales of its
licensees. The Company will also seek to continue the international expansion of
its brands by partnering with leading licensees and/or joint venture partners
throughout the world. Finally, the Company believes it will continue to acquire
iconic consumer brands with applicability to a wide range of merchandise
categories and an ability to further diversify its brand portfolio.





The
Company has and continues to focus on cost-saving measures.  These
measures include a reduction of the total number of total full-time employees in
February 2009, as well as a continued review of all operating
expenses





Summary
of operating results:





The
Company had net income of $70.2 million for fiscal 2008 as compared to net
income of $63.8 million for fiscal 2007.





The
Company's operating income was $142.1 million in fiscal 2008, compared to an
operating income of $121.8 million in fiscal 2007.





Fiscal
2008 Compared to Fiscal 2007





Revenue. Revenue for fiscal
2008 increased to $216.8 million from $160.0 million during fiscal 2007. During
fiscal 2008, we recorded a non-cash gain of approximately $2.6 million related
to the sale of trademarks to our joint venture in China, and a gain of $5.7
million related to the Iconix Latin America transaction. The two largest drivers
of the growth of $48.5 million was a full year of revenue generated from the
fiscal 2007 acquisitions of Danskin, Rocawear, the Official-Pillowtex brands
(i.e. Cannon, Royal Velvet, Fieldcrest, Charisma), Artful Dodger, and Starter,
which in the aggregate contributed approximately $57.1 million, as well as
approximately $1.4 million contributed by the fiscal 2008 acquisition of
Waverly, which had no comparable revenue in fiscal 2007.  For brands
owned for the full year in fiscal 2008 and fiscal 2007, revenue remained
approximately flat, excluding the Mudd brand, which began a transition to a
direct-to-retail license with Kohl’s in November 2008, and the Ocean Pacific/OP
brand, which began a transition to a direct-to-retail license with Wal-Mart in
August 2007 and was re-launched in Wal-Mart stores in Spring
2008.


25




Operating Expenses.
Consolidated selling, general and administrative, herein referred to as
SG&A, expenses totaled $73.8 million in fiscal 2008 compared to $44.3
million in fiscal 2007. The increase of $29.5 million was primarily related to:
(i) an increase of approximately $12.5 million in payroll costs, primarily due
to an increase of $7.5 million in non-cash stock compensation expense (from $1.8
million in fiscal 2007 to $9.3 million in fiscal 2008), of which $6.9 million of
the increase related to the new employment contract with our chairman, chief
executive officer and president, with the balance of the aggregate increase in
payroll costs attributable to the increase in employee headcount mainly related
to our fiscal 2007 and fiscal 2008 acquisitions; (ii) an increase of
approximately $7.3 million in advertising mainly driven by advertising related
to brands acquired in fiscal 2007; (iii) amortization of intangible assets
(mainly contracts and non-compete agreements) as a direct result of the Danskin,
Rocawear, Official-Pillowtex, Starter, Artful Dodger and Waverly brand
acquisitions, which accounted for $4.7 million in fiscal 2008 and $2.0 million
in fiscal 2007; and (iv) an increase of $4.1 million in professional fees
primarily related to increased maintenance costs on trademarks acquired through
recent acquisitions.




For
fiscal 2008 and fiscal 2007, our expenses related to specific litigation,
formerly known as special charges, included an expense for professional fees of
$0.9 million and a net benefit of $6.0 million, respectively, relating to
litigation involving Unzipped. See Notes 9 and 10 of Notes to Consolidated
Financial Statements.





Operating Income. Operating
income for fiscal 2008 increased to $142.1 million, or approximately 66% of
total revenue, compared to $121.8 million or approximately 76% of total revenue
in fiscal 2007. The decrease in our operating margin percentage is primarily the
result of the increase in operating expenses for the reasons detailed
above.




Other Expenses - Net – Other
expenses - net increased by $7.6 million in fiscal 2008 to $33.1 million,
compared to other expenses - net of $25.5 million in fiscal
2007.  This increase was due to several factors: (i) an increase in
our debt in connection with the acquisitions of Rocawear, Official-Pillowtex and
Starter; (ii) interest expense related to the Sweet note; and, (iii) a decrease
in interest income related to a combination of our higher cash balance during
fiscal 2007 related to the proceeds from the convertible notes and a decrease in
interest rates on money invested by us in fiscal 2008. This increase in interest
expense was partially offset by a decrease in interest rates for our variable
rate debt (i.e. our term loan facility) and interest income related to our
judgment against Guez and ADS. See Note 6 of Notes to Consolidated Financial
Statements. Specifically, for fiscal 2008, there was a total interest expense
relating to the term loan facility, convertible notes and our judgment against
Guez and ADS of approximately $15.5 million, $5.4 million and $1.0 million,
respectively with no comparable interest expense in fiscal 2007. Deferred
financing costs increased by $1.6 million in fiscal 2008 to $3.6 million from
$2.0 million in fiscal 2007 due to additional financing obtained in fiscal
2007.  Further, during fiscal 2008 we recorded a loss of $0.5 million
from our 50% equity investment in Iconix China.





Provision for Income Taxes.
The effective income tax rate for fiscal 2008 is approximately 35.6% resulting
in the $38.8 million income tax expense, as compared to an effective income tax
rate of 33.8% in fiscal 2007 which resulted in the $32.5 million income tax
expense.





Net Income. The Company’s net
income was $70.1 million in fiscal 2008, compared to net income of $63.8 million
in fiscal 2007, as a result of the factors discussed above.





Fiscal
2007 Compared to Fiscal 2006




Revenue. Revenue for fiscal
2007 increased to $160.0 million from $80.7 million during fiscal 2006. The two
largest drivers of the growth of $79.3 million was a full year of revenue
generated from the acquisitions of Mudd, London Fog, Mossimo and Ocean Pacific
made during fiscal 2006 which contributed approximately $37.1 million, as well
as approximately $49.3 million contributed by the fiscal 2007 acquisitions of
Danskin, Rocawear, the Official-Pillowtex brands (i.e. Cannon, Royal Velvet,
Fieldcrest, Charisma) and Starter, which had no comparable revenue in fiscal
2006. For brands owned for the full year in fiscal 2007 and fiscal 2006, revenue
increased approximately 5%, excluding the Joe Boxer license with Kmart, which
was renewed at lower guaranteed minimum royalties while extended for an
additional term of four years and providing for expansion into Sears
stores.





Operating Expenses. SG&A
expenses totaled $44.3 million in fiscal 2007 compared to $24.5 million in
fiscal 2006. The increase of $19.8 million was primarily related to (i) an
increase of approximately $6.7 million in advertising mainly driven by increased
advertising related to brands acquired in fiscal 2007, with no comparable
advertising expense in fiscal 2006; (ii) an increase of approximately $5.6
million in payroll costs due to an increase in employee headcount of 48 people
(comparing year-over-year ending headcount) relating primarily to our fiscal
2007 acquisitions of Rocawear and Starter. Further, for fiscal 2007,
non-cash items consisting of the amortization of restricted stock awards, and
the amortization of intangible assets (mainly contracts and non-competes) as a
direct result of the Mossimo, Ocean Pacific, Danskin, Rocawear and the Pillowtex
brands acquisitions which accounted for $1.7 million and $3.4 million,
respectively.





For
fiscal 2007 our expenses related to specific litigation, formerly known as
special charges, included $6.0 million net benefit, as compared
to expenses related to specific litigation of $2.5 million in fiscal
2006, both years relating to litigation involving Unzipped. The $6.0 million net
benefit includes approximately $3.4 million in legal expenses and a $9.4 million
benefit relating to the judgment received in November 2007 relating to the
Unzipped litigation. See Notes 9 and 10 of Notes to Consolidated Financial
Statements. Expenses related to specific litigation for fiscal 2006 is
comprised of legal expenses involving the Unzipped litigation.





Operating Income. Operating
income for fiscal 2007 increased to $121.8 million, or approximately 76% of
total revenue, compared to $53.7 million or approximately 67% of total revenue
in fiscal 2006. The increase in our operating margin percentage is primarily the
result of increased revenues relating to the fiscal 2007 acquisitions and a full
year of revenue for fiscal 2006 acquisitions while leveraging off of the
existing infrastructure and making modest additions to SG&A compared to the
increase in revenue.


26


Other Expenses – Net. Interest expense increased by $17.9
million in fiscal 2007 to $33.0 million, compared to interest expense of $15.1
million in fiscal 2006. This increase was due primarily to an increase in the
Company’s debt financing arrangements in connection with the acquisitions of
Rocawear, Official-Pillowtex and Starter, as well as interest related to our
judgment against Herbert Guez and ADS. See Note 6 of Notes to Consolidated
Financial Statements. Specifically, for fiscal 2007, there was a total interest
expense relating to the term loan facility, convertible notes and our judgment
against Herbert Guez and ADS of approximately $12.4 million, $2.9 million and
$2.8 million respectively with no comparable interest expense in fiscal 2006.
Deferred financing costs increased by $1.3 million in fiscal 2007 to $2.0
million from $0.7 million in fiscal 2006 due to additional financing obtained in
fiscal 2007. Interest income increased by $6.3 million in fiscal 2007 from $1.2
million to $7.5 million. This increase was primarily driven by higher levels of
cash balances throughout the year as compared to fiscal 2006 due to (i) cash
generated from operations and (ii) cash raised through debt and equity financing
which was on hand for during the first and third quarter of fiscal 2007 before
used for acquisitions.





Provision for Income Taxes.
The effective income tax rate for fiscal 2007 is approximately 33.8% resulting
in the $32.5 million income tax expense. This difference between the effective
tax rate and the statutory rate of 35%, is mainly driven by the benefit in state
income taxes and relates to fluctuations in state rates expected to be realized
by the Company due to new or revised tax legislation as well as changes we have
recently experienced in the level of business performed within specific tax
jurisdictions. Fiscal 2006 had a $7.3 million income tax expense due primarily
to a reduction in the Company’s valuation allowance.




Net Income. The Company’s net
income was $63.8 million in fiscal 2007, compared to net income of $32.5 million
in fiscal 2006, as a result of the factors discussed above.





Liquidity
and Capital Resources





Liquidity





Our
principal capital requirements have been to fund acquisitions, working capital
needs, and to a lesser extent, capital expenditures. We have historically relied
on internally generated funds to finance our operations and our primary source
of capital needs for acquisition has been the issuance of debt and equity
securities. At December 31, 2008 and 2007, our cash totaled $67.3 million and
$53.3 million, respectively, including short-term restricted cash of $0.9
million and $5.2 million, respectively.





On
October 3, 2008, we completed our acquisition of Waverly for $26.0
million in cash paid to the sellers, funded entirely from cash on hand. See Note
2 of Notes to Consolidated Financial Statements for further details on this
acquisition.





The term
loan facility requires us to repay the principal amount of the term loan
outstanding in an amount equal to 50% of the excess cash flow of the
subsidiaries subject to the term loan facility for the most recently completed
fiscal year.   For the year ended December 31, 2008, we will
repay $38.9 million of the principal balance, which represents 50% of the excess
cash flow of the subsidiaries subject to the term loan facility. This amount is
now included in the current portion of long-term debt.





We
believe that cash from future operations as well as currently available cash
will be sufficient to satisfy our anticipated working capital requirements for
the foreseeable future. We intend to continue financing future brand
acquisitions through a combination of cash from operations, bank financing and
the issuance of additional equity and/or debt securities. See Note 6 of Notes to
Consolidated Financial Statements for a description of certain prior financings
consummated by us.





As of
December 31, 2008, our marketable securities consist of auction rate securities.
Beginning in the third quarter of 2007, $13.0 million of our auction rate
securities had failed auctions due to sell orders exceeding buy orders. These
funds will not be available to us until a successful auction occurs or a buyer
is found outside the auction process. As a result, $13.0 million of auction rate
securities have been written down to $7.5 million, using Level 3 inputs with
present value techniques as described by the fair value hierarchy and the income
approach outlined in SFAS 157, as an unrealized pre-tax loss of $5.5 million to
reflect a temporary decrease in fair value. As the write-down of $5.5 million
has been identified as a temporary decrease in fair value, the write-down has
not impacted our earnings and is reflected as an other comprehensive loss in the
stockholders’ equity section of our consolidated balance sheet.  We
estimated the fair value of our auction rate securities using a discounted cash
flow model where we used the expected rate of interest to be
received.  We believe this decrease in fair value is temporary due to
general macroeconomic market conditions, and interest is being paid in full as
scheduled.  Further, we have the ability to hold the securities until
an anticipated full redemption, and we have no reason to believe that any of the
underlying issuers of these auction rate securities or its third-party insurers
are presently at risk of default. We believe our cash flow from future
operations and its existing cash on hand will be sufficient to satisfy its
anticipated working capital requirements for the foreseeable future, regardless
of the timeliness of the auction process.





Changes
in Working Capital





At
December 31, 2008 and December 31, 2007 the working capital ratio (current
assets to current liabilities) was 1.26 to 1 and 1.25 to 1, respectively. This
increase was driven by an increase in cash as well as the factors set forth
below:


27





Operating
Activities





Net cash
provided by operating activities totaled $89.2 million fiscal 2008, as compared
to $83.7 million of net cash provided by operating activities in fiscal 2007.
Cash provided by operating activities in fiscal 2008 totaled
$89.2 million primarily due to net income of $70.1 million, stock-based
compensation expense of $9.3 million of which $6.9 million can be directly
attributed to our new contract with the chief executive officer, amortization of
intangibles of $7.3 million of which $2.3 million relates to one additional
quarter of amortization for those brands acquired at the end of the first
quarter of 2007 (ie. Danskin and Rocawear) as well as three additional quarters
of amortization for the Official-Pillowtex, Artful Dodger and Starter brands,
and a net increase of $29.6 million in deferred income taxes primarily related
to the provision for income taxes for fiscal 2008, offset primarily by increases
of $19.2 million in accounts receivable and $7.1 million in prepaid advertising
and other primarily due to our 2007 acquisitions having been included in our
operations for a full year, and non-cash gains from the sale of trademarks and
the sale of 50% interest in our subsidiary of $2.6 million and $4.7 million,
respectively. We continue to rely upon cash generated from licensing operations
to finance our operations.





Investing
Activities





Net cash
used in investing activities in fiscal 2008 totaled $44.1 million, as compared
to $598.2 million used in the fiscal 2007. In fiscal 2008, we used $27.6
million in connection with the acquisition of certain assets related
to the Waverly brand, we paid cash earn-outs of $5.0 million related to our
acquisition of Official-Pillowtex and $1.1 million related to our acquisition of
Rocawear, which were recorded as increases to goodwill; in addition, and we made
an initial cash contribution of $2.0 million to our 50% owned joint venture in
China. The aggregate of cash used in these investing activities was offset by
collection of $1.0 million related to an outstanding promissory note. In fiscal
2007, we paid $71.3 million in cash for certain assets related to the Danskin
brand, $206.1 million in cash for certain assets related to the Rocawear brand,
$233.8 million in cash for certain assets related to the Official-Pillowtex
brands, $60.3 million in cash for certain assets related to the Starter brand,
and $196.4 million for the purchase of certain marketable securities, offset by
the sale of $183.4 million of those marketable securities. Capital expenditures
for fiscal 2008 were $6.3 million, compared to $0.1 million in capital
expenditures in fiscal 2007, primarily relating to the purchase of fixtures for
certain brands.





Financing
Activities





Net cash
used in financing activities was $26.8 million in fiscal 2008, compared with
$489.0 million of net cash provided by financing activities in fiscal 2007. Of
the $26.8 million in net cash used in financing activities, $36.0 million was
used for principal payments related to the asset-backed notes and the term loan
facility, $3.2 million was used to repurchase shares in net share settlements
upon the vesting of certain employees’ restricted stock, and $1.8 million was
used to repurchase shares in the open market in accordance with our new stock
repurchase plan (see Note 7 of Notes to Consolidated Financial Statements). This
was offset by $8.3 million from the excess tax benefit from share-based payment
arrangements, $2.3 million from net proceeds in connection with the exercise of
stock options and warrants, and a net decrease of $3.6 million in total
restricted cash.




Obligations
and commitments




Convertible notes. In June
2007, the Company completed the sale of $287.5 million principal amount of its
convertible notes in a private offering to certain institutional investors from
which it received net proceeds of approximately $281.1 million. The convertible
notes bear interest at an annual rate of 1.875%, payable semi-annually in
arrears on June 30 and December 31 of each year, commencing as of December 31,
2007. At December 31, 2008, the balance of the convertible notes was $283.4
million.




Concurrently
with the sale of the convertible notes, the Company purchased note hedges for
approximately $76.3 million and issued warrants to the hedge counterparties for
proceeds of approximately $37.5 million. These transactions will generally have
the effect of increasing the conversion price of the convertible notes (by 100%
percent based on the price of the Company’s common stock at the time of the
offering). As a result of these transactions, the Company recorded a reduction
to additional paid-in-capital of $12.1 million. These note hedges and warrants
are separate and legally distinct instruments that bind only the Company and the
counterparties thereto and have no binding effect on the holders of the
convertible notes.




The
Company utilized the proceeds of the convertible notes as follows: approximately
$233.8 million was used for the Official-Pillowtex acquisition and approximately
$38.8 million was the net payment for the related convertible note hedge (see
Note 6 of Notes to Consolidated Financial Statements). There are no covenants
for this debt obligation.





Term loan facility. In
connection with the Company’s acquisition of the Rocawear brand in March 2007,
it entered into the term loan facility pursuant to which it borrowed, and
received net proceeds of, $212.5 million. Subsequently, in December 2007, in
connection with the Company’s acquisition of the Starter brand, the Company
borrowed an additional $63.2 million under the term loan facility, in connection
with which it received net proceeds of $60.0 million. The Company may borrow an
additional $36.8 million under the terms of the term loan
facility.


28


The
Company’s obligations under the term loan facility are secured by the Company’s
pledge of its ownership interests in many of its subsidiaries. In addition,
these and other of the Company’s subsidiaries have guaranteed such obligations
and their guarantees are secured by a pledge of, among other things, the Ocean
Pacific/OP, Danskin, Rocawear, Mossimo, Cannon, Royal Velvet, Fieldcrest,
Charisma, Starter and Waverly trademarks and related intellectual property
assets. Amounts outstanding under the term loan facility bear interest, at the
Company’s option, at the Eurodollar rate or the prime rate, plus an applicable
margin of 2.25% or 1.25%, as the case may be, per annum, with minimum principal
payable in equal quarterly installments in annual aggregate amounts equal to
1.00% of the aggregate principal amount of the loans outstanding, in addition to
an annual payment equal to 50% of the excess cash flow of the subsidiaries
subject to the term loan facility, with any remaining unpaid principal
balance to be due on April 30, 2013, herein referred to as the loan maturity
date. Upon completion of the Company’s offering of the convertible notes, the
loan maturity date was accelerated to January 2, 2012.  On March 11,
2008, the Company paid to LCPI, for the benefit of the lenders, $15.6 million,
representing 50% of the excess cash flow from the subsidiaries subject to the
term loan facility for 2007. As a result of such payment, the Company is no
longer required to pay the quarterly installments described above.  As
of December 31, 2008, $38.9 million has been classified as current portion of
long-term debt, which represents 50% of the excess cash flow for 2008 of the
subsidiaries subject to the term loan facility.  This amount will be
paid to LCPI, for the benefit of the lenders, during the first quarter of
2009.  At December 31, 2008, the interest rate under the term loan
facility was 3.71% and the balance outstanding under the term loan facility was
$255.3 million.  As of December 31, 2008, we are in compliance with
all material covenants relating to this debt obligation (see Note 6 to Notes to
Consolidated Financial Statements).




Asset-backed notes. The financing for
certain of the Company’s acquisitions in 2005 and 2006 was accomplished though
private placements of the asset-backed notes, which notes are currently secured
by the Candies, Bongo, Joe Boxer, Rampage, Mudd and London Fog trademarks and
related intellectual property assets. At December 31, 2008, the principal
balance outstanding under the asset-backed notes was $117.1 million, of which
$40.6 million principal amount bears interest at a fixed interest rate of 8.45%
and $18.0 million principal amount bears interest at a fixed rate of 8.12%, each
with a term ending in August 2012, and $58.5 million principal amount bears
interest at a fixed rate of 8.99% which will be fully paid by February 22,
2013.




Cash on
hand in IP Holdings’ bank account is restricted at any point in time up to the
amount of the next payment of principal and interest due by it under the
asset-backed notes. Accordingly, as of December 31, 2008 and 2007, $0.9 million
and $5.2 million, respectively, have been disclosed as restricted cash within
the Company’s current assets. Further, a liquidity reserve account has been
established and the funds on deposit in such account are to be applied to the
last principal payment due with respect to the asset-backed notes. Accordingly,
the $15.9 million and $15.2 million in such reserve account as of December 31,
2008 and 2007, respectively, have been included on the Company’s balance sheets
as restricted cash within its other assets. As of December 31, 2008, we are in
compliance with all material covenants relating to this debt obligation. (see
Note 6 of Notes to Consolidated Financial Statements)




Sweet note. On April 23,
2002, the Company acquired the remaining 50% interest in Unzipped from Sweet for
a purchase price comprised of 3,000,000 shares of its common stock and $11.0
million in debt, which was evidenced by the Company’s issuance of the note to
Sweet Sportswear, also referred to as the Sweet Note. Prior to August 5, 2004,
Unzipped was managed by Sweet pursuant to a management agreement, which
obligated Sweet to manage the operations of Unzipped in return for, commencing
in fiscal 2003, an annual management fee based upon certain specified
percentages of net income achieved by Unzipped during the three- year term of
the agreement. In addition, Sweet guaranteed that the net income, as defined in
the agreement, of Unzipped would be no less than $1.7 million for each year
during the term, commencing with fiscal 2003. In the event that the guarantee
was not met for a particular year, Sweet was obligated under the management
agreement to pay the Company the difference between the actual net income of
Unzipped, as defined, for such year and the guaranteed $1.7 million. That
payment, referred to as the shortfall payment, could be offset against the
amounts due under the Sweet note at the option of either the Company or Sweet.
As a result of such offsets, the balance of the Sweet Note was reduced by the
Company to $3.1 million as of December 31, 2006 and $3.0 million as of December
31, 2005 and is reflected in "long- term debt." This note bears interest at
the rate of 8% per year and matures in April 2012.




In
November 2007, in connection with the judgment entered in the Unzipped
litigation, the Company increased the balance of the Sweet note by approximately
$6.2 million and recorded the expense as a special charge, and further increased
the Sweet note by approximately $2.8 million to record the related interest and
included the charge in interest expense. The balance of the Sweet note as of
December 31, 2008 is approximately $12.2 million and is included in current
portion of long-term debt.




Other. The Company believes
that it will be able to satisfy its ongoing cash requirements for operations and
debt servicing for the foreseeable future, primarily with cash flow from
operations. In addition, as part of its business growth strategy, the Company
intends, in addition to growing through the organic development of its brands
and expanding internationally, to grow through acquisitions of additional
brands. The Company anticipates that it would fund any such acquisitions through
a combination of cash, the issuance of equity and/or debt
securities.


29





The
following is a summary of contractual cash obligations, including
interest for the periods indicated that existed as of December 31, 2008,
and is based on information appearing in the Notes to Consolidated Financial
Statements:





(000's
      omitted)
                  
                  2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  Thereafter
                  
                  
                  TotalConvertible
      Notes
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  283,437
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  283,437Term
      Loan Facility
                  
                  
                  38,946
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  216,361
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  255,307Asset-Backed
      Notes
                  
                  
                  22,231
                  
                  
                  
                  24,216
                  
                  
                  
                  26,380
                  
                  
                  
                  33,468
                  
                  
                  
                  10,802
                  
                  
                  
                  -
                  
                  
                  
                  117,097Sweet
      Note
                  
                  
                  12,186
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,186Operating
      leases
                  
                  
                  2,214
                  
                  
                  
                  2,158
                  
                  
                  
                  2,153
                  
                  
                  
                  1,864
                  
                  
                  
                  1,923
                  
                  
                  
                  20,545
                  
                  
                  
                  30,857Joint
      venture
                  
                  
                  1,500
                  
                  
                  
                  1,500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,000Employment
      contracts
                  
                  
                  4,056
                  
                  
                  
                  3,348
                  
                  
                  
                  1,691
                  
                  
                  
                  1,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,095Total
      contractual cash obligations
                  
                  $
                  81,133
                  
                  
                  $
                  31,222
                  
                  
                  $
                  30,224
                  
                  
                  $
                  536,130
                  
                  
                  $
                  12,725
                  
                  
                  $
                  20,545
                  
                  
                  $
                  711,979





Other
Factors




We
continue to seek to expand and diversify the types of licensed products being
produced under our various brands, as well as diversify the distribution
channels through which our licensed products are sold, in an effort to reduce
dependence on any particular retailer, consumer or market sector. The success of
our company, however, will still remain largely dependent on our ability to
build and maintain brand awareness and contract with and retain key licensees
and on our licensees’ ability to accurately predict upcoming fashion trends
within their respective customer bases and fulfill the product requirements of
their particular retail channels within the global marketplace. Unanticipated
changes in consumer fashion preferences, slowdowns in the U.S. economy, changes
in the prices of supplies, consolidation of retail establishments, and other
factors noted in “Item 1A-Risk factors,” could adversely affect our licensees’
ability to meet and/or exceed their contractual commitments to us and thereby
adversely affect our future operating results.




Effects
of Inflation





The
Company does not believe that the relatively moderate rates of inflation
experienced over the past few years in the United States, where it primarily
competes, have had a significant effect on revenues or
profitability.




New
Accounting Standards





In
September 2006, the Financial Accounting Standards Board, herein referred
to as the FASB, issued Statement of Financial Accounting
Standards No. 157, “Fair Value Measurements”, herein referred to
as  SFAS No. 157.  SFAS No. 157 provides a single
definition of fair value, together with a framework for measuring it, and
requires additional disclosure about the use of fair value to measure assets and
liabilities.  SFAS No. 157 also emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and sets out a
fair value hierarchy with the highest priority being quoted prices in active
markets.  Under SFAS No. 157, fair value measurements are
required to be disclosed by level within that hierarchy.  SFAS
No. 157 is effective for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years.  However, FASB
Staff Position No. FAS 157-2, “Effective Date of FASB Statement
No. 157”, herein referred to as SFAS No. 157-2, issued in
February 2008, delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, to fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years.    The Company is in the
process of determining the effect, if any, that the adoption of SFAS
No. 157-2 will have on its results of operations or financial
position.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), “Business Combinations”, herein referred to as SFAS 141R,
which requires an acquirer to do the following: expense acquisition related
costs as incurred; to record contingent consideration at fair value at the
acquisition date with subsequent changes in fair value to be recognized in the
income statement; and any adjustments to the purchase price allocation are to be
recognized as a period cost in the income statement. SFAS 141R applies
prospectively to business combinations for which the acquisition date is on or
after beginning of the first annual reporting period beginning on or after
December 15, 2008. Earlier application is prohibited. At the date of adoption,
SFAS 141R is expected to have a material impact on our results of operations and
our financial position for future acquisitions due to our acquisition
strategy.





In
December, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”, herein referred
to as SFAS 160. This statement establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This statement is effective prospectively, except for certain
retrospective disclosure requirements, for fiscal years beginning after December
15, 2008. This statement will have no impact on the Company's financial
statements as there are currently no minority interests.





30





In May
2008 the FASB issued FASB Staff Position APB 14-1 “Accounting for Convertible
Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial
Cash Settlements)”, herein referred to As FSP APB 14-1 (previously FSP APB
14-a), which will change the accounting treatment for convertible securities
that an issuer may settle fully or partially in cash. Under this final FASB
Staff Position, cash-settled convertible securities will be separated into their
debt and equity components. The value assigned to the debt component will be the
estimated fair value, as of the issuance date, of a similar debt instrument
without the conversion feature. As a result, the debt will be recorded at a
discount to adjust its below-market coupon interest rate to the market coupon
interest rate for the similar debt instrument without the conversion feature.
The difference between the proceeds for the convertible debt and the amount
reflected as the debt component represents the value of the conversion feature
and will be recorded as additional paid-in capital. The debt will subsequently
be accreted to its par value over its expected life, with an offsetting increase
in interest expense on the income statement to reflect the market rate for the
debt component at the date of issuance.  See Note 6 of Notes to
Consolidated Financial Statements for an evaluation of the impact this will have
on the Company’s consolidated income statements.





Beginning
with the first quarter in fiscal 2009, and applied retrospectively to all past
periods presented, the Company will be required to adopt the
provisions of FSP APB 14-1 as they relate to the convertible notes. As
compared to the current accounting for the convertible notes, adoption of
the proposal will reduce long-term debt, increase stockholders’ equity, and
reduce net income and earnings per share. Adoption of the proposal would not
affect the Company's cash flows. The Company is currently
evaluating the impact of the adoption of FSP APB 14-1 on its financial
statements.





In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active”, herein referred to as FSP 157-3. FSP 157-3 applies to financial assets
within the scope of accounting pronouncements that require or permit fair value
measurements in accordance with SFAS 157, and clarifies the application of SFAS
157 in determining the fair values of assets or liabilities in a market that is
not active. This FSP is effective upon issuance, including prior periods for
which financial statements have not been issued. The adoption of this FSP did
not have a material impact on the Company’s consolidated financial
statements.





In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities - an amendment
of FASB Statement No. 133", herein referred to as SFAS No. 161, which changes
the disclosure requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under FASB Statement No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008.





In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock”, herein referred
to as EITF 07-5. EITF 07-5 provides that an entity should use a two step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions. It also clarifies on the impact
of foreign currency denominated strike prices and market-based employee stock
option valuation instruments on the evaluation. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008.  Management is
evaluating the impact adopting this Staff Position will have on the Company’s
results of operations and financial position





Critical
Accounting Policies:





Several
of the Company's accounting policies involve management judgments and estimates
that could be significant. The policies with the greatest potential effect on
the Company's consolidated results of operations and financial position include
the estimate of reserves to provide for collectability of accounts receivable.
The Company estimates the collectability considering historical, current and
anticipated trends of its licensees related to deductions taken by customers and
markdowns provided to retail customers to effectively flow goods through the
retail channels, and the possibility of non-collection due to the financial
position of its licensees' and their retail customers. Due to its licensing
model, the Company has eliminated its inventory risk and reduced its operating
risks, and can now reasonably forecast revenues and plan expenditures based upon
guaranteed royalty minimums and sales projections provided by its retail
licensees.





The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company reviews all significant estimates
affecting the financial statements on a recurring basis and records the effect
of any adjustments when necessary.


31


In
connection with its licensing model, the Company has entered into various
trademark license agreements that provide revenues based on minimum royalties
and additional revenues based on a percentage of defined sales. Minimum royalty
revenue is recognized on a straight-line basis over each period, as defined, in
each license agreement. Royalties exceeding the defined minimum amounts are
recognized as income during the period corresponding to the licensee's
sales.





In June
2001, the FASB issued Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets,", herein referred to as SFAS No. 142,
which changed the accounting for goodwill from an amortization method to an
impairment-only approach. Upon the Company's adoption of SFAS No. 142 on
February 1, 2002, the Company ceased amortizing goodwill. As prescribed under
SFAS No. 142, the Company had goodwill tested for impairment during the years
ended December 31, 2008, 2007 and 2006, and no write-downs from impairments were
necessary. The Company’s tests for impairment utilize discounted cash flow
models to estimate the fair values of the individual assets. Assumptions
critical to the Company’s fair value estimates are as follow: (i) discount rates
used to derive the present value factors used in determining the fair value of
the reporting units and trademarks; (ii) royalty rates used in our trade mark
valuations; (iii) projected average revenue growth rates used in the reporting
unit and trademark models; and (iv) projected long-term growth rates used in the
derivation of terminal year values.  These tests factor in economic
conditions and expectations of management and may change in the future based on
period-specific facts and circumstances.





Impairment
losses are recognized for long-lived assets, including certain intangibles, used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are not sufficient to
recover the assets carrying amount. Impairment losses are measured by comparing
the fair value of the assets to their carrying amount.  For the years
ended December 31, 2008, 2007, and 2006 there was no impairment present for
these long-lived assets.





Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), “Accounting for Share-Based Payment”, herein referred
to as SFAS No. 123(R), which requires companies to measure and recognize
compensation expense for all stock-based payments at fair value. Under SFAS No.
123(R), using the modified prospective method, compensation expense is
recognized for all share-based payments granted prior to, but not yet vested as
of, January 1, 2006. Prior to the adoption of SFAS No.123 (R), the
Company accounted for its stock-based compensation plans under the
recognition and measurement principles of accounting principles board, or APB,
Opinion No. 25, “Accounting for stock issued to employees,” and related
interpretations. Accordingly, the compensation cost for stock options had been
measured as the excess, if any, of the quoted market price of our common stock
at the date of the grant over the amount the employee must pay to acquire the
stock. In accordance with the modified prospective transition method, the
Company's consolidated financial statements have not been restated to
reflect the impact of SFAS No.123(R). The impact on the Company's financial
condition and results of operations from the adoption of SFAS No. 123(R)
will depend on the number and terms of stock options granted in future years
under the modified prospective method, the amount of which the
Company cannot currently estimate.




The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 “Accounting for Income Taxes”, herein referred to
as SFAS No. 109. Under SFAS No. 109, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized. In determining the need for a valuation
allowance, management reviews both positive and negative evidence pursuant to
the requirements of SFAS No. 109, including current and historical results of
operations, the annual limitation on utilization of net operating loss carry
forwards pursuant to Internal Revenue Code section 382, future income
projections and the overall prospects of the Company's business. Based upon
management's assessment of all available evidence, including the Company's
completed transition into a licensing business, estimates of future
profitability based on projected royalty revenues from its licensees, and the
overall prospects of the Company's business, management concluded in 2007 that
it is more likely than not that the net deferred income tax asset recorded as of
December 31, 2006 will be realized.





The
Company adopted FASB Interepretation 48, herein referred to as FIN 48, beginning
January 1, 2007. The implementation of FIN 48 did not have a significant impact
on the Company’s financial position or results of operations. The total
unrecognized tax benefit was $1.1 million at the date of adoption. At December
31, 2008, the total unrecognized tax benefit was $1.1 million. However, the
liability is not recognized for accounting purposes because the related deferred
tax asset has been fully reserved in prior years. The Company is continuing its
practice of recognizing interest and penalties related to income tax matters in
income tax expense. There was no accrual for interest and penalties related to
uncertain tax positions for the year ended December 31, 2008. The Company files
federal and state tax returns and is generally no longer subject to tax
examinations for fiscal years prior to 2004.





Marketable
securities, which are accounted for as available-for-sale, are stated at fair
value in accordance with Statement of Financial Accounting Standards No. 115,
“Accounting for Certain Investments in Debt and Equity Securities,” and consist
of auction rate securities. Temporary changes in fair market value are recorded
as other comprehensive income or loss, whereas other than temporary markdowns
will be realized through the Company’s statement of operations. On January 1,
2008, the Company adopted SFAS No. 157, which establishes a framework for
measuring fair value and requires expanded disclosures about fair value
measurement. While SFAS No.157 does not require any new fair value measurements
in its application to other accounting pronouncements, it does emphasize that a
fair value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability. The Company’s
assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the valuation.


32





Other
significant accounting policies are summarized in Note 1 of Notes to
Consolidated Financial Statements.




Item
7A. Quantitative and Qualitative Disclosures about Market Risk





The
Company limits exposure to foreign currency fluctuations by requiring
substantially all of its licenses to be denominated in U.S.
dollars.





The
Company is exposed to potential loss due to changes in interest rates.
Investments with interest rate risk include marketable securities. Debt with
interest rate risk includes the fixed and variable rate debt. As of December 31,
2008, the Company had approximately $255.3 million in variable interest debt
under its term loan facility. See Note 6 of the Notes to Consolidated Financial
Statements for further explanation. To mitigate interest rate risks, the Company
is utilizing derivative financial instruments such as interest rate hedges to
convert certain portions of the Company’s variable rate debt to fixed interest
rates.  If there were an adverse change of 10% in interest rates, the
expected effect on net income would be immaterial.




The
Company invested in certain auction rate securities. During the year ended
December 31, 2008, our balance of auction rate securities failed to auction due
to sell orders exceeding buy orders. These funds will not be available to us
until a successful auction occurs or a buyer is found outside the auction
process. As a result, $10.9 million of auction rate securities were written down
to $7.5 million as an unrealized pre-tax loss of $3.4 million to reflect a
temporary decrease in fair value. The Company estimated the fair value of its
auction rate securities using a discounted cash flow model where the Company
used the expected rate of interest to be received.  The Company
believes this decrease in fair value is temporary due to general macroeconomic
market conditions, and interest is being paid in full as
scheduled.  Further, the Company has the ability to hold the
securities until an anticipated full redemption, and the Company has no reason
to believe that any of the underlying issuers of these auction rate securities
or its third-party insurers are presently at risk of default.  As the
write-down of approximately $3.4 million has been identified as a temporary
decrease in fair value, the write-down did not impact the Company’s earnings and
is reflected as an other comprehensive loss in the consolidated statement of
stockholders’ equity. The cumulative effect of the failure to auction since the
third quarter of fiscal 2007 has resulted in an accumulated other comprehensive
loss of $5.5 million which is reflected in the stockholders’ equity section of
the consolidated balance sheet.





In
connection with the initial sale of its convertible notes, the Company entered
into convertible note hedges with the counterparties, which hedging transactions
are expected, but are not guaranteed, to eliminate the potential dilution upon
conversion of the convertible notes. At the same time, the Company entered into
sold warrant transactions with the hedge counterparties. In connection with such
transactions, the hedge counterparties entered into various over-the-counter
derivative transactions with respect to the Company’s common stock and purchased
the Company’s common stock; and they may enter into or unwind various
over-the-counter derivatives and/or purchase or sell the Company’s common stock
in secondary market transactions in the future. Such activities could have the
effect of increasing, or preventing a decline in, the price of our common stock.
Such effect is expected to be greater in the event we elect to settle converted
notes entirely in cash. The hedge counterparties are likely to modify their
hedge positions from time to time prior to conversion or maturity of the
convertible notes or termination of the transactions by purchasing and selling
shares of our common stock, other of our securities, or other instruments they
may wish to use in connection with such hedging. In particular, such hedging
modification may occur during any conversion reference period for a conversion
of notes. In addition, we intend to exercise options we hold under the
convertible note hedge transactions whenever notes are converted and we have
elected, with respect to such conversion, to pay a portion of the consideration
then due by us to the note holder in shares of our common stock. In order to
unwind their hedge positions with respect to those exercised options, the hedge
counterparties will likely sell shares of our common stock in secondary market
transactions or unwind various over-the-counter derivative transactions with
respect to our common stock during the conversion reference period for the
converted notes. The effect, if any, of any of these transactions and activities
on the trading price of our common stock will depend in part on market
conditions and cannot be ascertained at this time, but any of these activities
could adversely affect the value of our common stock. Also, the sold warrant
transaction could have a dilutive effect on our earnings per share to the extent
that the price of our common stock exceeds the strike price of the
warrants.





On
September 15, 2008 and October 3, 2008, respectively, Lehman Holdings and Lehman
OTC, filed for protection under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court in the Southern District of New York. The
Company currently believes that the bankruptcy filings and their potential
impact will not have a material adverse effect on the Company’s financial
position, results of operations or cash flows. The Company will continue to
monitor the bankruptcy filings of Lehman Holdings and Lehman OTC. The terms of
the convertible notes and the rights of the holders of the Convertible Notes are
not affected in any way by the bankruptcy filings of Lehman Holdings or Lehman
OTC.




Item 8. Financial Statements and
Supplementary Data




The
financial statements and supplementary data required to be submitted in response
to this Item 8 are set forth after Part IV, Item 15 of this
report.


33





Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure




Not
applicable.




Item
9A. Controls and Procedures





The
Company, under the supervision and with the participation of its management,
including its principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, herein referred to as the Exchange Act) as
of the end of the period covered by this report. The purpose of disclosure
controls is to ensure that information required to be disclosed in our reports
filed with or submitted to the SEC under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms. Disclosure controls are also designed to ensure that such
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, to allow timely
decisions regarding required disclosure.





Based on
this evaluation, the principal executive officer and principal financial officer
concluded that the Company’s disclosure controls and procedures are effective in
timely alerting them to material information required to be included in our
periodic SEC filings and ensuring that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time period specified in
the SEC’s rules and forms.




The
principal executive officer and principal financial officer also conducted an
evaluation of internal control over financial reporting, herein referred to as
internal control, to determine whether any changes in internal control occurred
during the quarter ended December 31, 2008 that may have materially affected or
which are reasonably likely to materially affect internal control. Based on that
evaluation, there has been no change in the Company’s internal control during
the quarter ended December 31, 2008 that has materially affected, or is
reasonably likely to affect, the Company’s internal control.


34





MANAGEMENT'S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




February
27, 2009




To the
Stockholders of Iconix Brand Group, Inc.




The
management of Iconix Brand Group, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting for the company
and for the preparation, integrity, objectivity and fair presentation of the
financial statements and other financial information presented in this report.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America and reflect the
effects of certain judgments and estimates made by management.





In order
to ensure that our internal control over financial reporting is effective,
management regularly assesses such controls and did so most recently for our
financial reporting as of December 31, 2008. This assessment was based on
criteria for effective internal control over financial reporting described in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, referred to as COSO. Our assessment
included the documentation and understanding of our internal control over
financial reporting. We have evaluated the design effectiveness and tested the
operating effectiveness of internal controls to form our
conclusion.





Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Our internal control over financial
reporting includes those policies and procedures that pertain to maintaining
records that, in reasonable detail, accurately and fairly reflect transactions
and dispositions of assets, providing reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, assuring that receipts
and expenditures are being made in accordance with authorizations of our
management and directors and providing reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of assets
that could have a material effect on our financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Based on
this assessment, the undersigned officers concluded that our internal controls
and procedures are effective in timely alerting them to material information
required to be included in our periodic SEC filings and that information
required to be disclosed by us in these periodic filings is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and that our internal controls are effective to provide reasonable
assurance that our financial statements are fairly presented in conformity with
generally accepted accounting principles.





The Audit
Committee of our Board of Directors, which consists of independent,
non-executive directors, meets regularly with management, the internal auditors
and the independent accountants to review accounting, reporting, auditing and
internal control matters. The committee has direct and private access to both
internal and external auditors.





BDO
Seidman, LLP, the independent registered public accounting firm who audits our
financial statements, has audited our internal control over financial reporting
as of December 31, 2008 and has issued their report on our internal control over
financial reporting as of December 31, 2008.


35





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors and Stockholders


Iconix
Brand Group, Inc.


New York,
New York




We have
audited Iconix Brand Group, Inc. and Subsidiaries’ internal control over
financial reporting as of December 31, 2008, based on criteria established
inInternal Control
- Integrated Framework  issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Iconix Brand
Group, Inc.’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
“Management’s Annual Report on Internal Control Over Financial Reporting”. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, Iconix Brand Group, Inc maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the
COSO criteria.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Iconix Brand
Group, Inc. as of December 31, 2008 and 2007, and the related consolidated
statements of income, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2008 and our report dated February, 27,
2009 expressed an unqualified opinion thereon.




/s/ BDO Seidman LLP




New York,
New York


February
27, 2009


36





Item
9B. Other Information




On
February 26, 2009, we entered into an employment agreement with Mr. David
Blumberg effective as of January 1, 2009 that provides for the employment of Mr.
Blumberg as our Head of Strategic Development for a three-year term. Since
November 2006, Mr. Blumberg provided consulting services to us.
  Under the
employment agreement, Mr. Blumberg is entitled to an annual base salary of not
less than $400,000. In addition, Mr. Blumberg is entitled to acquisition
payments after the closing of an acquisition (as defined in the employment
agreement) during the term of the agreement and, under certain circumstances,
for a 90 day period after termination of the agreement.  Subject to an
annual acquisition payment cap of 2.5 times his then current base salary (a
current annual $1 million cap), Mr. Blumberg will receive $500,000 for
acquisitions that have a value (as defined in the employment agreement) of $30
million or more in annualized royalty revenue and $250,000 for acquisitions with
lesser annualized royalty revenue.
  In
addition, upon approvals by the Board and our stockholders of a new equity
incentive plan or similar plan covering awards to employees, Mr. Blumberg is
also entitled to receive an award of 107,476 shares of our common stock,
referred to as the award shares. For each acquisition that closes during a
calendar year one sixth of the award shares vest at the end of such calendar
year subject to an annual vesting cap specified in the employment
agreement. Award shares that would have vested in a particular year but for the
cap instead will vest on December 31, 2011, subject to certain forfeiture
provisions. Mr. Blumberg is also entitled to various benefits, including
benefits available to our other senior employees including an automobile
allowance and certain life insurance and medical and dental
benefits.
  If Mr.
Blumberg’s employment is terminated by us for “cause” or by him without “good
reason” (each as defined in the employment agreement), he will receive his
earned and unpaid base salary through the date of termination and shares of
common stock in respect of any already vested stock awards, including award
shares, or, if the award shares have not been granted, the vested portion of the
alternate payment described below.  In addition, subject to the
acquisition cap, Mr. Blumberg will receive the acquisition payment for any
acquisition that closes within 90 days of his termination. If his employment is
terminated by us without cause or by him for good reason, he will receive, in
addition to the foregoing, an amount equal to his base salary for the remaining
agreement term plus any earned but unpaid annual bonus for a prior year or other
completed period (the prior year bonus) and any unvested portion of his stock
award will vest.  In addition, subject to the acquisition cap, he will
receive the acquisition payment for any acquisition that closes within 90 days
of such termination.  If his employment is terminated by us without
cause or by him for good reason within 12 months of a “change in control” (as
defined in the employment agreement), in addition to the foregoing payments he
would have received had he been terminated without a change of control, he will
also receive an amount equal to equal to three (3) times the greater of (i)
$400,000 or $100 less than the average of the annual cash compensation received
by him on or after January 1, 2009 in his capacity as an employee of the Company
during the “base
period” (as defined in Section 280G of the Internal Revenue Code) subject
to an “excess
parachute” payment limitation (as defined in Section
280G).  Annual cash compensation includes base salary plus any
acquisition payments and acquisition bonus payments paid to him.  If
Mr. Blumberg’s employment terminates as a result of his disability or death, he
or his estate will be entitled to any earned and unpaid base salary, plus any
prior year bonus and any unvested portion of his stock award will vest and
subject to the acquisition cap, the acquisition payment for any acquisition that
closes within 90 days of the date of death or disability.
  The
Blumberg employment agreement also provides that in the event that stockholder
approval of a plan necessary to make the stock award to him is not obtained
prior to the earlier of (i) the expiration of the term of the employment
agreement, (ii) a termination of his employment prior to the end of the term due
to his death or disability, termination by him of his employment for good reason
or termination of his employment by us without cause, or (iii) a change
in  control, then instead of the grant of the award to him, we are
required to pay to Mr. Blumberg $900,000. The Blumberg employment agreement also
contains certain confidentiality, non-competition and non-solicitation covenants
restricting such activities for certain specified periods.
     37


PART
III




Item
10. Directors, Executive Officers and Corporate Governance




Our
executive officers and directors and their respective ages and positions are as
follows:




Name
                                
                                Age
                                
                                Position(s)Neil
      Cole
                                
                                51
                                
                                Chairman
      of the Board, President and Chief Executive OfficerWarren
      Clamen
                                
                                44
                                
                                Executive
      Vice President and Chief Financial OfficerAndrew
      Tarshis
                                
                                42
                                
                                Executive
      Vice President and General CounselBarry Emanuel1,3
                                
                                67
                                
                                DirectorSteven Mendelow2,
      3
                                
                                66
                                
                                DirectorDrew Cohen1, 2,
      3
                                
                                40
                                
                                DirectorF. Peter Cuneo2,
      3
                                
                                64
                                
                                DirectorMark Friedman1,3
                                
                                45
                                
                                DirectorJames
      A. Marcum1,
      2
                                
                                49
                                
                                Director







(1)  Member
of nominating/governance committee.


(2)  Member
of audit committee.


(3)  Member
of compensation committee.




Neil
Colehas
served as Chairman of the Company's Board of Directors and as its Chief
Executive Officer and President since the Company's public offering in February
1993. In addition, from February through April 1992, Mr. Cole served as its
Acting President and as a member of its Board of Directors. Mr. Cole also served
as Chairman of the Board, President, Treasurer and a Director of New Retail
Concepts, Inc., the company from which we acquired the Candie's trademark in
1993, from its inception in April 1986 until it was merged with and into our
Company in August 1998. In 2001, Mr. Cole founded The Candie's Foundation, for
the purpose of educating teenagers as to the risks and consequences of teen
pregnancy. Mr. Cole received a Bachelor of Science degree in political science
from the University of Florida in 1978 and his Juris Doctor from Hofstra law
school in 1982.




Warren
Clamen has served as the Company's Executive Vice President and Chief
Financial Officer since November 11, 2008.  Prior to that, Mr. Clamen
served as the Company’s Chief Financial Officer since joining the Company in
March 2005. From June 2000 until March 2005, Mr. Clamen served as Vice President
of Finance for Columbia House, one of the world's largest licensees of content
for music and film, and from December 1998 to June 2000, he was Vice President
of Finance of Marvel Entertainment, Inc. a publicly traded entertainment company
active in motion pictures, television, publishing, licensing and toys. Prior to
that time, Mr. Clamen served as the Director, International Management for
Biochem Pharma Inc., a public company located in Montreal, Canada that has its
shares traded on NASDAQ, and as a Senior Manager at Richter, Usher and Vineberg,
an accounting firm also located in Montreal, Canada. Mr. Clamen is a certified
public accountant and a chartered accountant. He received a Bachelor of Commerce
degree in 1986 and a Graduate Diploma in public accounting in 1988, each from
McGill University in Montreal.




Andrew
Tarshis has served as the Company’s Executive Vice President and General
Counsel since November 11, 2008.  Prior to that, Mr. Tarshis served as
the Company’s Senior Vice President and General Counsel since September 2006.
From July 2005, when he joined the Company in connection with its acquisition of
the Joe Boxer brand, until September 2006, he served as the Company’s Senior
Vice President, business affairs and associate counsel. Prior to joining the
Company, from May 2001 to July 2005, Mr. Tarshis served as Senior Vice
President and General Counsel to Windsong Allegiance Group, LLC and, from
December 1998 to May 2001, he served as a general attorney for Toys R Us, Inc.
Mr. Tarshis received his Bachelor of Arts degree from the University of
Michigan, Ann Arbor in 1988 and his Juris Doctor degree from the University of
Connecticut School of Law in 1992.




Barry
Emanuel has served on the Company's Board of Directors since May 1993.
For more than the past five years, Mr. Emanuel has served as president of Copen
Associates, Inc., a textile manufacturer located in New York, New York. Mr.
Emanuel was a director of New Retail Concepts, Inc. from 1992 until its merger
with the Company in 1998. He received his Bachelor of Science degree from the
University of Rhode Island in 1962.


38





Steven
Mendelow has served on the Company's Board of Directors since December
1999. He has been a principal with the accounting firm of Konigsberg Wolf &
Co. and its predecessor, which is located in New York, New York, since 1972. Mr.
Mendelow was a director of New Retail Concepts, Inc. from 1992 until its merger
with the Company in 1998. He also serves as a director of several privately held
companies. He is a trustee of The Washington Institute for Near East Studies and
currently serves as treasurer of the  Starlight Starbright Children's
Foundation.  Further, he is actively involved with the Foundation for
Fighting Blindness. In December 2008, Mr. Mendelow joined the board of directors
of Thermage, Inc., which changed its name to Solta Medical, Inc., a
Nasdaq-traded company, in January 2009.  Mr. Mendelow is on the audit
committee of Solta Medical.  He received a Bachelor of Science degree
in business administration from Bucknell University in 1964 where he was elected
to Delta Mu Delta, the national Business Administration Honor
Society.




Drew Cohen
has served on the Company's Board of Directors since April 2004. He is the
president of Music Theatre International, which represents the dramatic
performing rights of classic properties such as “West Side Story,” and “Fiddler
on the Roof,” and licenses over 50,000 performances a year around the world.
Before joining Music Theatre International in September 2002, Mr. Cohen was from
July 2001 the director of investments for Big Wave NV, an investment management
company, and prior to that, general manager for GlassNote Records, an
independent record company. Mr. Cohen received a Bachelor of Science degree from
Tufts University in 1990, his Juris Doctor from Fordham Law School in 1993, and
a Masters Degree in business administration from Harvard Business School in
2001.




F. Peter
Cuneo has served on the Company’s Board of Directors since October 2006.
He has served as the Vice Chairman of the Board of Directors of Marvel
Entertainment, Inc., a publicly traded entertainment company active in motion
pictures, television, publishing, licensing and toys, since June 2003, and prior
thereto, he served as the President and Chief Executive Officer of Marvel
Entertainment from July 1999 to December 2002. Mr. Cuneo has also served as
the Chairman of Cuneo & Co., L.L.C., a private investment firm, since
July 1997 and previously served on the Board of Directors of WaterPik
Technologies, Inc., a New York Stock Exchange company engaged in designing,
manufacturing and marketing health care products, swimming pool products and
water-heating systems, prior to its sale earlier in 2006. Mr. Cuneo
currently serves as the Vice Chairman of the Alfred University Board of
Trustees, and he received a Bachelor of Science degree from Alfred University in
1967 and a Masters degree in business administration from Harvard Business
School in 1973.




Mark
Friedman has served on the Company’s Board of Directors since October
2006. He has been the Managing Partner of Trilea Partners LLC, an investment and
consulting firm, since May 2006. Previously, he was with Merrill Lynch since
1996, serving in various capacities including, most recently, as group head of
its U.S. equity research retail team where he specialized in analyzing and
evaluating specialty retailers in the apparel, accessory and home goods
segments. Prior thereto, he specialized in similar services for Lehman Brothers
Inc. and Goldman, Sachs & Co. Mr. Friedman has been ranked on the
Institutional Investor All-American Research Team as one of the top-rated sector
analysts and received a Bachelor of Business Administration degree from the
University of Michigan in 1986 and a Masters degree in business administration
from The Wharton School, University of Pennsylvania in 1990.





James A.
Marcum has served on the Company’s Board of Directors since October 2007.
Effective June 2008, Mr. Marcum joined the board of directors of Circuit City
Stores, Inc. and became vice chairman of this board in August
2008.   Since September 2008, Mr. Marcum has served as acting
president and chief executive officer of Circuit City Stores, Inc., which filed
for bankruptcy in November 2008.  He is an operating partner and has
served as an operating executive of Tri-Artisan Capital Partners, LLC, a
merchant banking firm, from January 2004 until August 2008. From January 2005 to
January 2006, he served in various capacities, including chief executive officer
and director, of Ultimate Electronics, Inc., a consumer electronics
retailer.  Prior thereto, Mr. Marcum has served in various senior
executive capacities for a variety of nationwide specialty
retailers.  He received a Bachelor’s degree from Southern Connecticut
State University in accounting and economics in 1980.




Election
of officers




Our Board
of Directors elects the officers of the Company on an annual basis and its
officers serve until their successors are duly elected and qualified. No family
relationships exist among any of our officers or directors.




Election
of directors





Our Board
of Directors is currently comprised of seven directors. At each annual meeting
of stockholders, the successors to the directors then serving are elected to
serve from the time of their election and qualification until the next annual
meeting following their election or until their successors have been duly
elected and qualified, or until their earlier death, resignation or removal. All
of our current directors have been elected to serve until the annual
meeting of stockholders to be held in 2009.




Committees
of the Board of Directors




Our bylaws
authorize the Board of Directors to appoint one or more committees, each
consisting of one or more directors. Our Board of Directors currently has
three standing committees: an audit committee, nominating/governance committee
and a compensation committee, each of which has adopted written charters and
which are currently available on our website.


39





Audit
committee





Our audit
committee’s responsibilities include:




●
                    appointing,
      replacing, overseeing and compensating the work of a firm to serve as the
      independent registered public accounting firm to audit our financial
      statements;




●
            discussing
      the scope and results of the audit with the independent registered public
      accounting firm and reviewing with management and the independent
      registered public accounting firm our interim and year-end operating
      results;




●
            considering
      the adequacy of our internal accounting controls and audit
      procedures; and




●
            approving
      (or, as permitted, pre-approving) all audit and non-audit services to be
      performed by the independent registered public accounting
      firm.




The
members of our audit committee are Messrs. Mendelow, Cuneo, Cohen and
Marcum.  Mr. Mendelow currently serves as the committee’s chairperson.
Each member of the audit committee is an “independent director” under the
marketplace rules of NASDAQ applicable to companies whose securities are listed
on the NASDAQ Global Market. Our Board of Directors has also determined
that Mr. Mendelow is the “audit committee financial expert,” as that term is
defined under applicable SEC rules and NASDAQ Marketplace Rules, serving on its
audit committee.




Nominating/governance
committee




Our nominating/governance
committee's responsibilities include:




●
            identifying,
      evaluating and recommending nominees to serve on the Board and committees
      of the Board;




●
            conducting
      searches for appropriate directors and evaluating the performance of the
      Board and of individual directors;
and




●
            reviewing
      developments in corporate governance practices, evaluating the adequacy of
      our corporate governance practices and reporting and making
      recommendations to the Board concerning corporate governance
      matters.




The
members of our nominating/governance committee are Messrs. Cohen, Emanuel,
Friedman and Marcum.  Mr. Cohen currently serves as the committee’s
chairperson.




Compensation
committee




Our compensation
committee's responsibilities include:




●
            setting
      the compensation and negotiating the employment arrangements for the chief
      executive officer;




●
            reviewing
      and recommending approval of the compensation of our other executive
      officers;




●
            administering
      our stock option and stock incentive
plans;




●
            reviewing
      and making recommendations to the Board with respect to our overall
      compensation objectives, policies and practices, including with
      respect to incentive compensation and equity plans;
    and


40





●
            evaluating
      the chief executive officer's performance in light of corporate
      objectives.




The
members of our compensation committee are Messrs. Mendelow, Cohen, Cuneo,
Emanuel and Friedman.  Mr. Friedman currently serves as the
committee’s chairperson.




Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Exchange Act requires our officers and directors, and persons
who beneficially own more than 10% of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than 10% owners are required by certain SEC
regulations to furnish us with copies of all Section 16(a) forms they
file.




Based
solely on our review of the copies of such forms received by it, we believe
that during fiscal 2008, there was compliance with the filing requirements
applicable to its officers, directors and 10% common stockholders, except for a
Form 4 to report one transaction by Mr. Tarshis that was not timely
filed.




Corporate
governance policies




We
have adopted a written code of business conduct that applies to our
officers, directors and employees, responsive to Section 406 of the
Sarbanes-Oxley Act of 2002 and the rules of the SEC. In addition, we
have established an ethics website atwww.ethicspoint.com
.. To assist individuals in upholding the code of conduct and to facilitate
reporting, we have also established an on-line anonymous and confidential
reporting mechanism that is hosted atwww.ethicspoint.com  and
an anonymous and confidential telephone hotline at 800-963-5864. Copies of
our code of business conduct are available, without charge, upon written
request directed to our corporate secretary at Iconix Brand Group, Inc.,
1450 Broadway, New York, NY 10018.




Item
11. Executive Compensation




Compensation
Discussion and Analysis





The
purpose of this Compensation Discussion and Analysis is to provide the
information necessary for understanding the compensation philosophy, policies
and decisions which are material to the compensation of our principal executive
officer, our principal financial officer and our three other most highly
compensated executive officers (we refer to these officers as our “named
executive officers”) during 2008. This Compensation Discussion and Analysis will
place in context the information contained in the tables and accompanying
narratives that follow this discussion.





Philosophy
and Objectives





Our
compensation philosophy is to offer our named executive officers compensation
that is fair, reasonable and competitive, and that meets our goals of
attracting, retaining and motivating highly skilled management personnel so that
we can be in a position to achieve our financial, operational and strategic
objectives to create long-term value for our stockholders. We seek to deliver
fair, reasonable and competitive compensation for our employees and executives,
including our named executive officers, by structuring compensation around one
fundamental goal: incentivizing our executives to build stockholder value over
the short and long term. Our ability to attract, motivate and retain employees
and executives with the requisite skills and experience to develop, expand and
execute business opportunities for us is essential to our growth and success. We
believe that we offer attractive career opportunities and challenges for our
employees, but remain mindful that the best talent will always have a choice as
to where they wish to pursue their careers, and fair and competitive
compensation is an important element of job satisfaction.





Our
compensation program includes short-term elements, such as annual base salary,
and in some cases, an annual incentive cash bonus, and long term elements such
as equity-based awards through grants of restricted stock, restricted stock
units and stock options. We believe that our compensation program incentivizes
our named executive officers and other employees to execute on our goals and
perform their job functions with excellence and integrity. We also take into
account the roles played by each of our named executive officers and endeavor to
individually customize their compensation packages to align the amount and mix
of their compensation to their contributions to, and roles within, our
organization. The compensation package and structure for our chief executive
officer, Mr. Neil Cole, differs from those of our other named executive officers
in light of his distinct role and responsibilities within Iconix. As Mr. Cole
makes executive decisions that influence our direction and growth initiatives,
his total compensation is intended to be strongly aligned with objective
financial measures, including a bonus driven by a formula set forth in his
employment agreement based upon our performance.





We enter
into employment agreements with senior officers, including our named executive
officers, when the compensation committee determines that an employment
agreement is in order for us to obtain a degree of certainty as to an
executive’s continued employment in light of prevailing market conditions and
competition for the particular position held by the officer, or where the
compensation committee determines that an employment agreement is appropriate to
attract an executive in light of market conditions, the prior experience of the
executive or practices at our company with respect to other similarly situated
executives. Based on these and any other factors then deemed relevant, we have
previously entered into written employment agreements with Messrs. Neil Cole,
David Conn, Warren Clamen and Andrew Tarshis and Ms. Deborah Sorell Stehr, all
of whom were named executive officers during 2008.  We entered into a
new employment agreement in January 2008 with our chief executive officer, which
was amended in December 2008, and we entered into new employment agreements in
November 2008 with Mr. Tarshis, our executive vice president and general counsel
and with Mr. Clamen, our executive vice president and chief financial
officer.  The employment agreements with Mr. Conn and Ms. Stehr have
expired by their terms, and they no longer serve as our
officers.


41


Forms
of Compensation Paid to Named Executive Officers During 2008





During
the last fiscal year, we provided our named executive officers with the
following forms of compensation:





Base salary. Base salary
represents amounts paid during the fiscal year to named executive officers as
direct guaranteed compensation under their employment agreements for their
services to us.





Equity-based awards. Awards
of restricted stock units, shares of restricted stock and stock options are made
under our 2006 Equity Incentive Plan, which was approved by our stockholders in
August 2006, or under our other option plans depending upon the amount of equity
to be granted under the respective plans. Shares of restricted stock that were
issued subject to a vesting schedule cannot be sold until and to the extent the
shares have vested. In 2008, we awarded shares of restricted stock to four of
our named executive officers Some of the awards granted in 2008 are subject to
stockholder approval of either an increase in the number of shares of common
stock available for issuance under our 2006 Equity Incentive Plan or another
incentive plan that would cover such awards. While we have not formally adopted
any policies with respect to cash versus equity components in the mix of
executive compensation, we feel that it is important to provide for a
compensation mix that allows for acquisition of a meaningful level of equity
ownership by our named executive officers in order to help align their interests
with those of our stockholders.





Cash bonuses. Messrs. Cole,
Tarshis and Clamen and Ms. Stehr received cash bonuses in 2008.  Mr.
Cole received a contractually guaranteed amount of $500,000 and $500,000 based
upon our achievement of performance goals.  In May 2008, our
stockholders adopted the Executive Incentive Bonus Plan discussed
below.





Perquisites and other personal
benefits. During 2008, our named executive officers received, to varying
degrees, a limited amount of perquisites and other personal benefits that we
paid on their behalf. These included, among other things:





·
            payments
      of life insurance premiums; and





·
            car
      allowances.





Objectives
of Our Compensation Program





The
compensation paid to our named executive officers is primarily structured into
two broad categories:





·
            base
      salary; and





·
            incentive
      compensation, primarily in the form of equity-based awards under our
      various equity incentive and stock option plans; to a lesser degree,
      certain of our named executive officers also have received cash
      bonuses.





Our
overall compensation program with respect to our named executive officers is
designed to achieve the following objectives:




·
            to
      attract, retain and motivate highly qualified executives through both
      short-term and long-term incentives that reward company and individual
      performance;




·
            to
      emphasize equity-based compensation to more closely align the interests of
      executives with those of our
stockholders;




·
            to
      support and encourage our financial growth and
  development;




·
            to
      motivate our named executive officers to continually provide excellent
      performance throughout the year;




·
            to
      ensure continuity of services of named executive officers so that they
      will contribute to, and be a part of, our long-term success;
      and




·
            to
      manage fixed compensation costs through the use of performance and
      equity-based compensation.


42


Determination
of Compensation for Named Executive Officers





Compensation of chief executive
officer. During 2008, the compensation of Mr. Cole, our chairman,
president and chief executive officer was based on Mr. Cole’s employment
agreement dated January 28, 2008, as amended on December 24, 2008, which
agreement was effective as of January 1, 2008. In determining the salary and
other forms of compensation for Mr. Cole, the compensation committee took into
consideration Mr. Cole’s contribution to our growth over the past several years
under his leadership, and his substantial experience and performance in the
industry in general and with us in particular. The compensation committee also
considered the increased responsibilities of Mr. Cole as a result of our
diversification and the substantial growth experienced by our company during his
tenure. The compensation committee believes that Mr. Cole’s compensation for
2008 as our principal executive officer reflects our performance during 2008 and
his significant contributions to that performance.





See
“Employment Agreements With Certain Of Our Executive Officers” for further
description of Mr. Cole's employment agreement.





Overall compensation program.
Compensation of our executive officers, including the named executive officers,
has been determined by the Board of Directors pursuant to recommendations made
by the chief executive officer and the compensation committee. The compensation
committee is responsible for, among other things, reviewing and recommending
approval of the compensation of our executive officers; administering our equity
incentive and stock option plans; reviewing and making recommendations to the
Board of Directors with respect to incentive compensation and equity incentive
and stock option plans, evaluating our chief executive officer’s performance in
light of corporate objectives, and setting our chief executive officer’s
compensation based on the achievement of corporate objectives.





With
respect to the named executive officers, their compensation is based upon what
we believe is a competitive base salary in view of our recent change of business
strategy and accelerated growth goals. In conjunction with our compensation
committee, we have assessed our total compensation program, and its components,
and believe that it operates well to serve both our goals and the current,
short-term and long-term compensation needs of the executive officers. We have
implemented a stockholder approved Executive Incentive Bonus
Plan in conformance with Section 162(m) for our named executive
officers and other senior executives.  In 2008, only Mr. Cole received
an award under the Executive Incentive Bonus Plan.





Compensation
amounts for named executive officers are determined according to the level of
seniority and position of the named executive officer. Relatively greater
emphasis is typically placed on the equity-based components of compensation so
as to put a greater portion of total pay based on Company and individual
performance. We believe the combination of a competitive base compensation,
coupled with an opportunity to significantly enhance overall individual
compensation if individual and Company performance warrant such enhancement,
yields an attractive compensation program that facilitates our recruitment and
retention of talented executive personnel.





The total
compensation amount for our named executive officers is also established
relative to officers at levels above and below them, which we believe rewards
them for increased levels of knowledge, experience and
responsibility.





Base salary. The base salary
of each of our named executive officers is fixed pursuant to the terms of their
respective employment agreements with us and, when a contract is up for, or
otherwise considered for, renewal, upon a review of the executive’s abilities,
experience and performance, as well as a review of salaries for executives in
the marketplace for comparable positions at corporations which either compete
with us in its business or of comparable size and scope of operations. The
recommendations to the Board of Directors by the compensation committee with
respect to base salary are based primarily on informal judgments reasonably
believed to be in our best interests. In determining the base salaries of
certain of our executives whose employment agreements were up for, or otherwise
considered for, renewal, the compensation committee considered our performance
and growth plans. Base salaries are used to reward superior individual
performance of each named executive officer on a day-to-day basis during the
year, and to encourage them to perform at their highest levels. We also use our
base salary as an incentive to attract top quality executives and other
management employees from other companies. Moreover, base salary (and increases
to base salary) are intended to recognize the overall experience, position
within our company, and expected contributions of each named executive officer
to us.





The
following were contractual increases in the base salaries of our named executive
officers from 2007 to 2008 as set forth on the table below:




Named Executive Officer
                                          
                                          2007 Base
                                            Salary
                                          
                                          
                                          2008 Base
                                            Salary
                                          
                                          
                                          Change in Base
                                            Salary
                                          
                                          
                                          Percentage of2007 Base SalaryNeil
      Cole
                                          
                                          $
                                          600,000
                                          
                                          
                                          $
                                          1,000,000
                                          
                                          
                                          $
                                          400,000
                                          
                                          
                                          
                                          67
                                          %Warren
      Clamen
                                          
                                          
                                          300,000
                                          
                                          
                                          
                                          350,000
                                          
                                          
                                          
                                          50,000
                                          
                                          
                                          
                                          17
                                          %Andrew
      Tarshis
                                          
                                          
                                          300,000
                                          
                                          
                                          
                                          350,000
                                          
                                          
                                          
                                          50,000
                                          
                                          
                                          
                                          17
                                          %David
      Conn1
                                          
                                          
                                          300,000
                                          
                                          
                                          
                                          300,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          0
                                          %Deborah
      Sorell Stehr2
                                          
                                          
                                          230,000
                                          
                                          
                                          
                                          250,000
                                          
                                          
                                          
                                          20,000
                                          
                                          
                                          
                                          9
                                          %




43




1 Mr. Conn
ceased serving as an officer in August 2008.


2 Ms.
Stehr ceased serving as an officer in February 2009.





Equity-based awards. We
currently make equity awards to our named executive officers pursuant to our
2006 Equity Incentive Plan, which provides for awards in the form of stock
options, stock appreciation rights, restricted stock, unrestricted stock, stock
units including restricted stock units, and performance awards to eligible
persons. The mix of cash and equity-based awards, as well as the types of
equity-based awards, granted to our named executive officers varies from year to
year. Consideration has been given to various factors, such as the relative
merits of cash and equity as a device for retaining and motivating the named
executive officers, the practices of other companies, individual performance, an
individual’s pay relative to others, contractual commitments pursuant to
employment or other agreements, and the value of already-outstanding grants of
equity in determining the size and type of equity-based awards to each named
executive officer.  As of December 31, 2008, the number of shares
remaining for issuance under the 2006 Equity Incentive Plan is
75,965.





In 2008,
we continued to utilize restricted stock as a form of equity
compensation primarily because of the increased stock-based compensation
expense associated with stock options and similar instruments under SFAS 123(R).
This accounting standard, which we adopted as of January 1, 2006, requires us to
record as compensation expense the grant date fair value of a stock option over
the life of the option.





As
described above, we provide a substantial portion of named executive officer
compensation in the form of equity awards because the compensation committee has
determined that such awards serve to encourage our executives to create value
for our company over the long-term, which aligns the interests of named
executive officers with those of our stockholders.





Generally,
we make three types of equity-based grants to our named executive
officers:




·
            initial
      grants when a named executive officer is
hired;




·
            annual
      performance based grants; and




·
            retention
      grants, which are typically made in connection with new employment
      agreements or renewals.




An
initial grant when an executive officer is hired or otherwise becomes a named
executive officer serves to help us to recruit new executives and to reward
existing officers upon promotion to higher levels of management. Because these
initial grants are structured as an incentive for employment, the amount of
these grants may vary from executive to executive depending on the particular
circumstances of the named executive officer and are usually recommended by the
chief executive officer and approved by the appropriate committee.  No
initial grants were awarded to any of our named executive officers in 2008.
Annual, time-vested grants of equity awards, as well as retention grants made in
connection with renewals of employment agreements are designed so as to
compensate our named executive officers for their contributions to our long-term
performance.




Generally,
restricted stock and stock option awards granted to named executive officers as
either initial or annual performance grants or in connection with employment
agreement renewals vest in equal installments over the term of the agreement,
or a period determined by the nominating/governance committee or
compensation committee, typically beginning on the first anniversary of the date
of grant. Restricted stock grants for 2008 were as follows: Neil Cole –
1,496,800 shares of restricted stock (excluding rescinded stock grants), Warren
Clamen – 5,963 shares of restricted stock, Andrew Tarshis – 5,963 shares of
restricted stock, Deborah Sorell Stehr – 4,994 shares of restricted stock, and
David Conn – 5,963 shares of restricted stock.  These grants vest over
a two to five year period.




Cash bonuses. In May 2008 our
stockholders approved the Executive Incentive Bonus Plan, referred to as the
bonus plan.  The purpose of the bonus plan is to promote the
achievement of our short-term, targeted business objectives by providing
competitive incentive reward opportunities to our executive officers who can
significantly impact our performance towards those objectives. Further, the
bonus plan enhances our ability to attract, develop and motivate individuals as
members of a talented management team. The bonus plan is administered, and can
be amended, by the compensation committee.  All awards are paid in
cash.  Awards made under the bonus plan are subject to a participant
achieving one or more performance goals established by the compensation
committee. The performance goals may be based on our overall performance, and
also may recognize business unit, team and/or individual performance. No payment
will be made under the bonus plan unless the compensation committee certifies
that at least the minimum objective performance measures have been met. Such
performance measures may include specific or relative targeted amounts of, or
changes in: earnings before interest, taxes, depreciation and amortization,
herein referred to as EBITDA; revenues; expenses; net income; operating income;
equity; return on equity, assets or capital employed; working capital;
stockholder return; production or sales volumes; or certain other objective
criteria.   In 2008, only our chairman, president and chief
executive officer received a bonus under the bonus plan.




The
amount of any award under the bonus plan may vary based on the level of actual
performance. The amount of any award for a given year is determined for each
participant by multiplying the individual participant’s actual base salary in
effect at the end of that year by a target percentage (from 0% to 200%), related
to the attainment of one or more performance goals, determined by the
compensation committee. In the event that an award contains more than one
performance goal, participants in the bonus plan will be entitled to receive the
portion of the target percentage allocated to the performance goal achieved. In
the event that we do not achieve at least the minimum performance goals
established, no award payment will be made.




44


Additionally,
cash bonuses are also covered by employment agreements with our executive
officers.  Under his employment agreement, our chairman,
president and chief executive officer received a sign-on cash bonus for 2008 of
$500,000. He also received a cash performance based bonus of $500,000
pursuant to his employment agreement and the Executive Bonus
Plan.  The performance target for 2008 was the Company’s achievement
of approximately $150 million of EBITDA, which represents 80% of the targeted
EBITDA established by the Board of Directors.  In addition, in
2008, Messrs. Clamen, Tarshis, and Conn and Ms. Stehr received cash bonuses of
$50,000, $50,000, $50,000 and $41,250, respectively, pursuant to their
employment agreements.




Post-termination
compensation. We have entered into employment agreements with each of the
named executive officers.  Ms. Stehr’s and Mr. Conn’s employment
agreements have expired by their respective terms.  Each of these
agreements had provided for certain payments and other benefits if the
executive’s employment terminated under certain circumstances, including, in the
event of a “change in control”. See “Executive Compensation - Narrative to
Summary Compensation Table and Plan-Based Awards Table - Employment Agreements"
and “Executive Compensation - Potential Payments Upon Termination or Change
in Control” for a description of the severance and change in control
benefits.




Perquisites. The perquisites
provided to some or all of our executive officers are described below.
Perquisites are generally provided, as applicable, in accordance with the
executives’ employment agreements. Below is a list of material perquisites,
personal benefits and other items of compensation we provided to our named
executive officers in 2008, the total amount of each such item paid to all named
executive officers and an explanation as to why we chose to pay the
item.




Perquisite, Other Benefit or Other
                                Item of Compensation (1)
                              
                              
                              Aggregate
                                Amount of This
                                Perquisite Paid to
                                All Named
                                Executive Officers
                                in 2008
                              
                              
                              Additional Explanation for Offering Certain PerquisitesCar
      allowances
                              
                              $
                              99,344
                              
                              
                              Serves
      to defray the cost of owning and operating an automobile often used for
      business purposes; prevents us from having to own and maintain a fleet of
      automobiles and is a taxable benefit for the named executive
      officer.Life
      Insurance Premiums
                              
                              $
                              21,420
                              
                              
                              Reduces
      risk to the beneficiaries of executives in the event of the death of the
      executive.




(1)
              Perquisites
      are generally granted as part of our executive recruitment and retention
      efforts.




Other matters. The
compensation committee has not historically engaged consultants with respect to
executive compensation matters. However, in 2007 and 2008, the compensation
committee engaged an outside consulting firm, James F. Reda & Associates LLC
for advice in connection with the negotiation of the employment agreement for
our chief executive officer, which agreement was entered into in January 2008
and amended in December 2008. James F. Reda & Associates LLC has provided no
other services to us and has no other relationship or engagement with us. Our
board of directors has not established a policy for the adjustment of any
compensation award or payment if the relevant performance measures on which they
are based are restated or adjusted. Our board of directors has not established
any security ownership guidelines for executive officers.





Tax
Deductibility and Accounting Ramifications





The
compensation committee generally takes into account the various tax and
accounting ramifications of compensation paid to our executives. When
determining amounts of equity-based grants to executives the compensation
committee also considers the accounting expense associated with the
grants.





Our 2006
Equity Incentive Plan, our 2008 Executive Incentive Bonus Plan and our other
plans are intended to allow us to make awards to executive officers that are
deductible under Internal Revenue Code of 1986 (“Internal Revenue Code” or
“Code”) Section 162(m), which otherwise sets limits on the tax deductibility of
compensation paid to a company’s most highly compensated executive officers. The
compensation committee will continue to seek ways to limit the impact of Section
162(m). However, the compensation committee also believes that the tax deduction
limitation should not compromise our ability to maintain incentive programs that
support the compensation objectives discussed above or compromise our ability to
attract and retain executive officers. Achieving these objectives and
maintaining flexibility in this regard may therefore result in compensation that
is not deductible by Iconix for federal income tax purposes.


45


Summary





In
summary, we believe that our mix of salary, cash incentives for short-term and
long-term performance and the potential for additional equity ownership in
Iconix motivates our management to produce significant returns for our
stockholders. Moreover, we also believe that our compensation program strikes an
appropriate balance between our interests and needs in operating and further
developing our business and suitable compensation levels that can lead to the
enhancement of stockholder value.





Compensation
Committee Interlocks and Insider Participation




During
the year ended December 31, 2008, none of our named executive officers served on
the board of directors or the compensation committee of any other entity that
has officers that serve on our Board of Directors or on our compensation
committee. In addition, none of the members of our compensation committee were
formerly, or during the year ended December 31, 2008, employed by us in the
capacity as an officer.




Compensation
Committee Report




The
compensation committee of the board of directors has reviewed and discussed with
management the Compensation Discussion and Analysis for the year ended December
31, 2008. Based on such reviews and discussions, the committee recommended to
the board of directors that the Compensation Discussion and Analysis be included
in this Annual Report on Form 10-K for filing with the SEC.




COMPENSATION COMMITTEEMark
      Friedman, ChairpersonSteven
      MendelowBarry
      EmanuelF.
      Peter Cuneo


46


SUMMARY
COMPENSATION TABLE




The
following table includes information for 2008, 2007, and 2006 with respect to
our named executive officers.





Summary
Compensation Table




Salary
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                Bonus
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                Stock
                                                                                                                                                                  Awards
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                Option
                                                                                                                                                                  Awards
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                Non-Equity
                                                                                                                                                                  Incentive Plan
                                                                                                                                                                  Compensation
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                Change in
                                                                                                                                                                  Pension Value
                                                                                                                                                                  and Non-
                                                                                                                                                                  qualified
                                                                                                                                                                  Deferred
                                                                                                                                                                  Compensation
                                                                                                                                                                  Earnings
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                All Other
                                                                                                                                                                  Compensation
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                TotalName and
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                ($)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                ($)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                ($)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                ($)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                ($)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                ($)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                ($)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                ($)Principal Position
                                                                                                                                                                
                                                                                                                                                                Year
                                                                                                                                                                
                                                                                                                                                                (a)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                (b)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                (c)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                (d)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                (e)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                (f)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                (g)
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                (h)Neil
      Cole
                                                                                                                                                                
                                                                                                                                                                FY
      2008
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                1,000,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                1,000,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                6,944,225
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                53,264
                                                                                                                                                                (1)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                8,997,489President
      and Chief Executive Officer
                                                                                                                                                                
                                                                                                                                                                FY
      2007
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                600,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                649,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                40,904
                                                                                                                                                                (1)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                1,289,904FY
      2006
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                550,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                (3)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                65,745
                                                                                                                                                                (1)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                615,745Warren Clamen(4)
                                                                                                                                                                
                                                                                                                                                                FY
      2008
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                306,250
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                50,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                142,383
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                516,633Executive
      Vice President and Chief Financial Officer
                                                                                                                                                                
                                                                                                                                                                FY
      2007
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                279,167
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                166,667
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                463,834FY
      2006
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                243,250
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                25,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                16,667
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                302,917Andrew Tarshis(4)
                                                                                                                                                                
                                                                                                                                                                FY
      2008
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                306,250
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                50,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                159,046
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                533,296Executive
      Vice President and General Counsel
                                                                                                                                                                
                                                                                                                                                                FY
      2007
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                281,250
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                166,664
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                465,914FY
      2006
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                239,819
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                24,999
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                282,818David Conn(5)
                                                                                                                                                                
                                                                                                                                                                FY
      2008
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                233,333
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                50,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                113,833
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                13,500
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                410,666Former
      Executive Vice President
                                                                                                                                                                
                                                                                                                                                                FY
      2007
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                290,625
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                25,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                66,667
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                400,292FY
      2006
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                265,486
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                50,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                333,486Deborah Sorell
      Stehr(6)
                                                                                                                                                                
                                                                                                                                                                FY
      2008
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                250,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                41,250
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                113,198
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                422,448Former
      Senior Vice President - Business Affairs and Licensing
                                                                                                                                                                
                                                                                                                                                                FY
      2007
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                230,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                116,661
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,000
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                364,661FY
      2006
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                220,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                16,665
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                12,612
                                                                                                                                                                (2)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                249,277




(a)    Salary
includes, as applicable, base salary, pro-rated salaries for changes made to
base salary during the year, as defined in the employment
agreements.




(b)    Bonuses
are discretionary, fixed incentive, and/or percentage incentive, as provided for
in the applicable employment agreements. For the year ended December 31, 2008,
Mr. Cole received a cash sign-on bonus in the amount of $500,000 in
connection with his new employment agreement.  Mr. Cole
also received a cash performance based bonus of $500,000 pursuant to
his employment agreement and the Executive Bonus Plan. The performance target
for 2008 was the Company's achievement of approximately $150 million of EBITDA,
which represents 80% of the targeted EBITDA established by the Board of
Directors. For the year ended December 31, 2008, Messrs. Clamen and Tarshis
and Ms. Stehr received cash bonuses of $50,000, $50,000 and $41,250,
respectively, pursuant to their employment agreements.  For the year
ended December 31, 2007, Mr. Cole earned a cash bonus for reaching certain
EBITDA targets which were determined pursuant to the terms of his prior
employment agreement, and Mr. Conn received a bonus which was determined by his
employment agreement. For the year ended December 31, 2006, Mr. Conn and Mr.
Clamen each received bonuses, which were determined by their employment
agreements.




(c)     The
amounts shown in this column represent the dollar amounts recognized as an
expense by us for financial statement reporting purposes in the years ended
December 31, 2008, 2007 and 2006 with respect to shares of restricted stock
as determined pursuant to SFAS 123(R). See Note7 to Notes to the
Consolidated Financial Statements included in this Form 10-K for a discussion of
the relevant assumptions used in calculating grant date fair value pursuant to
SFAS 123(R).




(d)     Option
awards include, as applicable, Iconix options and equity-based compensation
instruments that have option-like features. There were no such awards
for the years ended December 31, 2008, 2007 and 2006.


47


(e)      Non-equity
incentive plan compensation represents the dollar value of all amounts earned
during the fiscal year pursuant to non-equity incentive plans. There was no such
compensation for the years ended December 31, 2008, 2007 and 2006.




(f)       Change
in pension value and non-qualified deferred compensation earnings represents the
aggregate increase in actuarial value to the named executive officer of all
defined benefit and actuarial plans accrued during the year and earnings on
non-qualified deferred compensation. There were no defined benefit plans,
actuarial plans, or non-qualified deferred compensation for the years ended
December 31, 2008, 2007 and 2006.




(g)      All
other compensation includes, as applicable, car allowances and life insurance
premiums (see the list of perquisites above).




(h)      Total
compensation represents all compensation from us earned by the named executive
officer for the year.




(1)       Represents
Company paid premiums on a life insurance policy for the benefit of the
beneficiaries of Mr. Cole, as well as a car allowance.




(2)       Represents
amounts paid by the Company for executives' car allowances.




(3)       Mr.
Cole waived receipt of the bonus for 2006 he would have been entitled to under
his prior employment agreement.




(4)       Mr.
Clamen currently serves as our executive vice president and chief financial
officer. Prior to November 2008, Mr. Clamen served as our chief financial
officer. Mr. Tarshis currently serves as our executive vice president and
general counsel. Prior to November 2008, Mr. Tarshis served as our senior vice
president and general counsel.




(5)       Mr.
Conn ceased serving as an officer in August 2008.




(6)       Ms.
Stehr ceased serving as an officer in February 2009.


48


GRANTS
OF PLAN-BASED AWARDS




The
following table sets forth information for 2008 with respect to grants of awards
to the named executive officers under our equity incentive and stock option
plans.




Estimated Future Payouts Under
                                                          Non-Equity Incentive Plan Awards
                                                        
                                                        
                                                        Estimated Future Payouts Under
                                                          Equity Incentive Plan  AwardsName
                                                        
                                                        Grant
                                                          Date
                                                        
                                                        Threshold
                                                          ($)
                                                        
                                                        
                                                        Target
                                                          ($)
                                                        
                                                        
                                                        Maximum
                                                          ($)
                                                        
                                                        
                                                        Threshold
                                                          (#)
                                                        
                                                        
                                                        Target
                                                          (#)
                                                        
                                                        
                                                        Maximum
                                                          (#)
                                                        
                                                        
                                                        All Other
                                                          Stock
                                                          Awards:
                                                          Number
                                                          of Shares
                                                          of Stock
                                                          or Units
                                                          (#)
                                                        
                                                        
                                                        All Other
                                                          Option
                                                          Awards:
                                                          Number of
                                                          Securities
                                                          Underlying
                                                          Options
                                                          (#)
                                                        
                                                        
                                                        Exercise or
                                                          Base Price
                                                          of Option
                                                          Awards
                                                          ($/Sh)
                                                          ($)
                                                        
                                                        
                                                        Closing
                                                          Price of
                                                          Common
                                                          Stock
                                                          Units on
                                                          Date of
                                                          Grant
                                                          ($)
                                                        
                                                        
                                                        Grant
                                                          Date
                                                          Fair
                                                          Value of
                                                          Stock and
                                                          Option
                                                          AwardsNeil
      Cole
                                                        
                                                        1/28/2008
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        315,116
                                                        (1)
                                                        
                                                        
                                                        315,116
                                                        (1)
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1,181,684
                                                        (2)
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        20.31
                                                        
                                                        
                                                        $
                                                        30,400,000
                                                        (3)Warren
      Clamen
                                                        
                                                        5/21/2008
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        5,963
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        $
                                                        13.50
                                                        
                                                        
                                                        $
                                                        80,501Andrew
      Tarshis
                                                        
                                                        5/21/2008
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        5,963
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        $
                                                        13.50
                                                        
                                                        
                                                        $
                                                        80,501David
      Conn(2)
                                                        
                                                        5/21/2008
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        4,994
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        $
                                                        13.50
                                                        
                                                        
                                                        $
                                                        67,419Deborah
      Sorell Stehr(3)
                                                        
                                                        5/21/2008
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        5,963
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        $
                                                        13.50
                                                        
                                                        
                                                        $
                                                        80,501




(1)
              Mr.
      Cole was granted 1,181,684 time-vested restricted common stock units,
      or RSUs, and 571,150 performance-based restricted common stock
      units, or PSUs, on February 19, 2008 pursuant to his employment
      agreement with us. On May 21, 2008, Mr. Cole entered into an agreement
      with us that provided for the rescission of 256,034 of the previously
      granted 571,150 PSUs, which rescinded PSUs were then added
      to 216,639 additional PSUs he is entitled to under the employment
      agreement. This future grant of 216,639 PSUs and the 256,034
      rescinded PSUs (a total of 472,673 PSUs) are conditioned upon
      (i) the grant thereof by the administrator of the 2006 equity incentive
      plan or any successor plan and (ii) either (x) receipt of stockholder
      approval of an additional number of shares of our common stock available
      for awards under the 2006 equity incentive plan or a successor plan or (y)
      the availability of our common stock under the 2006 equity incentive plan
      or a successor plan in an amount at least equal to the number of shares of
      common stock underlying such 472,673 PSUs. The 315,116 PSUs reflected
      in the table represent the total number of PSUs that remained
      outstanding after the rescission, and does not include (i) the
      256,034 rescinded PSUs, or (ii) the 216,639 PSUs, both of
      which Mr. Cole is entitled to receive in the future under the terms
      of his employment agreement, subject to the satisfaction of the conditions
      specified above.
  (2)
              On
      December 24, 2008, Mr. Cole agreed, in an amendment to his employment
      agreement, to defer the issuance of these 1,181,684 shares of common
      stock underlying the RSUs until the earlier of (i) the date Mr. Cole
      is no longer employed by either (a) us or (b) any corporation or other
      entity owning, directly or indirectly, 50% or more of our outstanding
      common stock, or in which we or any such corporation or other entity owns,
      directly or indirectly, 50% or more of the outstanding capital stock
      (determined by aggregate voting rights) or other voting interests or (ii)
      a change in control (as defined in the employment agreement). In
      consideration of Mr. Cole’s agreement to delay the distribution to him of
      such shares of our common stock to which he will be entitled to receive
      under the RSUs as noted above, the agreement also provided for the
      award to Mr. Cole of an annual cash bonus to be granted under our
      executive incentive bonus plan, in the amount equal to $500,000 for each
      of the four completed calendar years commencing with the calendar
      year from January 1, 2009 through December 31, 2009, and ending with the
      calendar year from January 1, 2012 through December 31, 2012 if either one
      of two performance measures specified in the agreement have been
      satisfied.   These 1,181,684 RSUs continue
      to vest in five substantially equal installments on each
      December 31st, beginning on December 31, 2008 and subject to Mr. Cole's
      continuous employment with us, although the delivery
      of the shares underlying such RSUs has been deferred as
      described above.
  (3)
              The
      fair value is based on the closing stock price of $20.31 on January 28,
      2008, multiplied by (i) the 315,116 PSUs and (ii) 1,181,684 RSUs. 
      This amount does not include the 472,673 PSUs described in
      footnote 1 above.


(4)
            Mr.
      Conn ceased serving as an officer in August
  2008.





(5)
            Ms.
      Stehr ceased serving as an officer in February
  2009.


49





NARRATIVE
TO SUMMARY COMPENSATION TABLE AND PLAN-BASED AWARDS TABLE




Employment
Agreements




The
compensation committee determines the compensation, including related terms of
employment agreements with us for those who have them, for each of the named
executive officers.





Neil
Cole





On
January 28, 2008, we entered into a five-year (subject to a one-year extension)
employment agreement (the “new employment agreement”), effective as of January
1, 2008, with Neil Cole, chairman of the board, president and chief executive
officer, which replaced his prior employment agreement that expired on December
31, 2007 and is described below. The new employment agreement also superseded
and terminated the prior non-competition and non-solicitation agreement between
us and Mr. Cole, which, among other things, provided for him to receive 5% of
the sale price upon a sale of our Company under certain
circumstances.





Consistent
with our philosophy on executive compensation, Mr. Cole’s new employment
agreement reflects a substantial portion of his compensation in the form of
long-term equity incentives, including performance stock incentives that vest
upon the achievement of specific metrics defined in the agreement, particularly,
growth in EBITDA, market capitalization and stock price as measured by targets
to be established and certified by the compensation committee.





As
described above, in connection with the negotiation of the new employment
agreement with Mr. Cole, the compensation committee retained James F. Reda &
Associates LLC, as its outside compensation consulting firm to provide advice.
In assisting the compensation committee, James F. Reda & Associates LLC
performed market research as to compensation levels in similarly capitalized
companies in the industry, as well as companies that had achieved similar
growth. James F. Reda & Associates LLC also familiarized itself with the
circumstances surrounding Mr. Cole’s expiring contract and separate
non-competition and non-solicitation agreement, which provided Mr. Cole with 5%
of the proceeds upon a sale of the Company under certain circumstances. As
various aspects of our business, operations and management are unique, the
compensation committee utilized the James F. Reda & Associates LLC research
as one resource, rather than a stand-alone tool, in assessing the appropriate
level of compensation and other terms under Mr. Cole’s new employment
agreement.





Under his
new employment agreement, Mr. Cole is entitled to an annual base salary of
$1,000,000 and received a signing bonus of $500,000.




Pursuant
to the terms of the employment agreement, on February 19, 2008, Mr. Cole was
also granted 1,181,684 time-vested restricted common stock, or RSUs, and
571,150 performance-based restricted common stock units, or PSUs, under the
2006 Equity Incentive Plan. On May 21, 2008, Mr. Cole entered into an agreement
with us that provides for the rescission of a total of 256,034 of the
571,150 PSUs granted pursuant to the employment agreement. The RSUs
will vest in five substantially equal annual installments commencing on December
31, 2008, subject to Mr. Cole’s continuous employment with us on the applicable
vesting date, and the PSUs will be subject to vesting based on our
achievement of the following performance goals: 50% is tied to the achievement
of EBITDA growth, 25% is tied to the achievement of market cap growth, and 25%
is tied to the achievement of stock price growth. Both grants are subject to
forfeiture upon the termination of Mr. Cole’s employment under certain
circumstances. In addition, Mr. Cole’s ability to sell or otherwise transfer the
common stock underlying the RSUs and the PSUs while he is employed by
us is subject to certain restrictions. Pursuant to the employment agreement, Mr.
Cole is also entitled to a grant of 216,639 additional PSUs and the common
stock issuable thereunder. The future issuance of these 216,639 PSUs and
the 256,034 PSUs that were the subject of the rescission agreement between
Mr. Cole and us (a total of 472,673 PSUs) or any portion thereof, is conditioned
upon (i) the grant thereof by the administrator of the 2006 equity incentive
plan or any successor plan and (ii) either (x) receipt of stockholder approval
of an additional number of shares of our common stock available for awards under
the 2006 equity incentive plan or a successor plan or (y) the availability of
our common stock under the 2006 equity incentive plan or a successor plan in an
amount at least equal to the number of shares of common stock underlying the
portion of such 472,673 PSUs.





Additionally,
on December 24, 2008, we entered into an agreement with Mr. Cole which amended
his employment agreement and the related RSU agreement to provide, among
other things for the deferral of the issuance to Mr. Cole of the 1,181,684
shares of our common stock to which he is entitled to receive under
the RSUs granted to him under the employment agreement until the earlier of
(i) the date Mr. Cole is no longer employed by either (a) us or (b) any
corporation or other entity owning, directly or indirectly, 50% or more of our
outstanding common stock, or in which we or any such corporation or other entity
owns, directly or indirectly, 50% or more of the outstanding capital stock
(determined by aggregate voting rights) or other voting interests or (ii) a
change in control (as defined in the new employment agreement). In consideration
of Mr. Cole’s agreement to delay the distribution to him of such shares of our
common stock to which he will be entitled to receive under the RSUs as
noted above, the agreement also provided for the award to Mr. Cole of an annual
cash bonus to be granted under our executive incentive bonus plan, in the amount
equal to five hundred thousand dollars ($500,000) for each of the four completed
calendar years commencing with the calendar year from January 1, 2009 through
December 31, 2009, and ending with the calendar year from January 1, 2012
through December 31, 2012 if either of one of two performance measures specified
in the agreement have been satisfied.  The two performance measures
are as follows: (a) if the percentage determined by dividing our EBITDA by our
revenues for the calendar year in question places us in the top 50% of the
companies contained in the Standard & Poors Small Cap Retailing Index at the
end of that calendar year or (b) if our annual revenue percentage growth for the
calendar year in question when compared to the immediately preceding calendar
year places us in the top 50% of those companies contained in the Standard &
Poors Small Cap Retailing Index at the end of that calendar year.




50




Mr. Cole
is also entitled to various benefits, including benefits available to our other
senior executives and certain automobile, air travel and life insurance benefits
pursuant to the new employment agreement.





In
addition to his salary and benefits, Mr. Cole is eligible to receive an
additional annual cash bonus for each completed calendar year, including as a
performance goal thereunder the targets specified in the employment agreement.
This cash bonus shall not exceed 150% of Mr. Cole’s base salary. The bonus shall
be a percentage of the base salary determined based on the level of our
consolidated earnings before interest, taxes, depreciation and amortization of
fixed assets and intangible assets achieved for such year against a target level
established for such year by the compensation committee of our board of
directors, in the compensation committee’s sole discretion, but with prior
consultation with Mr. Cole, as follows:





Annual Level of Targeted EBITDA Achieved
                    
                    % of Base Salaryless
      than 80%
                    
                    0%80%
      (threshold)
                    
                    50%90%
                    
                    75%100%
      (target)
                    
                    100%105%
                    
                    110%110%
                    
                    122.5%115%
                    
                    135%120%
      or more (maximum)
                    
                    150%





Mr.
Cole’s annual bonus, if earned, will be paid in a lump sum cash payment in the
calendar year following the calendar year for which such bonus is
earned.





Under Mr.
Cole’s new employment agreement, if we terminate Mr. Cole’s employment for
“cause” or if Mr. Cole terminates his employment without “good reason”, he will
receive his earned and/or accrued but unpaid compensation, other than any bonus
compensation, then due to him and shares of common stock in respect of any of
his already vested restricted stock units. If we terminate Mr. Cole’s
employment without cause or if Mr. Cole terminates his employment for good
reason, he will receive, in addition to the foregoing, an amount equal to two
times his base salary then in effect plus any previously earned but unpaid
annual bonus for a prior fiscal year and a pro-rata portion of the annual bonus
for the year of termination, and, if such termination or resignation occurs
prior to January 1, 2011, two times the average of the annual bonus amounts he
received for the two prior completed fiscal years. In addition, that portion of
his performance-based stock units subject to vesting in the year of termination
based on performance goals achieved as of the date of termination, and 75% of
his unvested restricted stock units, will vest. If his employment is terminated
by us without cause or by him for good reason within 12 months of a change in
control, the amount of his base salary-related payment will increase to three
times, instead of two times, his base salary then in effect and that portion of
his performance-based stock units that would vest in the year of termination or
in the future based on performance goals achieved as of the date of the change
of control, and all of his unvested restricted stock units, will vest, and if
such change in control occurs prior to January 1, 2011, Mr. Cole will also
receive three, instead of two, times the average of the annual bonus amounts he
received for the three, instead of two, prior completed fiscal
years.





If
Mr. Cole’s employment terminates as a result of his disability or death, he
or his estate will be entitled to any previously earned and unpaid compensation
then due to him plus any previously earned but unpaid annual bonus for the prior
fiscal year and a pro-rata portion of the annual bonus for the year of such
termination. In addition, that portion of his performance-based stock units
subject to vesting in the year of termination based on performance goals
achieved as of the date of termination, and 100% (50% in the event of
disability) of his unvested restricted stock units, will vest.





The new
employment agreement with Mr. Cole also contains certain non-competition and
non-solicitation covenants restricting such activities for periods equal to the
term of the agreement and any renewal period plus one and two years,
respectively, after the agreement is terminated for any reason.





Pursuant
to Mr. Cole’s prior employment agreement (which expired on December 31, 2007 and
was replaced by the new employment agreement described above) with us, Neil
Cole, served as our President and Chief Executive Officer at an annualized base
salary of $500,000 in 2005, $550,000 in 2006 and $600,000 in 2007. In addition,
Mr. Cole's prior employment agreement, Mr. Cole received bonus payments in 2005
and 2007.




51




Warren Clamen and Andrew
Tarshis





On
November 11, 2008, we entered into  new employment agreements with
each of the following executive officers replacing their prior employment
agreements with us: (i)  Andrew Tarshis, referred to as the Tarshis
employment agreement and (ii) Warren Clamen, referred to as the Clamen
employment agreement and, together with the Tarshis employment agreement, the
Clamen/Tarshis employment agreements and each of Mr. Tarshis and Mr. Clamen are
referred to in the description of the Clamen/Tarshis employment agreements below
as an executive.  The Clamen/Tarshis employment agreements provide for
the employment of Mr. Tarshis as our executive vice president and general
counsel and Mr. Clamen as our executive vice president and chief financial
officer, for three-year terms.





Under the
Clamen/Tarshis employment agreements, each executive is entitled to an annual
base salary of not less than $350,000, $400,000 and $400,000, during the first,
second and third years of the term of his employment agreement.  In
addition, each executive is entitled to participate in our executive bonus
program and is eligible to receive bonuses of up to 100% of his base salary or
such maximum amount available under any executive bonus program generally
applicable to our senior executives.





Pursuant
to the terms of the Clamen/Tarshis employment agreements, each executive will be
entitled to receive an award of 70,542 shares of our common stock upon Board and
stockholder approval of a stock incentive plan or other plans that cover awards
of common stock to the officers. The shares vest in three equal annual
installments with the first installment vesting on November 11, 2009, subject to
acceleration under certain circumstances set forth in the Clamen/Tarshis
employment agreements. Each executive is also entitled to various benefits,
including benefits available to our other senior executives and certain
automobile, life insurance and medical benefits.





Under the
Clamen/Tarshis employment agreements, if either of the executive’s
employment is terminated by us for “cause” or by the executive without “good
reason” (as defined in the Clamen/Tarshis employment agreements), he will
receive his earned and unpaid base salary through the date of termination and
shares of common stock in respect of any of his already vested stock
awards.  If an executive’s employment is terminated by us without
cause or by the executive for good reason, he will receive, in addition to the
foregoing, an amount equal to his applicable base salary for the remaining term
of the Clamen/Tarshis employment agreement plus any earned but unpaid annual
bonus for a prior year (“prior year bonus”) and a pro-rata portion of any bonus
for the year of termination (“pro rata bonus”).  In addition, any
unvested portion of his stock award will vest.  If the employment of
an executive is terminated by us without cause or by him for good reason within
12 months of a “change in control” (as defined in the Clamen/Tarshis employment
agreements), in addition to the foregoing payments he will also receive an
amount equal to $100 less than three times the executive’s “annualized
includable compensation for the base period” (as defined in the Internal Revenue
Code). If an executive’s employment terminates as a result of his disability or
death, the executive or his estate will be entitled to any earned and unpaid
base salary, plus any prior year bonus and pro rata bonus.  In
addition, any unvested portion of his stock award will vest.





Each of
the Clamen/Tarshis employment agreements also provide that in the event that
stockholder approval of the grant of the stock award is not obtained prior to
the earlier of (i) the expiration of the term of the Clamen/Tarshis
employment agreements, (ii) a termination of the executive’s employment prior to
the end of the term due to the executive’s death or disability, termination by
the executive of his employment for good reason or termination of the
executive’s employment by us without cause, or (iii) a change
in  control, then instead of the grant of the award to the executive,
we are required to pay to the executive an alternative amount equal to
$750,000.





The
Clamen/Tarshis employment agreements also contain certain non-competition and
non-solicitation covenants restricting such activities for certain specified
periods.





The prior
employment agreements between us and each of Messrs. Clamen and Tarshis cover
periods prior to November 11, 2008, and are summarized below.





Effective
March 9, 2005, we entered into an employment agreement, subsequently amended on
October 27, 2006, with Warren Clamen, which, as amended, provided for him to
serve as our chief financial officer until October 27, 2008, subject to earlier
termination as specified in the agreement (this agreement expired on October 27,
2008. This agreement was superseded by Mr. Clamen’s new employment agreement
dated November 11, 2008.  Mr. Clamen’s prior employment agreement
provided for him to receive a base salary of $275,000 per year for the year
ending October 27, 2007 and no less than $300,000 for the year ending October
27, 2008, plus certain fringe benefits. In addition, under the prior employment
agreement Mr. Clamen was eligible to participate in any executive bonus program
that we had in effect during the term of the employment agreement. Pursuant to
this prior employment agreement, in March 2005, we granted Mr. Clamen ten-year
stock options to purchase 200,000 shares of our common stock at $5.06 per share,
subject to earlier termination under certain conditions if Mr. Clamen
ceased to be employed by us, half of which options vested immediately and the
other half vested as of June 1, 2005. Pursuant to the amendment to this prior
employment agreement in October 2006, we also issued to Mr. Clamen 10,971 shares
of our restricted common stock, which vested in two equal annual installments
commencing on October 27, 2007.




52




On
September 22, 2006, we entered into a employment agreement with Andrew
Tarshis, which provided for him to serve as our senior vice president and
general counsel until September 22, 2009 and provided for him to receive an
annual base salary of no less than $275,000 during the first year of the term
and $300,000 during the second and third years of the term. This agreement was
superseded by Mr. Tarshis’ new employment agreement dated November 11,
2008.  Pursuant to his prior employment agreement, we also issued to
Mr. Tarshis 18,461 shares of our restricted common stock, which vest in
three equal annual installments commencing on the first year anniversary of the
agreement. Under the prior employment agreement, Mr. Tarshis was also
eligible for a bonus consistent with other executive officers, as well as
customary benefits, including participation in management incentive and benefit
plans, a monthly car allowance of $1,500 and reasonable business related travel
and entertainment expenses.





David
Conn





On April
17, 2004, we entered into an employment agreement, subsequently amended on
December 29, 2005, with David Conn, which, as amended, provided for him to serve
as our executive vice president until May 18, 2008, subject to earlier
termination as provided in the agreement. The amended agreement provided for Mr.
Conn to receive, among other things,  an annualized base salary of:
(i) $250,000 during the period December 29, 2005 until May 17, 2006; (ii)
$275,000 during the period May 18, 2006 through May 17, 2007 and (iii) $300,000
during the period May 18, 2007 through May 17, 2008, as well as a guaranteed
bonus of $25,000 per year, and a car allowance. He was also granted immediately
exercisable ten-year stock options to purchase 100,000 shares of our common
stock at $10.19 per share. Mr. Conn’s employment agreement expired by its terms
on May 18, 2008. On August 13, 2008 we entered into an agreement with Mr. Conn
to employ him in a non-executive and part-time capacity from that date through
February 28, 2009 at a salary of $300,000 per annum through August 31, 2008 and
$2,000 per week thereafter.





Deborah Sorell
Stehr





On
October 28, 2005, we entered into an employment agreement, subsequently
amended on September 22, 2006, with Deborah Sorell Stehr, which, as
amended, provided for her to serve as our senior vice president-business affairs
and licensing until December 31, 2008 and provided for her to receive a
base salary for performance based upon a four-day work week, as follows:
(a) during the period from January 1, 2006 through December 31,
2006, at the annual rate of not less than $220,000, (b) during the period
from January 1, 2007 through December 31, 2007, at an annual rate of
not less than $230,000, and (c) during the period from January 1, 2008
through December 31, 2008 at the annual rate of not less than $250,000.
Pursuant to her employment agreement, in October 2005, we granted Ms. Stehr
immediately exercisable ten-year stock options to purchase 60,000 shares of our
common stock at $8.03 per share, and, pursuant to its amendment, in September
2006 we also issued to Ms. Stehr 9,230 shares of our restricted common
stock, which vest in two equal annual installments commencing on
December 31, 2007. Under the amended agreement, Ms. Stehr remained
eligible for a bonus consistent with other executive officers, as well as
customary benefits, including participation in management incentive and benefit
plans, a monthly car allowance of $1,500 and reasonable travel and entertainment
expenses. Her employment agreement with us provided that, if, within twelve
months of a “change in control,” Ms. Stehr’s employment was terminated by
us without “cause” or Ms. Stehr terminated her employment with us for “good
reason,” as all such terms are defined in her employment agreement, we were
obligated to make a lump-sum severance payment to her equal to $100 less than
three times her “annualized includable compensation for the base period” (as
defined in Section 280G of the Internal Revenue Code) reduced to the extent
that this payment together with any other payment or benefit payable under the
agreement constituted an “excess parachute payment” (as defined in Section 280G
of the Internal Revenue Code). One such benefit would have been the change in
vesting of certain of the 12,955 shares of restricted stock awarded to
her.  Ms. Stehr’s employment agreement expired by its terms on
December 31, 2008.





53




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END




The
following table sets forth information with respect to outstanding equity-based
awards at December 31, 2008 for our named executive officers.


Option
    Awards
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Stock
AwardsNumber of
                                                                                                                                                                                                                                                                                                                                                                                                          Securities
                                                                                                                                                                                                                                                                                                                                                                                                          Underlying
                                                                                                                                                                                                                                                                                                                                                                                                          Unexercised
                                                                                                                                                                                                                                                                                                                                                                                                          Options
                                                                                                                                                                                                                                                                                                                                                                                                          Exerciseable
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Number of
                                                                                                                                                                                                                                                                                                                                                                                                          Securities
                                                                                                                                                                                                                                                                                                                                                                                                          Underlying
                                                                                                                                                                                                                                                                                                                                                                                                          Unexercised
                                                                                                                                                                                                                                                                                                                                                                                                          Options
                                                                                                                                                                                                                                                                                                                                                                                                          Unexerciseable
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Equity
                                                                                                                                                                                                                                                                                                                                                                                                          Incentive
                                                                                                                                                                                                                                                                                                                                                                                                          Plan
                                                                                                                                                                                                                                                                                                                                                                                                          Awards:
                                                                                                                                                                                                                                                                                                                                                                                                          Number of
                                                                                                                                                                                                                                                                                                                                                                                                          Securities
                                                                                                                                                                                                                                                                                                                                                                                                          Underlying
                                                                                                                                                                                                                                                                                                                                                                                                          Unexercised
                                                                                                                                                                                                                                                                                                                                                                                                          Options
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Option
                                                                                                                                                                                                                                                                                                                                                                                                          Exercise
                                                                                                                                                                                                                                                                                                                                                                                                          Price
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Option
                                                                                                                                                                                                                                                                                                                                                                                                          Expiration
                                                                                                                                                                                                                                                                                                                                                                                                          Date
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Number of
                                                                                                                                                                                                                                                                                                                                                                                                          Shares or
                                                                                                                                                                                                                                                                                                                                                                                                          Units of
                                                                                                                                                                                                                                                                                                                                                                                                          Stock That
                                                                                                                                                                                                                                                                                                                                                                                                          Have Not
                                                                                                                                                                                                                                                                                                                                                                                                          Vested
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Vesting
                                                                                                                                                                                                                                                                                                                                                                                                          Date of
                                                                                                                                                                                                                                                                                                                                                                                                          Shares or
                                                                                                                                                                                                                                                                                                                                                                                                          Units of
                                                                                                                                                                                                                                                                                                                                                                                                          Stock That
                                                                                                                                                                                                                                                                                                                                                                                                          Have Not
                                                                                                                                                                                                                                                                                                                                                                                                          Vested
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Market
                                                                                                                                                                                                                                                                                                                                                                                                          Value of
                                                                                                                                                                                                                                                                                                                                                                                                          Shares or
                                                                                                                                                                                                                                                                                                                                                                                                          Units of
                                                                                                                                                                                                                                                                                                                                                                                                          Stock That
                                                                                                                                                                                                                                                                                                                                                                                                          Have Not
                                                                                                                                                                                                                                                                                                                                                                                                          Vested
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Equity
                                                                                                                                                                                                                                                                                                                                                                                                          Incentive
                                                                                                                                                                                                                                                                                                                                                                                                          Plan
                                                                                                                                                                                                                                                                                                                                                                                                          Awards:
                                                                                                                                                                                                                                                                                                                                                                                                          Number of
                                                                                                                                                                                                                                                                                                                                                                                                          Unearned
                                                                                                                                                                                                                                                                                                                                                                                                          Shares,
                                                                                                                                                                                                                                                                                                                                                                                                          Units or
                                                                                                                                                                                                                                                                                                                                                                                                          Other Rights
                                                                                                                                                                                                                                                                                                                                                                                                          That Have
                                                                                                                                                                                                                                                                                                                                                                                                          Not Vested
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        Equity
                                                                                                                                                                                                                                                                                                                                                                                                          Incentive
                                                                                                                                                                                                                                                                                                                                                                                                          Plan Awards:
                                                                                                                                                                                                                                                                                                                                                                                                          Market or
                                                                                                                                                                                                                                                                                                                                                                                                          Payout
                                                                                                                                                                                                                                                                                                                                                                                                          Value of
                                                                                                                                                                                                                                                                                                                                                                                                          Unearned
                                                                                                                                                                                                                                                                                                                                                                                                          Shares,
                                                                                                                                                                                                                                                                                                                                                                                                          Units or
                                                                                                                                                                                                                                                                                                                                                                                                          Other Rights
                                                                                                                                                                                                                                                                                                                                                                                                          That Have
                                                                                                                                                                                                                                                                                                                                                                                                          Not
      VestedName
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        (#)(a)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        (#)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        (#)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        ($)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        (#)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        ($)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        (#)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        ($)Neil Cole
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        25,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        0.97
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2/1/2010
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        236,337
                                                                                                                                                                                                                                                                                                                                                                                                        (1)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        12/31/2009
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        2,311,376
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        157,558
                                                                                                                                                                                                                                                                                                                                                                                                        (2)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        1,540,917321,625
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        1.13
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        7/18/2010
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        236,337
                                                                                                                                                                                                                                                                                                                                                                                                        (1)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        12/31/2010
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,311,376
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -260,500
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        1.25
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        8/18/2010
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        236,337
                                                                                                                                                                                                                                                                                                                                                                                                        (1)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        12/31/2011
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,311,376
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -76,500
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2.30
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        10/26/2011
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        236,337
                                                                                                                                                                                                                                                                                                                                                                                                        (1)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        12/31/2012
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,311,376
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -273,500
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2.30
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        10/26/2011
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -600,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2.75
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        4/23/2012
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -15,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        4.41
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/22/2012
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -800,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        4.62
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        3/29/2015
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -200,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        10.00
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        12/28/2015
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -Warren Clamen(3)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        60,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        5.06
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        3/9/2015
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,982
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/21/2009
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        29,164
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -50,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        10.00
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2/28/2015
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,981
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/21/2010
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        29,154
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -Andrew Tarshis(3)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        10,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        8.81
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        7/22/2015
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,982
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/21/2009
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        29,164
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        --
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,981
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/21/2010
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        29,154
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -David Conn(4)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        100,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        10.19
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/29/2009
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5,963
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2/28/2009
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        58,318
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -25,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        10.00
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/29/2009
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -Deborah Sorell Stehr(5)
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        15,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        4.82
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/24/2015
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,497
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/21/2009
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        $
                                                                                                                                                                                                                                                                                                                                                                                                        24,421
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -60,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        8.03
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        10/28/2015
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        2,497
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        5/21/2010
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        24,421
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -50,000
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        10.00
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        12/28/2015
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                                                                                                                                                                        -
  (1)
                Mr.
      Cole was granted 1,181,684 time-vested restricted common stock units, or
      RSUs, and 571,150 performance-based restricted common stock units, or
      PSUs, on February 19, 2008 pursuant to his employment agreement with us.
      On December 24, 2008, Mr. Cole agreed, in an amendment to his employment
      agreement, to defer the issuance of 1,181,684 shares of common stock
      underlying the RSUs until the earlier of (i) the date Mr. Cole is no
      longer employed by either (a) us or (b) any corporation or other entity
      owning, directly or indirectly, 50% or more of our outstanding common
      stock, or in which we or any such corporation or other entity owns,
      directly or indirectly, 50% or more of the outstanding capital stock
      (determined by aggregate voting rights) or other voting interests or (ii)
      a change in control (as defined in the employment agreement). In
      consideration of Mr. Cole's agreement to delay the distribution to him of
      such shares of our common stock to which he will be entitled to receive
      under the RSUs as noted above, the agreement also provided for the award
      to Mr. Cole of an annual cash bonus to be granted under our executive
      incentive bonus plan, in the amount equal to $500,000 for each of the four
      completed calendar years commencing with the calendar year from January 1,
      2009 through December 31, 2009, and ending with the calendar year from
      January 1, 2012 through December 31, 2012 if either one of two performance
      measures specified in the agreement have been satisfied.  The
      1,181,684 RSUs continue to vest in five substantially equal
      installments on each December 31st, beginning on December 31, 2008 and
      subject to Mr. Cole's continuous employment with us, although the delivery
      of the shares underlying such RSUs has been deferred as described
      above.
 
 54




(2)
              Mr.
      Cole was granted 1,181,684 RSUs and 571,150 PSUs on February 19,
      2008 pursuant to his employment agreement with us. On May 21, 2008,
      Mr. Cole entered into an agreement with us that provided for the
      rescission of 256,034 of the previously granted 571,150 PSUs,
      which rescinded PSUs were then added to 216,639 additional PSUs he is
      entitled to under the employment agreement. This future grant of
      216,639 PSUs and the 256,034 rescinded PSUs (a total of
      472,673 PSUs) are conditioned upon (i) the grant thereof by the
      administrator of the 2006 equity incentive plan or any successor plan and
      (ii) either (x) receipt of stockholder approval of an additional number of
      shares of our common stock available for awards under the 2006 equity
      incentive plan or a successor plan or (y) the availability of our common
      stock under the 2006 equity incentive plan or a successor plan in an
      amount at least equal to the number of shares of common stock
      underlying such 472,673 PSUs. The 157,558 PSUs reflected in the table
      represent the unvested portion of the 315,116 PSUs remaining after the
      rescission, and does not include (i) the 256,034 rescinded PSUs, or
      (ii) the 216,639 PSUs, both of which Mr. Cole is entitled to receive
      in the future under the terms of his employment agreement, subject to the
      satisfaction of the conditions specified above.  In February
      2009, the Compensation Committee determined that the $147 million EBITDA
      target was achieved, and, therefore, Mr. Cole earned 78,779 of 157,558
      PSU's that he was eligible to receive for the year ended December 31,
      2008. The other performance goals involving market capitalization and
      share price were not achieved.
  (3)
              Under
      his employment agreement, the executive is entitled to receive an award of
      70,542 shares of our common stock subject to Board and stockholder
      approval. The shares vest in three equal annual installments with the
      first installment vesting on November 11, 2009, subject to acceleration
      under certain circumstances set forth in the executive’s employment
      agreement.  In the event that stockholder approval of the grant
      of the stock award is not obtained prior to the earlier of (i) the
      expiration of the term of the executive’s employment agreement, (ii) a
      termination of the executive’s employment prior to the end of the term due
      to the executive’s death or disability, termination by the executive of
      his employment for good reason or termination of the executive’s
      employment by us without cause, or (iii) a change in  control,
      then instead of the grant of the award to the executive, we are required
      to pay to the executive an alternative amount equal to
      $750,000.
  (4)
              Mr.
      Conn ceased serving as an officer in August
  2008.


(5)
              Ms. Stehr ceased serving as an
      officer in February
2008.


55





Grant
dates and vesting dates for all outstanding equity awards at December 31, 2008
are as follows:




Name
                                                                                  
                                                                                  Number of
                                                                                    Securities
                                                                                    Underlying
                                                                                    Unvested
                                                                                    Restricted
                                                                                    Stock
                                                                                  
                                                                                  
                                                                                  Number of
                                                                                    Securities
                                                                                    Underlying
                                                                                    Unexercised
                                                                                    Options
                                                                                    Exerciseable
                                                                                  
                                                                                  Grant Date
                                                                                  
                                                                                  Vesting
  Date(#)
                                                                                  
                                                                                  
                                                                                  
                                                                                  (#)Neil Cole
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  25,000
                                                                                  
                                                                                  2/1/2000
                                                                                  
                                                                                  2/1/2000-
                                                                                  
                                                                                  
                                                                                  
                                                                                  321,625
                                                                                  
                                                                                  7/18/2000
                                                                                  
                                                                                  7/18/2000-
                                                                                  
                                                                                  
                                                                                  
                                                                                  260,500
                                                                                  
                                                                                  8/18/2000
                                                                                  
                                                                                  8/18/2000-
                                                                                  
                                                                                  
                                                                                  
                                                                                  76,500
                                                                                  
                                                                                  10/26/2001
                                                                                  
                                                                                  10/26/2001-
                                                                                  
                                                                                  
                                                                                  
                                                                                  273,500
                                                                                  
                                                                                  10/26/2001
                                                                                  
                                                                                  10/26/2001-
                                                                                  
                                                                                  
                                                                                  
                                                                                  200,000
                                                                                  
                                                                                  4/23/2002
                                                                                  
                                                                                  2/1/2003-
                                                                                  
                                                                                  
                                                                                  
                                                                                  200,000
                                                                                  
                                                                                  4/23/2002
                                                                                  
                                                                                  2/1/2004-
                                                                                  
                                                                                  
                                                                                  
                                                                                  200,000
                                                                                  
                                                                                  4/23/2002
                                                                                  
                                                                                  2/1/2005-
                                                                                  
                                                                                  
                                                                                  
                                                                                  15,000
                                                                                  
                                                                                  5/22/2002
                                                                                  
                                                                                  5/22/2002-
                                                                                  
                                                                                  
                                                                                  
                                                                                  800,000
                                                                                  
                                                                                  3/29/2005
                                                                                  
                                                                                  3/29/2005-
                                                                                  
                                                                                  
                                                                                  
                                                                                  200,000
                                                                                  
                                                                                  12/28/2005
                                                                                  
                                                                                  12/28/2005236,337
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  1/28/2008
                                                                                  
                                                                                  12/31/200878,779
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  1/28/2008
                                                                                  
                                                                                  12/31/2008Warren
    Clamen
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  60,000
                                                                                  
                                                                                  3/9/2005
                                                                                  
                                                                                  6/1/2005-
                                                                                  
                                                                                  
                                                                                  
                                                                                  50,000
                                                                                  
                                                                                  12/28/2005
                                                                                  
                                                                                  12/28/20052,982
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  5/21/2008
                                                                                  
                                                                                  5/21/20092,981
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  5/21/2008
                                                                                  
                                                                                  5/21/2010Andrew
    Tarshis
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  10,000
                                                                                  
                                                                                  7/22/2005
                                                                                  
                                                                                  7/22/20056,153
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  9/22/2006
                                                                                  
                                                                                  9/22/20092,982
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  5/21/2008
                                                                                  
                                                                                  5/21/20092,981
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  5/21/2008
                                                                                  
                                                                                  5/21/2010David Conn(1)
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  25,000
                                                                                  
                                                                                  12/28/2005
                                                                                  
                                                                                  12/28/2005-
                                                                                  
                                                                                  
                                                                                  
                                                                                  100,000
                                                                                  
                                                                                  12/29/2005
                                                                                  
                                                                                  12/29/20052,982
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  5/21/2008
                                                                                  
                                                                                  2/28/20092,981
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  5/21/2008
                                                                                  
                                                                                  2/28/2009Deborah Sorell Stehr(2)
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  15,000
                                                                                  
                                                                                  5/24/2005
                                                                                  
                                                                                  5/24/2005-
                                                                                  
                                                                                  
                                                                                  
                                                                                  60,000
                                                                                  
                                                                                  10/28/2005
                                                                                  
                                                                                  10/28/2005-
                                                                                  
                                                                                  
                                                                                  
                                                                                  50,000
                                                                                  
                                                                                  12/28/2005
                                                                                  
                                                                                  12/28/20052,497
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  5/21/2008
                                                                                  
                                                                                  5/21/20092,497
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  5/21/2008
                                                                                  
                                                                                  5/21/2010
  (1)
                  Mr. Conn ceased serving as an
      officer in August
2008.
 (2)
                    Ms. Stehr ceased serving as an
      officer in February
2008.




56




OPTION
EXERCISES AND STOCK VESTED




The
following table sets forth certain information regarding exercise of options and
vesting of restricted stock held by the named executive officers during the year
ended December 31, 2008.




Number of
                                          Shares
                                          Acquired on
                                          Exercise
                                        
                                        
                                        Value
                                          Realized on
                                          Exercise(1)
                                        
                                        
                                        Number of
                                          Shares
                                          Acquired on
                                          Vesting
                                        
                                        
                                        Value
                                          Realized on
                                          VestingName
                                        
                                        
                                        (#)
                                        
                                        
                                        ($)
                                        
                                        
                                        
                                        (#)
                                        
                                        
                                        ($)Neil Cole(2)
                                        
                                        
                                        913,749
                                        
                                        
                                        $
                                        8,974,451
                                        
                                        
                                        
                                        236,337
                                        (3)
                                        
                                        $
                                        2,311,37678,779
                                        (3)
                                        
                                        
                                        770,459Warren
    Clamen
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,486
                                        
                                        
                                        $
                                        104,453-
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,485
                                        
                                        
                                        
                                        104,434-
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,967
                                        
                                        
                                        
                                        94,572Andrew
    Tarshis
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,967
                                        
                                        
                                        $
                                        94,572-
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        6,153
                                        
                                        
                                        
                                        82,389David Conn(1)
                                        
                                        
                                        100,000
                                        
                                        
                                        $
                                        755,488
                                        
                                        
                                        
                                        4,967
                                        
                                        
                                        $
                                        94,572Deborah Sorell Stehr(2)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,615
                                        
                                        
                                        $
                                        87,870-
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,615
                                        
                                        
                                        
                                        45,135-
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        3,725
                                        
                                        
                                        
                                        70,924
  (1)
                  Included in this column is the
      aggregate dollar amount realized by the named executive officer upon
      exercise of the
options.
 (2)
                    The number of shares reflects the
      gross amount issued upon the exercise of the options and does not give
      effect to the withholding of a portion of the shares by the Company to
      satisfy certain withholding tax liability of the person exercising the
      options.
  (3)
                      Includes 236,337 shares of common stock
      underlying RSU's that vested on December 31, 2008 and 78,779 shares of
      common stock underlying PSU's that were deemed earned by the compensation
      committee for the year ended December 31, 2008 as more fully discussed in
      footnote 2 to the table of Outstanding Equity Awards at Fiscal Year-End.
      The delivery of the 236,337 shares of common stock underlying the RSU's
      was deferred, as more fully discussed in footnote 1 to the table of
      Outstanding Equity Awards at Fiscal
Year-End.
  (4)
                        Mr. Conn ceased serving as an
      officer in August
2008.
 (5)
                          Ms. Stehr ceased serving as an
      officer in February
2008.


POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL




As noted
under “- Narrative to Summary Compensation Table-and Plan-Based Awards Table -
Employment Agreements”, we have entered into employment agreements with each of
our named executive officers. These agreements provide for certain payments and
other benefits if a named executive officer’s employment with us is terminated
under circumstances specified in his or her respective agreement, including a
“change in control” of the Company. A named executive officer’s rights upon the
termination of his or her employment will depend upon the circumstances of the
termination.




The
receipt of the payments and benefits to the named executive officers under their
employment agreements are generally conditioned upon their complying with
customary non-solicitation, non-competition, confidentiality, non-interference
and non-disparagement provisions. By the terms of such agreements, the
executives acknowledge that a breach of some or all of the covenants described
herein will entitle us to injunctive relief restraining the commission or
continuance of any such breach, in addition to any other available
remedies.




57





Except as
provided in the footnotes below, the following table provides the term of such
covenants following the termination of employment as it relates to each named
executive officer:




Covenant
            
            Neil Cole
            
            Warren Clamen
            
            Andrew Tarshis
            
            David Conn(1)
            
            Deborah Sorell
              Stehr(2)Confidentiality
            
            Infinite
      duration
            
            Infinite
      duration
            
            Infinite
      duration
            
            Infinite
      duration for trade secrets and two years otherwise
            
            NoneNon-solicitation
            
            Two
      Years
            
            Three
      years(3)
            
            Three
      years(3)
            
            Two
      Years
            
            NoneNon-competition
            
            One
      Year
            
            Two
      years(3)
            
            Two
      years(3)
            
            Two
      Years
            
            NoneNon-interference
            
            (4)
            
            Three
      years(3)
            
            Three
      years(3)
            
            Two
      Years
            
            NoneNon-disparagement
            
            Five
      years
            
            None
            
            None
            
            None
            
            None




(1)
            Mr.
      Conn’s employment agreement with us expired on May 18, 2008, however, the
      covenants referred to above continue beyond the term of Mr. Conn’s
      employment agreement.





(2)
            Ms.
      Stehr’s employment agreement with us expired by its terms on December 31,
      2008.





(3)
            Covenant
      runs from the date of the executive’s new employment
      agreement.





(4)
            Mr.
      Cole’s new employment agreement with us provides that during the term and
      a period of (i) two years thereafter, Mr. Cole cannot solicit our
      employees and (ii) one year thereafter, Mr. Cole cannot solicit our
      customers.





58





Termination
Payments (without a change in control)




The table
below includes a description and the amount of estimated payments and benefits
that would be provided by us (or our successor) to each of the named executive
officers under each employment agreement, assuming that a termination
circumstance occurred as of December 31, 2008 and a “change in control” had not
occurred:




Estimated Amount of Termination Payment to:Type of Payment
                                                                        
                                                                        Termination Event
                                                                        
                                                                        Neil Cole(1)
                                                                        
                                                                        
                                                                        Warren
                                                                          Clamen
                                                                        
                                                                        
                                                                        Andrew
                                                                          Tarshis
                                                                        
                                                                        
                                                                        David Conn
                                                                        
                                                                        
                                                                        Deborah
                                                                          Sorell StehrPayment
      of earned but unpaid salary, unreimbursed expense, and  accrued
      but unused vacation time(2)
                                                                        
                                                                        Termination
      for Cause or by executive without Good Reason
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        noneEarned
      but unpaid bonuses (2)
                                                                        
                                                                        Termination
      without Cause or by executive for Good Reason, death or
    disability
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        noneLump
      Sum Severance Payment
                                                                        
                                                                        Termination
      without Cause or by executive for Good Reason
                                                                        
                                                                        $
                                                                        2,649,000
                                                                        (3)
                                                                        
                                                                        $
                                                                        1,101,389
                                                                        (4)
                                                                        
                                                                        $
                                                                        1,101,389
                                                                        (4)
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        nonePro
      rata portion of current year bonuses
                                                                        
                                                                        Death,
      termination without Cause, or termination by executive for Good
      Reason
                                                                        
                                                                        $
                                                                        500,000
                                                                        
                                                                        
                                                                        
                                                                        none
                                                                        (5)
                                                                        
                                                                        
                                                                        none
                                                                        (5)
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        
                                                                        noneContinued
      coverage under medical, dental, hospitalization and life insurance
      plans
                                                                        
                                                                        Death,
      termination without Cause, or termination by executive for Good
      Reason
                                                                        
                                                                        $
                                                                        40,256
                                                                        
                                                                        
                                                                        $
                                                                        1,099
                                                                        
                                                                        
                                                                        $
                                                                        34,142
                                                                        
                                                                        
                                                                        none
                                                                        
                                                                        
                                                                        none
                                                                        (6)




1
Upon Mr. Cole's termination without cause by us or for good reason by Mr. Cole,
75% of the then remaining unvested restricted  stock units shall
immediately vest, and the portion of performance based units shall become vested
on the achievement of the performance goals through the date of
termination.





2  At
December 31, 2008, each named executive officer is assumed to have received all
such payments.





3
Payable one half in monthly installments, and half on December 31,
2009.





4
These amounts are payable in lump sum within 30 days of termination. Also Mr.
Clamen and Mr. Tarshis may be entitled to an additional payment of $750,000 in
the event that stockholder approval has not been obtained for the stock awards
they are entitled to receive pursuant to their employment
agreements.





5All such bonuses are
discretionary.




6 Three months of continued health and medical benefits
upon termination for Cause or upon death or disability.





Change
in Control Payments





In lieu
of the lump sum severance payment upon termination without a change of control,
Mr. Cole is entitled to a lump sum payment equal to three times his base salary
plus three times his average annual bonus for the last three years upon
termination following a change in control.




In
addition to the payments made upon termination by the Company without cause or
termination by the executive for good reason, the employment agreements with Ms.
Sorell Stehr, Mr. Tarshis and Mr. Clamen provide that, if, within twelve months
of a “change in control,” their employment is terminated by us without “cause”
or they terminate their employment with us for “good reason,” as all such terms
are defined in each employment agreement, we are obligated to make a lump-sum
severance payment to each such named executive officer equal to $100 less than
three times the named executive officer’s “annualized includable compensation
for the base period” (as defined in Section 280G of the Internal Revenue
Code).




59




Under the
circumstances described above, all of the named executive officers were entitled
to an accelerated vesting and payment of stock options and restricted stock
awards granted to that named executive officer. However, the sum of any lump sum
payments, the value of any accelerated vesting of stock options and restricted
stock awards, and the value of any other benefits payable to the named executive
officer, with the exception of Mr. Cole, may not equal or exceed an amount that
would constitute an “excess parachute payment” (as defined in Section 280G of
the Internal Revenue Code).  With respect to Mr. Cole, such payment is
due within 60 days of December 31, 2008.





The
following table quantifies the estimated maximum amount of payments and benefits
under our employment agreements and agreements relating to awards granted under
our equity incentive and stock option plans to which the named executive
officers would have been entitled upon termination of employment if we had
terminated their employment without cause within twelve (12) months following a
“change in control” of our Company that (by assumption) occurred on December 31,
2008 and prior to the expiration of any employment agreements.





Cash
                  Severance
                  Payment
                
                
                Continuation of
                  Medical/Welfare
                  Benefits
                  (Present Value)
                
                
                Present
                  Value of
                  Accelerated
                  Vesting of
                  Equity
                  Awards
                
                
                Present
                  Value of
                  Accelerated
                  Payment of
                  Bonus
                
                
                Total
                  Termination
                  BenefitsName
                
                ($)(1)
                
                
                ($)
                
                
                ($)(2)
                
                
                ($)
                
                
                ($)Neil
      Cole
                
                $
                3,738,702
                (3)
                
                $
                39,741
                
                
                $
                3,321,248
                
                
                $
                11,688
                
                
                $
                7,111,379Warren
      Clamen
                
                
                2,974,450
                (4)(8)
                
                
                1,085
                
                
                
                6,669
                
                
                
                -
                
                
                
                2,982,204Andrew
      Tarshis
                
                
                2,288,198
                (5)(8)
                
                
                33,705
                
                
                
                12,190
                
                
                
                -
                
                
                
                2,334,093Deborah
      Sorell Stehr (7)
                
                
                2,704,609
                (6)
                
                
                -
                
                
                
                5,584
                
                
                
                -
                
                
                
                2,710,193




(1)
            Mr.
      Clamen, Mr. Tarshis and Ms. Sorell Stehr may be entitled to additional
      payments of $1,109,043, $1,147,186 and $5,485, respectively, to the extent
      that any portion of those amounts are ascribed to any post-termination
      obligations set forth in their respective employment agreements that were
      in effect on December 31, 2008.




(2)
            This
      amount represents the unrealized value of the unvested portion of the
      respective named executive officer’s restricted stock based upon the
      closing price of our common stock on December 31,
  2008.




(3)
              Payable
      within 60 days of termination.
 (4)
                $1,101,389
      is payable within 30 days of termination. The difference is due within 15
      days of termination.
 (5)
                  $1,147,186
      is payable within 30 days of termination. The difference is due within 15
      days of termination.
 (6)
                    Payable
      within 15 days of termination
 (7)
                      Mr.
      Stehr ceased serving as an officer in February 2009.(8)
                      Mr.
      Clamen and Mr. Tarshis may be entitled to an additional payment of
      $750,000 in the event that stockholder approval has not been obtained for
      the stock awards they are entitled to receive pursuant to their employment
      agreements.


60




DIRECTOR
COMPENSATION




The
following table sets forth compensation information for 2008 for each member of
our Board of Directors who is not also an executive officer. Our executive
officers do not receive additional compensation for serving on the board. See
Summary Compensation Table and Grants of Plan-Based Awards Table for disclosures
related to our chairman of the board, president and chief executive officer,
Neil Cole.




Name
                
                Fees
                  Earned
                  or Paid
                  in Cash
                  ($)
                
                
                Stock
                  Awards
                  ($)(1)
                
                
                Option
                  Awards
                  ($)
                
                
                Non-Equity
                  Incentive Plan
                  Compensation
                  ($)
                
                
                Change in
                  Pension Value
                  and
                  Nonqualified
                  Deferred
                  Compensation
                  Earnings
                
                
                All Other
                  Compensation
                  ($)
                
                
                Total
                  ($)Barry
      Emanuel
                
                $
                40,000
                
                
                $
                76,160
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                116,160Steven
      Mendelow
                
                $
                55,000
                
                
                $
                76,160
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                131,160Drew
      Cohen
                
                $
                50,000
                
                
                $
                76,160
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                126,160F.
      Peter Cuneo
                
                $
                40,000
                
                
                $
                76,160
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                116,160Mark
      Friedman
                
                $
                50,000
                
                
                $
                76,160
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                126,160James
      A. Marcum
                
                $
                40,000
                
                
                $
                76,160
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                116,160





(1) Represents
the dollar amount recognized by us for financial statement purchases for fiscal
2008 in accordance with FAS 123R.





(2) At
December 31, 2008 Mr. Marcum had 10,544 shares of restricted stock that had not
vested. In addition, at December 31, 2008 our non-employee directors owned the
following unexercised options - Drew Cohen 50,000; Barry Emanuel - 241,173; and
Steven Mendelow - 200,250.





The
compensation committee has determined that for each full year of service as a
director of our company, each non-employee member of the Board would
receive a cash payment of $40,000, payable 50% on or about each January 1 and
50% on or about each July 1, and 4,000 restricted shares of common stock vesting
100% on July 1 of each year. In addition, the compensation committee
determined that the audit committee chair would receive an annual stipend of
$15,000, and the chairs of the compensation committee and nominating and
governance committee would receive an annual stipend of $10,000, each payable
each July 1.





Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters





The
following table presents information regarding beneficial ownership of our
common stock as of February 26, 2009 by each of our directors, each person who
served as one of our “named executive officers” during 2008, all of our current
executive officers and directors, as a group, and each person known by us to
beneficially hold five percent or more of our common stock, based on information
obtained from such persons.





Unless
indicated below, to our knowledge, the persons and entities named in the table
have sole voting and sole investment power with respect to all securities
beneficially owned, subject to community property laws where applicable. The
shares “beneficially owned” by a person are determined in accordance with the
definition of “beneficial ownership” set forth in the regulations of the SEC
and, accordingly, shares of our common stock subject to options, warrants or
other convertible securities that are exercisable or convertible within 60 days
as of February 26, 2009 are deemed to be beneficially owned by the person
holding such securities and to be outstanding for purposes of determining such
holder's percentage ownership. The same securities may be beneficially owned by
more than one person. Shares of common stock subject to options, warrants,
restricted stock units, restricted stock awards or convertible securities that
are not exercisable or do not vest within 60 days from February 26, 2009 are not
included in the table below as shares “beneficially owned”.




61




Percentage
ownership of our common stock is based on the 58,063,752 shares of common stock
outstanding as of February 26, 2009. The address for each beneficial owner,
unless otherwise noted, is c/o Iconix Brand Group, Inc. at 1450 Broadway, New
York, New York 10018.




BENEFICIAL
OWNERSHIP TABLE




Name of Beneficial Owner
                                                                                                            
                                                                                                            Amount and
                                                                                                              Nature of
                                                                                                              Beneficial
                                                                                                              Ownership
                                                                                                            
                                                                                                            
                                                                                                            Percent of ClassNeil
      Cole
                                                                                                            
                                                                                                            
                                                                                                            2,979,145
                                                                                                            (1)
                                                                                                            
                                                                                                            4.9
                                                                                                            %Warren
      Clamen
                                                                                                            
                                                                                                            
                                                                                                            124,323
                                                                                                            (3)
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *Andrew
      Tarshis
                                                                                                            
                                                                                                            
                                                                                                            28,507
                                                                                                            (4)
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *David
      Conn
                                                                                                            
                                                                                                            
                                                                                                            133,364
                                                                                                            (2)
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *Deborah
      Sorell Stehr
                                                                                                            
                                                                                                            137,219
                                                                                                            (5)
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *Barry
      Emanuel
                                                                                                            
                                                                                                            
                                                                                                            251,853
                                                                                                            (6)
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *Steven
      Mendelow
                                                                                                            
                                                                                                            
                                                                                                            296,688
                                                                                                            (7)
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *Drew
      Cohen
                                                                                                            
                                                                                                            
                                                                                                            67,382
                                                                                                            (8)
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *F.
      Peter Cuneo
                                                                                                            
                                                                                                            
                                                                                                            96,000
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *Mark
      Friedman
                                                                                                            
                                                                                                            
                                                                                                            26,364
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *James
      A. Marcum
                                                                                                            
                                                                                                            
                                                                                                            18,544
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            *Fred
      Alger Management, Inc.
                                                                                                              Alger
      Associates, Inc.
                                                                                                              111
      Fifth Avenue
                                                                                                              New
      York, New York 10003
                                                                                                            
                                                                                                            
                                                                                                            5,074,180
                                                                                                            (9)
                                                                                                            
                                                                                                            
                                                                                                            8.7
                                                                                                            %Baron
      Capital Group, Inc.
                                                                                                              767
      Fifth Avenue
                                                                                                              New
      York, NY 10153
                                                                                                            
                                                                                                            
                                                                                                            3,750,000
                                                                                                            (10)
                                                                                                            
                                                                                                            
                                                                                                            6.5
                                                                                                            %RS
      Investment Management Co. LLC
                                                                                                              388
      Market Street
                                                                                                              Suite
      1700
                                                                                                              San
      Francisco, CA 94111
                                                                                                            
                                                                                                            
                                                                                                            6,051,460
                                                                                                            (11)
                                                                                                            
                                                                                                            
                                                                                                            10.4
                                                                                                            %FMR
      LLC
                                                                                                              82
      Devonshire Street
                                                                                                              Boston,
      MA 02109
                                                                                                            
                                                                                                            
                                                                                                            5,387,417
                                                                                                            (12)
                                                                                                            
                                                                                                            
                                                                                                            9.3
                                                                                                            %Barclays
      Global Investors, NA
                                                                                                              400
      Howard Street
                                                                                                              San
      Francisco, CA 94105
                                                                                                            
                                                                                                            
                                                                                                            3,869,219
                                                                                                            (13)
                                                                                                            
                                                                                                            
                                                                                                            6.7
                                                                                                            %All
      directors and executive officers as a group (9 persons)
                                                                                                            
                                                                                                            
                                                                                                            3,888,806
                                                                                                            (14)
                                                                                                            
                                                                                                            
                                                                                                            6.3
                                                                                                            %




*
              Less
      than 1%
 
 (1)
              Includes
      (i) 2,572,125 shares of common stock issuable upon exercise of options and
      (ii) 20,000 shares of common stock owned by Mr. Cole’s children. Does not
      include (i) shares held in Mr. Cole’s account under our 401(k) savings
      plan over which he has no current voting or investment power or (ii)
      236,337 shares of common stock underlying RSUs that vested on December 31,
      2008 the delivery of which Mr. Cole has agreed to defer pursuant to
      an amendment to his employment agreement dated December 24,
      2008.
 
 (2)
              Includes
      125,000 shares of common stock issuable upon exercise of
      options.
 
 (3)
              Includes
      110,000 shares of common stock issuable upon exercise of
      options.
  62
  (4)
              Includes
      10,000 shares of common stock issuable upon exercise of
      options.
 
 (5)
              Includes
      125,000 shares of common stock issuable upon exercise of options. Does not
      include shares held in Ms. Sorell Stehr’s account under our 401(k) savings
      plan over which she has no current voting or investment
    power.
 
 (6)
              Includes
      241,173 shares of common stock issuable upon exercise of
      options.
 
 (7)
              Includes
      200,250 shares of common stock issuable upon exercise of options and
      60,750 shares of common stock owned by C&P Associates, with which Mr.
      Mendelow and his wife are affiliated and over whose securities they
      exercise shared voting and investment
control.
 
 (8)
              Includes
      50,000 shares of common stock issuable upon exercise of
      options.
 
 (9)
              Based
      on a Schedule 13G filed by Fred Alger Management, Inc. and Alger
      Associates, Incorporated on January 15,
2008.
 
 (10)
              Baron
      Capital Group, Inc., herein referred to as BCG, is deemed to have
      beneficial ownership of these shares, which are held by BCG or entities
      that it controls. BCG and Ronald Baron disclaim beneficial ownership of
      the shares held by their controlled entities (or the investment advisory
      clients thereof) to the extent such shares are held by persons other than
      BCG and Ronald Baron. The information provided is based upon a Schedule
      13G filed February 14, 2008, by BCG and its affiliates: Bamco, Inc.;
      Baron Small Cap Fund; and Ronald
Baron.
 
 (11)
              RS
      Investment Management Co. LLC is a registered investment adviser whose
      clients have the right to receive or the power to direct the receipt of
      dividends from, or the proceeds from the sale of, the stock.  No
      individual client's holdings of the stock, except for RS Partners Fund,
      are more than five percent of the outstanding
  stock.
 
 The
Guardian Life Insurance Company of America is an insurance company and the
parent company of Guardian Investor Services LLC and RS Investment Management
Co. LLC.  Guardian Investor Services LLC is a registered investment
adviser, a registered broker-dealer, and the parent company of RS Investment
Management Co. LLC.
 
 (12)
              Fidelity
      Management & Research Company, herein referred to as Fidelity, 82
      Devonshire Street, Boston, Massachusetts 02109, a wholly-owned subsidiary
      of FMR LLC and an investment adviser registered under Section 203 of the
      Investment Advisers Act of 1940, is the beneficial owner of 4,685,644
      shares or 8.033% of the Common Stock outstanding of ICONIX BRAND GROUP
      INC  ("the Company") as a result of acting as investment adviser
      to various investment companies registered under Section 8 of the
      Investment Company Act of 1940. The number of shares of Common Stock of
      ICONIX BRAND GROUP INC owned by the investment companies at December 31,
      2008 included 7,257 shares of Common Stock resulting from the assumed
      conversion of $200,000 principal amount of ICONIX BRAND CV 1.875% 6/30/12
      (36.2845 shares of Common Stock for each $1,000 principal amount of
      debenture).
 
 Edward C.
Johnson 3d and FMR LLC, through its control of Fidelity, and the funds each has
sole power to dispose of the 4,685,644 shares owned by the Funds.
  63
  Members
of the family of Edward C. Johnson 3d, Chairman of FMR LLC, are the predominant
owners, directly or through trusts, of Series B voting common shares of FMR LLC,
representing 49% of the voting power of FMR LLC.  The Johnson family
group and all other Series B shareholders have entered into a shareholders'
voting agreement under which all Series B voting common shares will be voted in
accordance with the majority vote of Series B voting common
shares.  Accordingly, through their ownership of voting common shares
and the execution of the shareholders' voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940, to form a
controlling group with respect to FMR LLC.
 
 Neither
FMR LLC nor Edward C. Johnson 3d, Chairman of FMR LLC, has the sole power to
vote or direct the voting of the shares owned directly by the Fidelity Funds,
which power resides with the Funds' Boards of Trustees.  Fidelity
carries out the voting of the shares under written guidelines established by the
Funds' Boards of Trustees.
 
 Pyramis
Global Advisors, LLC, herein referred to as PGALLC, 53 State Street, Boston,
Massachusetts, 02109, an indirect wholly-owned subsidiary of FMR LLC and an
investment adviser registered under Section 203 of the Investment Advisers Act
of 1940, is the beneficial owner of 61,873 shares or 0.106% of the outstanding
Common Stock of ICONIX BRAND GROUP INC as a result of its serving as investment
adviser to institutional accounts, non-U.S. mutual funds, or investment
companies registered under Section 8 of the Investment Company Act of 1940
owning such shares. The number of shares of Common Stock of ICONIX BRAND GROUP
INC owned by the institutional account(s) at December 31, 2008 included 32,873
shares of Common Stock resulting from the assumed conversion of $906,000
principal amount of ICONIX BRAND CV 1.875% 6/30/12 (36.2845 shares of Common Stock for
each $1,000 principal amount of debenture).
 
 Edward C.
Johnson 3d and FMR LLC, through its control of PGALLC, each has sole dispositive
power over 61,873 shares and sole power to vote or to direct the voting of
61,873 shares of Common Stock owned by the institutional accounts or funds
advised by PGALLC as reported above.
 
 Pyramis
Global Advisors Trust Company, herein referred to as PGATC, 53 State Street,
Boston, Massachusetts, 02109, an indirect wholly-owned subsidiary of FMR LLC and
a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is
the beneficial owner of 583,792 shares or 1.001% of the outstanding Common Stock
of the ICONIX BRAND GROUP INC as a result of its serving as investment manager
of institutional accounts owning such shares. The number of shares of Common
Stock of ICONIX BRAND GROUP INC owned by the institutional account(s) at
December 31, 2008 included 2,540 shares of Common Stock resulting from the
assumed conversion of $70,000 principal amount of ICONIX  BRAND CV
1.875% 6/30/12 (36.2845 shares of Common Stock for each $1,000 principal amount
of debenture).
 
 Edward C.
Johnson 3d and FMR LLC, through its control of Pyramis Global Advisors Trust
Company, each has sole dispositive power over 583,792 shares and sole power to
vote or to direct the voting of 583,792 shares of Common Stock owned by the
institutional accounts managed by PGATC as reported above.
 
 FIL
Limited, herein referred to as FIL, Pembroke Hall, 42 Crow Lane, Hamilton,
Bermuda, and various foreign-based subsidiaries provide investment advisory and
management services to a number of non-U.S. investment companies and certain
institutional investors.  FIL, which is a qualified institution under
section 240.13d-1(b)(1) pursuant to an SEC No-Action letter dated October 5,
2000, is the beneficial owner of 56,108 shares or 0.096% of the Common Stock
outstanding of the Company Partnerships controlled predominantly by members of
the family of Edward C. Johnson 3d, Chairman of FMR LLC and FIL, or trusts for
their benefit, own shares of FIL voting stock with the right to cast
approximately 47% of the total votes which may be cast by all holders of FIL
voting stock.  FMR LLC and FIL are separate and independent corporate
entities, and their Boards of Directors are generally composed of different
individuals.
 
 FMR LLC
and FIL are of the view that they are not acting as a "group" for purposes of
Section 13(d) under the Securities Exchange Act of 1934 (the "1934" Act) and
that they are not otherwise required to attribute to each other the "beneficial
ownership" of securities "beneficially owned" by the other corporation within
the meaning of Rule 13d-3 promulgated under the 1934 Act.  Therefore,
they are of the view that the shares held by the other corporation need not be
aggregated for purposes of Section 13(d). However, FMR LLC is making this filing
on a voluntary basis as if all of the shares are beneficially owned by FMR LLC
and FIL on a joint basis.
  (13)
              The
      shares reported are held by the company in trust accounts for the economic
      benefit of the beneficiaries of those
accounts.
 
 (14)
              Includes
      3,183,548 shares of common stock issuable upon exercise of
      options.




64




Equity
Compensation Plans





The
following table provides certain information with respect to all of our equity
compensation plans in effect as of December 31, 2008.




Plan Category
                                        
                                        Number of securities to
                                          be
                                          issued upon exercise of
                                          outstanding options,
                                          warrants and rights
                                        
                                        
                                        Weighted-average
                                          exercise price of
                                          outstanding options, warrants
                                          and rights
                                          (b)
                                        
                                        
                                        Number of securities
                                          remaining
                                          available for issuance under
                                          equity compensation plans
                                          (excluding securities
                                          reflected in column (a))Equity
      compensation plans approved by security holders:
                                        
                                        
                                        2,951,537
                                        
                                        
                                        $
                                        4.83
                                        
                                        
                                        
                                        75,965Equity
      compensation plans not approved by security holders(1)  :
                                        
                                        
                                        1,230,500
                                        
                                        
                                        
                                        5.74
                                        
                                        
                                        
                                        -Total
                                        
                                        
                                        4,182,037
                                        
                                        
                                        $
                                        5.10
                                        
                                        
                                        
                                        75,965


(1)
              Represents
      the aggregate number of shares of common stock issuable upon exercise of
      individual arrangements with option and warrant holders, including 630,500
      options issued under the terms of our 2001 Stock Option Plan. These
      options and warrants are up to three years in duration, expire at various
      dates through December 28, 2015, contain anti-dilution provisions
      providing for adjustments of the exercise price under certain
      circumstances and have termination provisions similar to options granted
      under stockholder approved plans. See Note 7 of Notes to Consolidated
      Financial Statements for a description of our Stock Option
      Plans.




Item 13. Certain Relationships and Related
Transactions, and Director Independence




Pursuant
to its charter, our audit committee must review and approve, where appropriate,
all related party transactions.





On May 1,
2003, we granted Kenneth Cole Productions, Inc. the exclusive worldwide
license to design, manufacture, sell, distribute and market footwear under its
Bongo brand. The chief executive officer and chairman of Kenneth Cole
Productions is Kenneth Cole, who is the brother of Neil Cole, our Chief
Executive Officer and President. During fiscal 2008 and fiscal 2007, we received
$1.1 million and $0.7 million in royalties from Kenneth Cole Productions,
respectively




The
Candie's Foundation, a charitable foundation founded by Neil Cole for the
purpose of raising national awareness about the consequences of teenage
pregnancy, owed us $0.8 million as of December 31, 2008. The Candie's Foundation
will pay-off the entire borrowing from us in 2009 although additional advances
will be made as and when necessary. Mr. Cole's wife, Elizabeth Cole, performs
services for the foundation but without compensation.





The
Company recorded expenses of approximately $354,000 for 2008 for the hire and
use of aircraft solely for business purposes owned by a company in which
the Company’s chairman, chief executive officer and president is the sole
owner.  There were no such expenses in 2007. Management believes that all
transactions were made on terms and conditions no less favorable than those
available in the marketplace from unrelated parties.




Director
Independence





Board
of Directors





Our Board
of Directors has determined that Barry Emanuel, Steven Mendelow, Drew Cohen, F.
Peter Cuneo, Mark Friedman, and James A. Marcum meet the definition of
"independent directors" as defined under the standards of independence set forth
in the Marketplace Rules of the NASDAQ Stock Market.





65




Item 14. Principal Accounting Fees
and Services




Audit Fees. The aggregate fees
billed by BDO Seidman, LLP for professional services rendered for the audit of
the Company's annual financial statements for fiscal 2008 and fiscal 2007,
internal controls over financial reporting and the reviews of the financial
statements included in the Company's Forms 10-Q, comfort letter and consents
related to SEC registration statements and other capital raising
activities for fiscal 2008 and fiscal 2007 totaled approximately
$551,482 and $1,023,000, respectively.




Audit-Related Fees. 
There were approximately $72,900 and $189,000 aggregate fees billed by BDO
Seidman, LLP for assurance and related services that are reasonably related to
the performance of the audit or review of the Company's financial statements for
fiscal 2008 and fiscal 2007, respectively, and that are not disclosed in the
paragraph captions "Audit Fees" above. The majority of the audit-related fees in
fiscal 2008 were related to the audits of the financial statements of IP
Holdings and Candie's Foundation, whereas the majority of the audit-related fees
in fiscal 2007 were related to audits of the financial statements for fiscal
2007 acquisitions.




Tax Fees. The aggregate fees
billed by BDO Seidman, LLP for professional services rendered for tax
compliance, for fiscal 2008 and fiscal 2007, were approximately $78,000, and
$55,000, respectively. The aggregate fees billed by BDO Seidman, LLP for
professional services rendered for tax advice and tax planning, for fiscal 2008
and fiscal 2007, were $0 and $0, respectively.




All Other Fees. There were no
fees billed by BDO Seidman, LLP for products and services, other than the
services described in the paragraphs captions "Audit Fees", "Audit-Related
Fees", and "Tax Fees" above for fiscal 2008 and fiscal 2007.




The Audit
Committee has established its pre-approval policies and procedures, pursuant to
which the Audit Committee approved the foregoing audit services provided by BDO
Seidman, LLP in fiscal 2008. Consistent with the Audit Committee's
responsibility for engaging the Company's independent auditors, all audit and
permitted non-audit services require pre-approval by the Audit Committee. The
full Audit Committee approves proposed services and fee estimates for these
services. The Audit Committee chairperson or their designee has been designated
by the Audit Committee to approve any services arising during the year that were
not pre-approved by the Audit Committee. Services approved by the Audit
Committee chairperson are communicated to the full Audit Committee at its next
regular meeting and the Audit Committee reviews services and fees for the fiscal
year at each such meeting. Pursuant to these procedures, the Audit Committee
approved all the foregoing audit services and permissible non-audit services
provided by BDO Seidman, LLP.




66





PART
IV




Item 15. Exhibits, Financial
Statement Schedules





(a) Documents
included as part of this Annual Report




1. The
following consolidated financial statements are included in this Annual
Report:




- Report
of Independent Registered Public Accounting Firm




-
Consolidated Balance sheets - December 31, 2008 and 2007




-
Consolidated Income Statements for the years ended December 31, 2008, 2007 and
2006




- Consolidated
Statements of Stockholders' Equity for the ended December 31, 2008, 2007 and
2006




-
Consolidated Statements of Cash Flows for the year ended December 31, 2008, 2007
and 2006




- Notes
to Consolidated Financial Statements




2. The
following financial statement schedules are included in this Annual
Report:




- Report
of Independent Registered Public Accounting Firm on Financial Statement
Schedule





-
Schedule for the year ended December 31, 2008, 2007 and 2006





·-
Schedule II Valuation and qualifying accounts




All other
schedules for which provision is made in the applicable accounting regulation of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.




3. See
the Index to Exhibits for a list of exhibits filed as part of this Annual
Report.




(b) See
Item (a) 3 above.




(c) See
Item (a) 2 above.




67




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




ICONIX
      BRAND GROUP, INC.Date:
      February 27, 2009
                  By
                  /s/
      Neil ColeNeil
      Cole,
                    President
      and Chief Executive Officer
                    (Principal
      Executive
Officer)




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:




Name
                  
                  Title
                  
                  Date/s/
      Neil ColeNeil
      Cole
                  
                  Chairman
      of the Board, President and Chief Executive Officer
                    (Principal
      Executive Officer)
                  
                  February
      27, 2009/s/
      Warren ClamenWarren
      Clamen
                  
                  Chief
      Financial Officer
                    (Principal
      Financial and Accounting Officer)
                  
                  February
      27, 2009/s/ Barry
      EmanuelBarry
      Emanuel
                  
                  Director
                  
                  February
      27, 2009/s/
      Drew CohenDrew
      Cohen
                  
                  Director
                  
                  February
      27, 2009/s/
      F. Peter CuneoF.
      Peter Cuneo
                  
                  Director
                  
                  February
      27, 2009/s/
      Mark FriedmanMark
      Friedman
                  
                  Director
                  
                  February
      27, 2009/s/
      Steven MendelowSteven
      Mendelow
                  
                  Director
                  
                  February
      27, 2009/s/
      James A. MarcumJames
      A. Marcum
                  
                  Director
                  
                  February
      27, 2009




68




Index
to Exhibits


Exhibit
                Numbers
              
              Description2.1
              
              Asset
      Purchase dated October 29, 2004 by and among B.E.M. Enterprise, Ltd.,
      Escada (USA) Inc., the Company and Badgley Mischka Licensing LLC
      (1)2.2
              
              Asset
      Purchase Agreement dated July 22, 2005 by and among the Company, Joe Boxer
      Company, LLC, Joe Boxer Licensing, LLC, JBC Canada Holdings, LLC, Joe
      Boxer Canada, LP, and William Sweedler, David Sweedler, Alan Rummelsburg,
      Joseph Sweedler and Arnold Suresky (2)2.3
              
              Asset
      Purchase Agreement dated September 16, 2005 by and among the Company,
      Rampage Licensing, LLC, Rampage.com, LLC, Rampage Clothing Company, Larry
      Hansel, Bridgette Hansel Andrews, Michelle Hansel, Paul Buxbaum and David
      Ellis (3)2.4
              
              Merger
      Agreement dated as of March 31, 2006 by and among the Company, Moss
      Acquisition Corp., Mossimo, Inc., and Mossimo Giannulli
  (4)2.5
              
              Asset
      Purchase Agreement dated as of March 31, 2006, between the Company and
      Mudd (USA) LLC (5)2.6
              
              Amendment
      dated April 11, 2006 to Asset Purchase Agreement dated as of March 31,
      2006 between the Company and Mudd (USA), LLC. (6)2.7
              
              Asset
      Purchase Agreement, dated as of August 21, 2006, between the Company and
      London Fog Group, Inc. (7)2.8
              
              Asset
      Purchase Agreement, dated as of October 31, 2006, between the Company, The
      Warnaco Group, Inc., and Ocean Pacific Apparel Corp. (including the forms
      of the Note and the Registration Rights Agreement)
(27)+2.9
              
              Assets
      Purchase Agreement dated as of February 21, 2007 by and among the Company,
      Danskin, Inc. and Danskin Now, Inc. (28)+**2.10
              
              Asset
      Purchase Agreement dated March 6, 2007 by and among the Company, Rocawear
      Licensing LLC, Arnold Bize, Shawn Carter and Naum Chernyavsky
      (29)+2.11
              
              Purchase
      and Sale Agreement, dated September 6, 2007, by and among the Company,
      Official Pillowtex LLC and the Sellers of interests in Official Pillowtex,
      LLC (“the Sellers”) (32)+2.12
              
              Asset
      Purchase Agreement dated November 15, 2007 by and among the Company,
      Exeter Brands Group LLC and NIKE, Inc. (34)+2.13
              
              Asset
      Purchase Agreement by and among NexCen Brands, Inc., NexCen Fixed Asset
      Company , LLC,   NexCen Brand Management, Inc., WV IP
      Holdings, LLC and  the Company dated September 29, 2008
      (39)+3.1
              
              Certificate
      of Incorporation, as amended (8)3.2
              
              Restated
      and Amended By-Laws (9)4.1
              
              Rights
      Agreement dated January 26, 2000 between the Company and Continental Stock
      Transfer and Trust Company (10)4.2
              
              Fifth
      Amended and Restated Indenture dated of August 28, 2006 by and between IP
      Holdings LLC, as issuer, and Wilmington Trust Company as Trustee
      (7)4.3
              
              Indenture,
      dated June 20, 2007 between the Company and The Bank of New York
      (31)4.4
              
              Registration
      Rights Agreement, dated June 20, 2007, by and among the Company, Merrill
      Lynch, Pierce, Fenner & Smith, Incorporated and Lehman Brothers Inc.
      (31)10.1
              
              1997
      Stock Option Plan of the Company
(12)*
  69
  Exhibit
                Numbers
              
              Description10.2
              
              2000
      Stock Option Plan of the Company (13)*10.3
              
              2001
      Stock Option Plan of the Company (14)*10.4
              
              2002
      Stock Option Plan of the Company (15)*10.5
              
              Non
      -Employee Director Stock Incentive Plan (16)*10.6
              
              401(K)
      Savings Plan of the Company (17)10.7
              
              Employment
      Agreement between Neil Cole and the Company dated January 28, 2008
      (9)*10.8
              
              Employment
      Agreement between Deborah Sorell Stehr and the Company dated October 28,
      2005 (22)*10.9
              
              Amendment
      dated September 22, 2006 to the Employment Agreement dated October 28,
      2005 between the Company and Deborah Sorell Stehr (24)*10.15
              
              Option
      Agreement of Neil Cole dated November 29, 1999 (17)*10.16
              
              Iconix
      Brand Group, Inc. 2006 Equity Incentive Plan and forms of options granted
      thereunder (37)*10.17
              
              Restricted
      Stock Agreement dated September 22, 2006 between the Company and Andrew
      Tarshis (24)*10.18
              
              Restricted
      Stock Agreement dated September 22, 2006 between the Company and Deborah
      Sorell Stehr (24)*10.19
              
              Form
      of Restricted Stock Agreement for officers under the Iconix Brand Group,
      Inc. 2006 Equity Incentive Plan (25)*10.20
              
              Form
      of Restricted Stock Agreement for Directors under the Iconix Brand Group,
      Inc. 2006 Equity Incentive Plan (25)*10.21
              
              8%
      Senior Subordinated Note due 2012 of the Company payable to Sweet
      Sportswear, LLC. (20)10.22
              
              Letter
      Agreement dated October 29, 2004 among UCC Funding Corporation, Content
      Holdings, Inc., the Company and Badgley Mischka Licensing LLC.
      (1)10.23
              
              Form
      of Option Agreement under the Company’s 1997 Stock Option Plan
      (18)*10.24
              
              Form
      of Option Agreement under the Company’s 2000 Stock Option Plan
      (18)*10.25
              
              Form
      of Option Agreement under the Company’s 2001 Stock Option Plan
      (18)*10.26
              
              Form
      of Option Agreement under the Company’s 2002 Stock Option Plan
      (18)*10.27
              
              Agreement
      dated June 2, 2006 among the Company, UCC Consulting, Content Holdings,
      James Haran and Robert D’Loren (44)10.28
              
              Common
      Stock Purchase Warrant issued to UCC Consulting Corporation
      (45)10.29
              
              Purchase
      and Sale Agreement dated June 2, 2006 by and among the Company, Content
      Holdings, Robert D’Loren, Seth Burroughs and Catherine Twist
      (44)10.30
              
              Loan
      and Security Agreement dated as of October 31, 2006 among Mossimo Holdings
      LLC, Mossimo Management LLC, and Merrill Lynch Mortgage Capital Inc., as
      agent and lender (11)+10.31
              
              Guaranty
      dated as of October 31, 2006 by the Company in favor of Merrill Lynch
      Mortgage Capital Inc., as agent (11)10.32
              
              Registration
      Rights Agreement dated as of March 9, 2007 by and between the Company and
      Danskin, Inc. (28)10.33
              
              Registration
      Rights Agreement dated March 30, 2007 by and between the Company and
      Rocawear Licensing LLC (29)
  70
  Exhibit
                Numbers
              
              Description10.34
              
              Amended
      and Restated Credit Agreement dated as of May 2, 2007 by and among the
      Company, Lehman Brothers Inc. as Arranger, and Lehman Commercial Paper
      Inc., as Lender, as Syndication Agent and as Administrative Agent
      (30)+10.35
              
              Guarantee
      and Collateral Agreement made by the Company and certain of its
      subsidiaries in favor of Lehman Commercial Paper Inc., as Administrative
      Agent (30)+10.36
              
              Purchase
      Agreement, dated June 14, 2007, by and among the Company, Merrill Lynch,
      Pierce, Fenner & Smith, Incorporated and Lehman Brothers Inc.
      (31)10.37
              
              Letter
      Agreement Confirming OTC Convertible Note Hedge, dated June 19, 2007 among
      the Company, Merrill Lynch International and, solely in its capacity as
      agent thereunder, Merrill Lynch, Pierce, Fenner & Smith Incorporated
      (31)10.38
              
              Letter
      Agreement, Confirming OTC Convertible Note Hedge, dated June 19, 2007,
      among the Company, Lehman Brothers - OTC Derivatives Inc. and, solely in
      its capacity as agent thereunder, Lehman Brothers (31)10.39
              
              Letter
      Agreement, Confirming OTC Warrant transaction, dated June 19, 2007, among
      the Company, Merrill Lynch International and, solely in its capacity as
      agent thereunder, Merrill Lynch, Pierce, Fenner & Smith Incorporated
      (31)10.40
              
              Letter
      Agreement, Confirming OTC Warrant Transaction, dated June 19, 2007, among
      the Company, Lehman Brothers OTC Derivatives Inc. and, solely in its
      capacity as agent thereunder, Lehman Brothers (31)10.41
              
              Escrow
      Agreement dated September 6, 2007 by and between the Company, Ben Kraner,
      on behalf of the Sellers, as each Seller’s authorized attorney-in-fact,
      and U.S. Bank National Association, as escrow agent
(32)10.42
              
              Note
      and Security Agreement dated November 7, 2007 made by Artful Holdings, LLC
      in favor of the Company (33)10.43
              
              Restricted
      Stock Grant Agreement dated February 19, 2008 between the Company and Neil
      Cole (42)*10.44
              
              Restricted
      Stock Performance Unit Agreement dated February 19, 2008 between the
      Company and Neil Cole (42)*10.45
              
              Lease
      dated as of November 12, 2007 with respect to the Company’s Executive
      Offices (42)10.46
              
              Iconix
      Brand Group, Inc. Executive Incentive Bonus Plan (35)10.47
              
              Transition
      Services Agreement between the Company and David Conn
  (38)10.48
              
              Employment
      Agreement dated November 11, 2008 between the Company and Andrew Tarshis
      (40)*10.49
              
              Employment
      Agreement dated November 11, 2008 between the Company and
      Warren  Clamen (40)*10.50
              
              Agreement
      dated  May  2008 between the Company and Neil
      Cole.(36)*10.51
              
              Agreement
      dated December 24, 2008 between the Company and Neil Cole
      (41)*21
              
              Subsidiaries
      of the Company (42)23
              
              Consent
      of BDO Seidman, LLP (42)31.1
              
              Certification
      of Chief Executive Officer Pursuant To Rule 13a-14 Or 15d-14 Of The
      Securities Exchange Act Of 1934, As Adopted Pursuant To Section 302 Of The
      Sarbanes-Oxley Act Of 2002 (42)31.2
              
              Certification
      of Principal Financial Officer Pursuant To Rule 13a-14 Or 15d-14 Of The
      Securities Exchange Act Of 1934, As Adopted Pursuant To Section 302 Of The
      Sarbanes-Oxley Act of 2002 (42)32.1
              
              Certification
      of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted
      Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
    (42)32.2
              
              Certification
      of Principal Financial Officer Pursuant To 18 U.S.C. Section 1350, As
      Adopted pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
      (42)
  71
  Exhibit
                Numbers
              
              Description99.1
              
              Note
      Purchase Agreement by and among IP Holdings LLC, the Company and Mica
      Funding, LLC, dated April 11, 2006 (26)+99.2
              
              Note
      Purchase Agreement by and among IP Holdings LLC, the Company and Mica
      Funding, LLC, dated August 28, 2006 (7)+99.3
              
              Agreement
      for Creative Director Services dated as of October 31, 2006 by and among
      the Company, Mossimo, Inc. and Mossimo Giannulli
  (11)
 (1)
                    Filed
      as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended October 31, 2004 and incorporated by reference
      herein.
 (2)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated July 22, 2005 and incorporated by reference
  herein.
 (3)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated September 16, 2005 and incorporated by reference
    herein.
 (4)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated March 31, 2006 (SEC accession No. 0000950117-06-001668) and
      incorporated by reference herein.
 (5)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated March 31, 2006 (SEC accession No. 0000950117-06-001669) and
      incorporated by reference herein.
 (6)
                    Filed
      as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2006 and incorporated by reference
      herein.
 (7)
                    Filed
      as an exhibit filed to the Company's Current Report on Form 8-K for the
      event dated August 28, 2006 and incorporated by reference
      herein.
 (8)
                    Filed
      as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2007 and incorporated by reference
      herein.
 (9)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated January 28, 2008 and incorporated by reference
    herein.
 (10)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated January 26, 2000 and incorporated by reference
    herein.
 (11)
                    Filed
      as an exhibit to the Company’s Current Report on form 8-K for the event
      dated October 31, 2006 (SEC accession no. 0001144204-06-045497) and
      incorporated by reference herein.
 (12)
                    Filed
      as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended October 31, 1997 and incorporated by reference
      herein.
 (13)
                    Filed
      as Exhibit A to the Company’s definitive Proxy Statement dated July 18,
      2000 as filed on Schedule 14A and incorporated by reference
      herein.
 (14)
                    Filed
      as an exhibit to the Company’s Annual Report on Form 10-K for the year
      ended January 31, 2002 and incorporated by reference
    herein.
 (15)
                    Filed
      as Exhibit B to the Company’s definitive proxy statement dated May 28,
      2002 as filed on Schedule 14A and incorporated by reference
      herein.
 (16)
                    Filed
      as Appendix B to the Company’s definitive Proxy Statement dated July 2,
      2001 as filed on Schedule 14A and incorporated by reference
      herein.
 (17)
                      Filed
      as an exhibit to the Company’s Annual Report on Form 10-K for the year
      ended January 31, 2003 and incorporated by reference
    herein.
 72
  (18)
                    Filed
      as an exhibit to the Company’s Transition Report on Form 10-K for the
      transition period from February 1, 2004 to December 31, 2004 and
      incorporated by reference herein.
 (19)
                    Filed
      as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2005 and incorporated by reference
      herein.
 (20)
                    Filed
      as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended October 31, 2002 and incorporated by reference
      herein.
 (21)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated December 29, 2005 and incorporated by reference
    herein.
 (22)
                    Filed
      as an exhibit to the Company’s Annual Report on Form 10-K for the period
      ended December 31, 2005 and incorporated by reference
    herein.
 (23)
                    Incorporated
      by reference to the applicable exhibit filed with the Company’s Current
      Report on Form 8-K for the event dated October 27,
2006.
 (24)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated September 22, 2006 and incorporated by reference
    herein.
 (25)
                    Filed
      as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 and incorporated by reference
      herein.
 (26)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated April 11, 2006 and incorporated by reference
  herein.
 (27)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated October 31, 2006 (SEC accession no. 0001144204-06-0455507) and
      incorporated by reference herein.
 (28)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated March 9, 2007 and incorporated by reference
  herein.
 (29)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated March 30, 2007 and incorporated by reference
  herein.
 (30)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated May 1, 2007 and incorporated by reference herein.
 (31)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated June 14, 2007 and incorporated by reference
  herein.
 (32)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated October 3, 2007 and incorporated by reference
  herein.
 (33)
                    Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated November 7, 2007 and incorporated by reference
    herein.
 (34)
                  Filed
      as an exhibit to the Company's Current Report on Form 8-K for the event
      dated December 17, 2007 and incorporated by reference
    herein.
  (35)
                    Filed
      as Annex B to the Company’s Definitive Proxy Statement on Schedule 14A
      filed with the SEC on April 7, 2008 and incorporated by reference
      herein
  (36)
                    Filed
      as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2008 and incorporated by reference
      herein.
  (37)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated July 31, 2008 and incorporated by reference
  herein.
  (38)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated August 13, 2008 and incorporated by reference
  herein.
  73
  (39)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated September 29, 2008 and incorporated by reference
    herein.
  (40)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated November 11, 2008 and incorporated by reference
    herein.
  (41)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated December 24, 2008 and incorporated by reference
    herein.
  (42)
                    Filed
      as an exhibit to the Company’s Annual Report on Form 10-K for the period
      ended December 31, 2007 and incorporated by reference
    herein.
  (43)
                    Filed
      herewith.
 (44)
                    Filed
      as an exhibit to the Company’s Current Report on Form 8-K for the event
      dated June 2, 2006 and incorporated by reference
herein.
 (45) Filed as
an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005 and incorporated by reference
herein.
 
 * Denotes
management compensation plan or arrangement
 
 +
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. Iconix Brand Group, Inc. hereby undertakes to furnish
supplementally to the Securities and Exchange Commission copies of any of the
omitted schedules and exhibits upon request by the Securities and Exchange
Commission.
  **
Portions of this document have been omitted and were filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment, which was granted under Rule 24b-2 of the Securities Exchange
Act of 1934.
  74


Annual
Report on Form 10-K




Item
8, 15(a)(1) and (2), (c) and (d)





List
of Financial Statements and Financial Statement Schedule





Year
ended December 31, 2008





Iconix
Brand Group, Inc. and Subsidiaries




Iconix
Brand Group, Inc. and Subsidiaries




Form
10-K





Index
to Consolidated Financial Statements and Financial Statement
Schedule




The
following consolidated financial statements of Iconix Brand Group Inc. and
subsidiaries are included in Item 15:




Report
      of Independent Registered Public Accounting Firm
                          
                          
                          75Consolidated
      Balance Sheets - December 31, 2008 and 2007
                          
                          
                          76Consolidated
      Income Statements for the years ended December 31, 2008, 2007 and
      2006
                          
                          
                          77Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2008,
      2007 and 2006
                          
                          
                          78Consolidated
      Statements of Cash Flows for the years ended December 31, 2008, 2007 and
      2006
                          
                          
                          79Notes
      to Consolidated Financial Statements
                          
                          
                          81





The
following consolidated financial statement schedule of Iconix Brand Group, Inc.
and subsidiaries is included in Item 15(d):




Report
      of Independent Registered Public Accounting Firm on Financial Statement
      Schedule
                  
                  
                  104Schedule
      II Valuation and qualifying accounts
                  
                  
                  105




All other
schedules for which provision is made in the applicable accounting regulation of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.





75




Report
of Independent Registered Public Accounting Firm





Board of
Directors and Stockholders


Iconix
Brand Group, Inc.


New York,
New York





We have
audited the accompanying consolidated balance sheets of Iconix Brand Group, Inc.
as of December 31, 2008 and 2007 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Iconix Brand Group, Inc. at
December 31, 2008 and 2007, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2008, in conformity
with accounting principles generally accepted in the United States of
America.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Iconix Brand Group, Inc.'s internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated February
27, 2009 expressed an unqualified opinion thereon.




/s/ BDO Seidman
LLP




February
27, 2009


New York,
New York




76





Iconix
Brand Group, Inc. and Subsidiaries


Consolidated
Balance Sheets


(in
thousands, except par value)




December 31,2008
                    
                    
                    2007AssetsCurrent
      Assets:Cash
      (including restricted cash of $875 in 2008 and $5,205 in
    2007)
                    
                    $
                    67,279
                    
                    
                    $
                    53,272Accounts
      receivable
                    
                    
                    47,054
                    
                    
                    
                    29,757Deferred
      income tax assets
                    
                    
                    1,655
                    
                    
                    
                    7,442Prepaid
      advertising and other
                    
                    
                    14,375
                    
                    
                    
                    5,397Total
      Current Assets
                    
                    
                    130,363
                    
                    
                    
                    95,868Property
      and equipment:Furniture,
      fixtures and equipment
                    
                    
                    9,187
                    
                    
                    
                    2,903Less:
      Accumulated depreciation
                    
                    
                    (2,468
                    )
                    
                    
                    (1,610
                    )6,719
                    
                    
                    
                    1,293Other
      Assets:Restricted
      cash
                    
                    
                    15,866
                    
                    
                    
                    15,186Marketable
      securities
                    
                    
                    7,522
                    
                    
                    
                    10,920Goodwill
                    
                    
                    144,725
                    
                    
                    
                    128,898Trademarks
      and other intangibles, net
                    
                    
                    1,060,460
                    
                    
                    
                    1,038,201Deferred
      financing costs, net
                    
                    
                    6,524
                    
                    
                    
                    8,270Non-current
      deferred income tax assets
                    
                    
                    25,463
                    
                    
                    
                    21,158Investment
      in joint venture
                    
                    
                    4,097
                    
                    
                    
                    -Other
      assets – non-current
                    
                    
                    18,520
                    
                    
                    
                    16,3361,283,177
                    
                    
                    
                    1,238,969Total
      Assets
                    
                    $
                    1,420,259
                    
                    
                    $
                    1,336,130Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable and accrued expenses
                    
                    $
                    22,382
                    
                    
                    $
                    15,804Accounts
      payable, subject to litigation
                    
                    
                    1,878
                    
                    
                    
                    1,878Deferred
      revenue
                    
                    
                    5,570
                    
                    
                    
                    6,162Current
      portion of long-term debt
                    
                    
                    73,363
                    
                    
                    
                    52,566Total
      current liabilities
                    
                    
                    103,193
                    
                    
                    
                    76,410Non-current
      deferred income taxes
                    
                    
                    99,604
                    
                    
                    
                    73,418Long-term
      debt, less current maturities
                    
                    
                    594,664
                    
                    
                    
                    649,590Long
      term deferred revenue
                    
                    
                    9,272
                    
                    
                    
                    8,792Total
      Liabilities
                    
                    
                    806,733
                    
                    
                    
                    808,210Commitments
      and contingenciesStockholders'
      EquityCommon
      stock, $.001 par value shares authorized 150,000; shares issued 59,077 and
      57,528 respectively
                    
                    
                    58
                    
                    
                    
                    58Additional
      paid-in capital
                    
                    
                    491,936
                    
                    
                    
                    469,941Retained
      earnings
                    
                    
                    131,094
                    
                    
                    
                    60,941Accumulated
      other comprehensive loss
                    
                    
                    (3,880
                    )
                    
                    
                    (2,353
                    )Less:
      Treasury stock - 921 and 198 shares at cost, respectively
                    
                    
                    (5,682
                    )
                    
                    
                    (667
                    )Total
      Stockholders’ Equity
                    
                    
                    613,526
                    
                    
                    
                    527,920Total
      Liabilities and Stockholders' Equity
                    
                    $
                    1,420,259
                    
                    
                    $
                    1,336,130





See
accompanying notes to consolidated financial statements.




77





Iconix Brand Group, Inc. and
Subsidiaries


Consolidated
Income Statements


(in
thousands, except earnings per share data)




Year
                
                
                Year
                
                
                YearEnded
                
                
                Ended
                
                
                EndedDecember 31,
                
                
                December 31,
                
                
                December 312008
                
                
                2007
                
                
                2006Licensing
      and other revenue
                
                $
                216,761
                
                
                $
                160,004
                
                
                $
                80,694Selling,
      general and administrative expenses
                
                
                73,816
                
                
                
                44,254
                
                
                
                24,527Expenses
      related to specific litigation,  net
                
                
                893
                
                
                
                (6,039
                )
                
                
                2,494Operating
      income
                
                
                142,052
                
                
                
                121,789
                
                
                
                53,673Other
      expenses (income):Interest
      income
                
                
                (3,976
                )
                
                
                (7,521
                )
                
                
                (1,243
                )Interest
      expense
                
                
                36,574
                
                
                
                33,033
                
                
                
                15,080Equity
      loss on joint venture
                
                
                528
                
                
                
                -
                
                
                
                -Other
      expenses - net
                
                
                33,126
                
                
                
                25,512
                
                
                
                13,837Income
      before income taxes
                
                
                108,926
                
                
                
                96,277
                
                
                
                39,836Provision
      for income taxes
                
                
                38,773
                
                
                
                32,522
                
                
                
                7,335Net
      income
                
                $
                70,153
                
                
                $
                63,755
                
                
                $
                32,501Earnings
      per share:Basic
                
                $
                1.21
                
                
                $
                1.12
                
                
                $
                0.81Diluted
                
                $
                1.15
                
                
                $
                1.04
                
                
                $
                0.72Weighted
      average number of common shares outstanding:Basic
                
                
                57,810
                
                
                
                56,694
                
                
                
                39,937Diluted
                
                
                61,248
                
                
                
                61,426
                
                
                
                45,274





See
accompanying notes to consolidated financial statements.




78





Iconix
Brand Group, Inc. and Subsidiaries


Consolidated
Statements of Stockholders' Equity


(in
thousands)




Common
      StockShares
                                                                                  
                                                                                  
                                                                                  Amount
                                                                                  
                                                                                  
                                                                                  Additional
                                                                                    Paid-in
                                                                                    Capital
                                                                                  
                                                                                  
                                                                                  Retained
                                                                                    Earnings
                                                                                    (Deficit)
                                                                                  
                                                                                  
                                                                                  Accumulated
                                                                                    Other
                                                                                    Comprehensive
                                                                                    Loss
                                                                                  
                                                                                  
                                                                                  Treasury
                                                                                    Stock
                                                                                  
                                                                                  
                                                                                  TotalBalance
      at January 1, 2006
                                                                                  
                                                                                  
                                                                                  35,540
                                                                                  
                                                                                  
                                                                                  $
                                                                                  36
                                                                                  
                                                                                  
                                                                                  $
                                                                                  136,842
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (35,315
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (667
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  100,896Issuance
      of common stock related to acquisitions
                                                                                  
                                                                                  
                                                                                  7,360
                                                                                  
                                                                                  
                                                                                  
                                                                                  8
                                                                                  
                                                                                  
                                                                                  
                                                                                  122,493
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  122,501Warrants
      issued to non-employees related to acquisitions
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,273
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,273Cancellation
      of shares issued in business acquisition
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (150
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (150
                                                                                  )Issuance
      of new stock
                                                                                  
                                                                                  
                                                                                  10,785
                                                                                  
                                                                                  
                                                                                  
                                                                                  11
                                                                                  
                                                                                  
                                                                                  
                                                                                  189,512
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  189,523Stock
      option compensation expense
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  182
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  182Shares
      issued on exercise of stock options and warrants
                                                                                  
                                                                                  
                                                                                  2,446
                                                                                  
                                                                                  
                                                                                  
                                                                                  2
                                                                                  
                                                                                  
                                                                                  
                                                                                  9,099
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  9,101Amortization
      expense in connection with restricted stock
                                                                                  
                                                                                  
                                                                                  96
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  250
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  250Tax
      benefit of stock option exercises
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,380
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,380Net
      Income
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  32,501
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  32,501Balance
      at December 31, 2006
                                                                                  
                                                                                  
                                                                                  56,227
                                                                                  
                                                                                  
                                                                                  
                                                                                  57
                                                                                  
                                                                                  
                                                                                  
                                                                                  468,881
                                                                                  
                                                                                  
                                                                                  
                                                                                  (2,814
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (667
                                                                                  )
                                                                                  
                                                                                  
                                                                                  465,457Issuance
      of common stock related to acquisitions
                                                                                  
                                                                                  
                                                                                  50
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,042
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,042Warrants
      issued to non-employees related to acquisitions
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  5,886
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  5,886Shares
      issued on exercise of stock options
                                                                                  
                                                                                  
                                                                                  1,010
                                                                                  
                                                                                  
                                                                                  
                                                                                  1
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,574
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,,575Stock
      option compensation expense
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  135
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  135Tax
      benefit of stock option exercises
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,238
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,238Amortization
      expense in connection with restricted stock
                                                                                  
                                                                                  
                                                                                  43
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,476
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,476Expenses
      related to common stock issuance
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (184
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (184
                                                                                  )Net
      cost of hedge on convertible notes
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (12,107
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (12,107
                                                                                  )Comprehensive
      income:
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Net
      income
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  63,755
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  63,755Change
      in fair value of cash flow hedge
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (273
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (273
                                                                                  )Change
      in fair value of securities
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (2,080
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (2,080
                                                                                  )Total
      comprehensive income
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  61,402Balance
      at December 31, 2007
                                                                                  
                                                                                  
                                                                                  57,330
                                                                                  
                                                                                  
                                                                                  $
                                                                                  58
                                                                                  
                                                                                  
                                                                                  $
                                                                                  469,941
                                                                                  
                                                                                  
                                                                                  $
                                                                                  60,941
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (2,353
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (667
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  527,920Issuance
      of common stock related to acquisitions
                                                                                  
                                                                                  
                                                                                  12
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  173
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  173Warrants
      issued to non-employees related to acquisitions
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  133
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  133Shares
      issued on exercise of stock options
                                                                                  
                                                                                  
                                                                                  1,199
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,307
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,307Shares
      issued on vesting of restricted stock
                                                                                  
                                                                                  
                                                                                  194
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Shares
      issued for earn-out on acquisition
                                                                                  
                                                                                  
                                                                                  144
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,877
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,877Stock
      option compensation expense
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  135
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  135Tax
      benefit of stock option exercises
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,248
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,248Amortization
      expense in connection with restricted stock
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  9,122
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  9,122Shares
      repurchased on vesting of restricted stock and exercise of stock
      options
                                                                                  
                                                                                  
                                                                                  (458
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (3,192
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (3,192
                                                                                  )Shares
      repurchased on open market
                                                                                  
                                                                                  
                                                                                  (265
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,823
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,823
                                                                                  )Comprehensive
      income:Net
      Income
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  70,153
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  70,153Change
      in fair value of cash flow hedge, net of tax
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  182
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  182Change
      in fair value of securities, net of tax
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,709
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,709
                                                                                  )Total
      comprehensive income
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  68,626Balance
      at December 31, 2008
                                                                                  
                                                                                  
                                                                                  58,156
                                                                                  
                                                                                  
                                                                                  $
                                                                                  58
                                                                                  
                                                                                  
                                                                                  $
                                                                                  491,936
                                                                                  
                                                                                  
                                                                                  $
                                                                                  131,094
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (3,880
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (5,682
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  613,526




See
accompanying notes to consolidated financial statements.




79





Iconix
Brand Group, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows (in thousands)




Year Ended
                                        
                                        
                                        Year Ended
                                        
                                        
                                        Year EndedDecember 31,
                                        
                                        
                                        December 31,
                                        
                                        
                                        December 31,2008
                                        
                                        
                                        2007
                                        
                                        
                                        2006Cash
      flows from operating activities:Net
      income
                                        
                                        $
                                        70,153
                                        
                                        
                                        $
                                        63,755
                                        
                                        
                                        $
                                        32,501Adjustments
      to reconcile income from continuing operations to net cash provided by
      operating activities:Depreciation
      of property and equipment
                                        
                                        
                                        858
                                        
                                        
                                        
                                        225
                                        
                                        
                                        
                                        210Amortization
      of trademarks and other intangibles
                                        
                                        
                                        7,261
                                        
                                        
                                        
                                        5,572
                                        
                                        
                                        
                                        2,153Amortization
      of deferred financing costs
                                        
                                        
                                        1,752
                                        
                                        
                                        
                                        1,292
                                        
                                        
                                        
                                        792Amortization
      of convertible note discount
                                        
                                        
                                        1,886
                                        
                                        
                                        
                                        683
                                        
                                        
                                        
                                        -Amortization
      of restricted stock grants
                                        
                                        
                                        9,122
                                        
                                        
                                        
                                        1,688
                                        
                                        
                                        
                                        250Stock
      option compensation
                                        
                                        
                                        135
                                        
                                        
                                        
                                        135
                                        
                                        
                                        
                                        182Non-cash
      settlement of a dispute
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (3,008
                                        )
                                        
                                        
                                        (150
                                        )Gain
      on sale of trademarks
                                        
                                        
                                        (2,625
                                        )
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Gain
      on sale of 50% interest of subsidiary
                                        
                                        
                                        (4,740
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Allowance
      for doubtful accounts
                                        
                                        
                                        1,879
                                        
                                        
                                        
                                        2,280
                                        
                                        
                                        
                                        1,373Loss
      on equity investment in joint venture
                                        
                                        
                                        528
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Deferred
      income tax provision
                                        
                                        
                                        29,593
                                        
                                        
                                        
                                        26,772
                                        
                                        
                                        
                                        2,589Changes
      in operating assets and liabilities, net of business
      acquisitions:Accounts
      receivable
                                        
                                        
                                        (17,175
                                        )
                                        
                                        
                                        (22,149
                                        )
                                        
                                        
                                        (6,095
                                        )Prepaid
      advertising and other
                                        
                                        
                                        (9,978
                                        )
                                        
                                        
                                        (1,396
                                        )
                                        
                                        
                                        21Other
      assets
                                        
                                        
                                        502
                                        
                                        
                                        
                                        (933
                                        )
                                        
                                        
                                        (3,700
                                        )Deferred
      revenue
                                        
                                        
                                        (112
                                        )
                                        
                                        
                                        4,998
                                        
                                        
                                        
                                        (3,138
                                        )Accounts
      payable and accrued expenses
                                        
                                        
                                        204
                                        
                                        
                                        
                                        3,773
                                        
                                        
                                        
                                        2,343Net
      cash provided by operating activities
                                        
                                        
                                        89,243
                                        
                                        
                                        
                                        83,687
                                        
                                        
                                        
                                        29,331Cash
      flows used in investing activities:Purchases
      of property and equipment
                                        
                                        
                                        (6,281
                                        )
                                        
                                        
                                        (134
                                        )
                                        
                                        
                                        (739
                                        )Acquisition
      of Mudd
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (46,728
                                        )Acquisition
      of London Fog Trademarks
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (31,034
                                        )Acquisition
      of Mossimo, net of cash acquired
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (85,438
                                        )Acquisition
      of Ocean Pacific
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (10,491
                                        )Acquisition
      of Danskin
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (71,302
                                        )
                                        
                                        
                                        -Acquisition
      of Rocawear
                                        
                                        
                                        (1,123
                                        )
                                        
                                        
                                        (206,057
                                        )
                                        
                                        
                                        -Acquisition
      of Pillowtex
                                        
                                        
                                        (5,001
                                        )
                                        
                                        
                                        (233,781
                                        )
                                        
                                        
                                        -Acquisition
      of Starter
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (60,319
                                        )
                                        
                                        
                                        -Acquisition
      of Artful Dodger
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (13,358
                                        )
                                        
                                        
                                        -Acquisition
      of Waverly
                                        
                                        
                                        (27,619
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Investment
      in joint venture
                                        
                                        
                                        (2,000
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Payment
      of accrued expenses related to acquisitions
                                        
                                        
                                        (1,630
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Collection
      of promissory note
                                        
                                        
                                        1,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Purchase
      of trademarks
                                        
                                        
                                        (1,420
                                        )
                                        
                                        
                                        (215
                                        )
                                        
                                        
                                        (2,328
                                        )Purchase
      of marketable securities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (196,400
                                        )
                                        
                                        
                                        -Sale
      of marketable securities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        183,400
                                        
                                        
                                        
                                        -Net
      cash used in investing activities
                                        
                                        
                                        (44,074
                                        )
                                        
                                        
                                        (598,166
                                        )
                                        
                                        
                                        (176,758
                                        )Cash
      flows (used in) provided by financing activities:Proceeds
      from long-term debt
                                        
                                        
                                        -
                                        
                                        
                                        
                                        553,531
                                        
                                        
                                        
                                        168,000Proceeds
      from the sale of warrants
                                        
                                        
                                        -
                                        
                                        
                                        
                                        37,491
                                        
                                        
                                        
                                        -Payment
      for purchase of convertible note hedge
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (76,303
                                        )
                                        
                                        
                                        -Proceeds
      from exercise of stock options and warrants
                                        
                                        
                                        2,307
                                        
                                        
                                        
                                        3,573
                                        
                                        
                                        
                                        9,101Payment
      of long-term debt
                                        
                                        
                                        (36,015
                                        )
                                        
                                        
                                        (20,100
                                        )
                                        
                                        
                                        (148,545
                                        )Proceeds
      from common stock issuance, net
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        189,523Proceeds
      from payment of promissory note
                                        
                                        
                                        -
                                        
                                        
                                        
                                        399Payment
      of expenses related to common stock issuance
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (184
                                        )
                                        
                                        
                                        -Deferred
      financing costs
                                        
                                        
                                        (6
                                        )
                                        
                                        
                                        (6,207
                                        )
                                        
                                        
                                        (550
                                        )Excess
      tax benefit from share-based payment arrangements
                                        
                                        
                                        8,247
                                        
                                        
                                        
                                        1,238
                                        
                                        
                                        
                                        2,380Shares
      repurchased on vesting of restricted stock
                                        
                                        
                                        (3,192
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Shares
      repurchased on open market
                                        
                                        
                                        (1,823
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Restricted
      cash - current
                                        
                                        
                                        4,329
                                        
                                        
                                        
                                        (937
                                        )
                                        
                                        
                                        174Restricted
      cash - non-current
                                        
                                        
                                        (680
                                        )
                                        
                                        
                                        (3,527
                                        )
                                        
                                        
                                        (6,677
                                        )Net
      cash (used in) provided by financing activities
                                        
                                        
                                        (26,833
                                        )
                                        
                                        
                                        488,974
                                        
                                        
                                        
                                        213,406Net
      increase (decrease) in cash and cash equivalents
                                        
                                        
                                        18,336
                                        
                                        
                                        
                                        (25,505
                                        )
                                        
                                        
                                        65,979Cash
      and cash equivalents, beginning of year
                                        
                                        
                                        48,067
                                        
                                        
                                        
                                        73,572
                                        
                                        
                                        
                                        7,593Cash
      and cash equivalents, end of year
                                        
                                        $
                                        66,403
                                        
                                        
                                        $
                                        48,067
                                        
                                        
                                        $
                                        73,572Balance
      of restricted cash - current
                                        
                                        
                                        876
                                        
                                        
                                        
                                        5,205
                                        
                                        
                                        
                                        4,268Total
      cash and cash equivalents including current restricted cash, end of
      year
                                        
                                        $
                                        67,279
                                        
                                        
                                        $
                                        53,272
                                        
                                        
                                        $
                                        77,840




See
accompanying notes to consolidated financial statements.




80





Supplemental
disclosure of cash flow information:





Year Ended
                  
                  
                  Year Ended
                  
                  
                  Year EndedDecember 31,
                  
                  
                  December 31,
                  
                  
                  December 31,2008
                  
                  
                  2007
                  
                  
                  2006Cash
      paid during the year:Income
      taxes
                  
                  $
                  5,685
                  
                  
                  $
                  1,697
                  
                  
                  $
                  -Interest
                  
                  $
                  30,843
                  
                  
                  $
                  27,820
                  
                  
                  $
                  12,989




Supplemental
disclosures of non-cash investing and financing activities:




Year Ended
                  
                  
                  Year Ended
                  
                  
                  Year EndedDecember 31,
                  
                  
                  December 31,
                  
                  
                  December 31,2008
                  
                  
                  2007
                  
                  
                  2006Acquisitions:Common
      stock issued
                  
                  $
                  2,050
                  
                  
                  $
                  1,042
                  
                  
                  $
                  122,501Warrants
      issued - acquisition cost
                  
                  $
                  133
                  
                  
                  $
                  5,886
                  
                  
                  $
                  8,273Liabilities
      assumed
                  
                  $
                  -
                  
                  
                  $
                  8,152
                  
                  
                  $
                  51,871




See
accompanying notes to consolidated financial statements.





81




Iconix
Brand Group, Inc and Subsidiaries


Notes
to Consolidated Financial Statements


Information
as of and for the Years Ended December 31, 2008, 2007 and 2006


(dollars
are in thousands (unless otherwise noted), except per share data)





The
Company





Iconix
Brand Group, Inc (the “Company”) is in the business of licensing and marketing
intellectual property. The Company currently owns seventeen brands, Candie's®,
Bongo®, Badgley Mischka®, Joe Boxer®, Rampage®, Mudd®, London Fog®, Mossimo®,
Ocean Pacific/OP®, Danskin®, Rocawear®, Cannon®, Royal Velvet®, Fieldcrest®,
Charisma®, Starter®, and Waverly®, which it licenses to third parties for use in
connection with a variety of apparel, fashion accessories, footwear, beauty and
fragrance, and home products and decor. In addition, the Artful DodgerTM brand is
owned by Scion LLC (“Scion”), a joint venture in which the Company has a 50%
investment (see Note 3). Furthermore, the Company also arranges through its
wholly-owned subsidiary Bright Star Footwear, Inc. ("Bright Star") for the
manufacture of footwear products for mass market and discount retailers under
the private label brand of the retailer.





The
Company's business strategy, as a licensing and marketing company, is to
maximize the value of its intellectual property by entering into strategic
licenses with partners who have been selected based upon the Company's belief
that they will be able to produce and sell quality products in the categories of
their specific expertise. This licensing strategy is designed to permit the
Company to operate its licensing business with minimal working capital, no
inventory, production or distribution costs or risks, and utilizing only a small
group of core employees. Further, the Company also seeks to monetize its
trademarks internationally through licenses, partnerships, and other
arrangements, such as joint ventures.




1.
Summary of Significant Accounting Policies





Principles
of consolidation





The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries, and, in accordance with Financial Accounting
Standards Board (“FASB”) No. 46, “Consolidation of Variable Interest Entities-
revised” (“FIN 46R”), the Company consolidates a joint venture in which it is
the primary beneficiary. The Company uses the equity method of accounting to
account for those investments and joint ventures which are not required to be
consolidated under FIN 46R.  All significant intercompany transactions
and balances have been eliminated in consolidation.





Business
Combinations





The
purchase method of accounting requires that the total purchase price of an
acquisition be allocated to the assets acquired and liabilities assumed based on
their fair values on the date of the business acquisition. The results of
operations from the acquired businesses are included in the accompanying
consolidated statements of income from the acquisition date. Any excess of the
purchase price over the estimated fair values of the net assets acquired is
recorded as goodwill.




For the
period January 1, 2006 through December 31, 2008, the Company completed nine
acquisitions. Note 2 to the financial statements contains a more comprehensive
discussion of the Company's 2008 acquisition. The acquisitions and the
acquisition dates are as follows:




Acquisitions
                
                Acquisition
      dateMudd
                
                April
      11, 2006London
      Fog Trademark
                
                August
      28, 2006Mossimo
                
                October
      31, 2006Ocean
      Pacific
                
                November
      6, 2006Danskin
                
                March
      10, 2007Rocawear
                
                March
      30, 2007Official-Pillowtex
      brands (Cannon, Royal Velvet, Fieldcrest, and Charisma)
                
                October
      3, 2007Starter
                
                December
      17, 2007Waverly
                
                October
      3, 2008





In
addition, on November 7, 2007, Scion a joint venture in which the Company has a
50% investment, acquired the Artful Dodger brand. See Note 3.





82





Use
of Estimates





The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company reviews all significant
estimates affecting the financial statements on a recurring basis and records
the effect of any adjustments when necessary.





Cash





Cash
consists of short-term, highly liquid financial instruments with insignificant
interest rate risk that are readily convertible to cash and have maturities of
three months or less from the date of purchase.





Marketable
Securities





Marketable
securities, which are accounted for as available-for-sale, are stated at fair
value in accordance with SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities,” (“SFAS No. 115”) and consist of auction rate
securities. Temporary changes in fair market value are recorded as other
comprehensive income or loss, whereas other than temporary markdowns will be
realized through the Company’s income statement.





As of
December 31, 2008, the Company held auction rate securities with a face value of
$13.0 million and a fair value of $7.5 million. Although these auction rate
securities continue to pay interest according to their stated terms and are
backed by insurance, during the years ended December 31, 2008 and 2007 the
Company recorded an unrealized pre-tax loss of $3.4 million and $2.1 million,
respectively, in other comprehensive loss as a reduction to stockholders’ equity
to reflect a temporary decline in the fair value of the marketable securities
reflecting failed auctions due to sell orders exceeding buy orders. The Company
believes the decrease in fair value is temporary due to general macroeconomic
market conditions, and interest is being paid in full as
scheduled.  Further, the Company has the ability to hold the
securities until an anticipated full redemption, and the Company has no reason
to believe that any of the underlying issuers of these auction rate securities
or its third-party insurer are presently at risk of default. These funds will
not be available to the Company until a successful auction occurs or a buyer is
found outside the auction process. As these instruments have failed to auction
and may not auction successfully in the near future, the Company has classified
its marketable securities as non-current.




Concentration
of Credit Risk





Financial
instruments which potentially subject the Company to concentration of credit
risk consist principally of temporary cash investments and accounts receivable.
The Company places its cash and cash equivalents in investment-grade, short-term
debt instruments with high quality financial institutions. The Company performs
ongoing credit evaluations of its customers' financial condition and, generally,
requires no collateral from our customers. The allowance for non-collection of
accounts receivable is based upon the expected collectability of all accounts
receivable.




For the
year ended December 31, 2008 (“2008), two licensees accounted for 11% and 11%,
respectively, of the Company’s revenue, compared to one licensee which accounted
for 14% of the Company's revenue for the year ended December 31, 2007 (“2007”),
compared to two licensees which accounted for 24% and 14% of the Company’s
revenue for the year ended December 31, 2006 (“2006”).




Accounts
Receivable




Accounts
receivable are reported at amounts the Company expects to be collected, net of
allowance for doubtful accounts, based on the Company’s ongoing discussions with
its licensees, and evaluation of each licensee’s payment history and account
aging.  For the years ended December 31, 2008 and 2007, the Company’s
allowance for doubtful accounts was $0.5 million and $3.5 million,
respectively.





For 2008,
one licensee accounted for 10% of the Company’s accounts receivable, compared to
one licensee which accounted for 17% of the Company's accounts receivable for
2007.




Derivatives





The
Company’s primary objective for holding derivative financial instruments is to
manage interest rates risks. The Company does not use financial instruments for
trading or other speculative purposes. The Company uses derivative financial
instruments to hedge the variability of anticipated cash flows of a forecasted
transaction (a “cash flow hedge”). The Company’s strategy related to derivative
financial instruments has been to use interest rate caps to
effectively convert a portion of outstanding variable-rate debt to fixed-rate
debt to take advantage of lower interest rates.





83


The
derivatives used by the Company as part of its risk management strategies are
highly effective hedges because all the critical terms of the derivative
instruments match those of the hedged item. On the date the derivative contract
is entered into, the Company designates the derivative as a cash flow hedge.
Changes in derivative fair values are deferred and recorded as a component of
accumulated other comprehensive income until the associated hedged transactions
impact the income statement, at which time the deferred gains and losses are
reclassified to interest expense. Any ineffective portion of a hedging
derivative’s changes in fair value will be immediately recognized. The fair
values of the derivatives, which are based on quoted market prices, are reported
as other assets.





Restricted
Stock




Compensation
cost for restricted stock is measured using the quoted market price of the
Company’s common stock at the date the common stock is issued. The compensation
cost is recognized over the period between the issue date and the date any
restrictions lapse.





Stock-Based
Compensation





Stock-based
compensation expense, in accordance with SFAS No. 123(R), “Share-Based Payment”,
is calculated using the Black-Scholes valuation model based on awards ultimately
expected to vest, reduced for estimated forfeitures, and expensed on a
straight-line basis over the requisite service period of the
grant.  Forfeitures are estimated at the time of grant based on the
Company’s historical forfeiture experience and will be revised in subsequent
periods if actual forfeitures differ from those estimates.  The
Company will use alternative models if grants have characteristics that cannot
be reasonably estimated using this model.





Treasury
Stock





Treasury
stock is recorded at acquisition cost. Gains and losses on disposition are
recorded as increases or decreases to additional paid-in capital with losses in
excess of previously recorded gains charged directly to retained
earnings.




Deferred
Financing Costs





The
Company incurred costs (primarily professional fees and placement agent fees) in
connection with borrowings under a term loan facility, convertible bond
offering, and other bond financings. These costs have been deferred and are
being amortized using the interest method over the life of the related
debt.




Property,
Equipment and Depreciation





Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are determined by the straight line method over
the estimated useful lives of the respective assets ranging from three to seven
years. Leasehold improvements are amortized by the straight-line method over the
initial term of the related lease or estimated useful life, whichever is
less.





Impairment
of Long-Lived Assets





If
circumstances mandate, the Company evaluates the recoverability of its
long-lived assets, other than goodwill and other indefinite life intangibles
(discussed below), by comparing estimated future undiscounted cash flows with
the assets' carrying value to determine whether a write-down to market value,
based on discounted cash flow, is necessary.




Goodwill and Other
Intangibles





Goodwill
represents the excess of purchase price over the fair value of net assets
acquired in business combinations accounted for under the purchase method of
accounting. The Company tests at least annually our goodwill and indefinite life
trademarks for impairment through the use of discounted cash flow models. Other
intangibles with determinable lives, including license agreements and
non-compete agreements, are amortized on a straight-line basis over the
estimated useful lives of the assets (currently ranging from 1.5 to 10
years).





The
changes in the carrying amount of goodwill for the years ended December 31, 2008
and 2007 are as follows:





2008
                  
                  
                  2007Beginning
      balance
                  
                  $
                  128,898
                  
                  
                  $
                  93,593Acquisitions
                  
                  
                  914
                  
                  
                  
                  30,875Net
      adjustments to purchase price of prior period acquisitions
                  
                  
                  14,913
                  
                  
                  
                  4,520Ending
      balance
                  
                  $
                  144,725
                  
                  
                  $
                  128,988





84




In
allocating the purchase price of the Company’s 2008 acquisition of the Waverly
brand (see Note 2), $0.9 million was allocated to goodwill.  During
2008, in accordance with the terms of the acquisition of Rocawear, the former
owners of Rocawear earned $6.8 million in contingent consideration as a result
of the brand achieving specific performance
thresholds.  Also during 2008, in accordance with the terms of the
acquisition of the Official-Pillowtex brands, the former owners of the
Official-Pillowtex brands earned $6.7 million in contingent consideration as a
result of the brands achieving specific performance
thresholds.





During
2007, $0.9 million, $2.1 million, $23.0 million, and $1.8 million were allocated
to goodwill for the acquisitions of Danskin, Rocawear, the Official-Pillowtex
brands, and Starter, respectively.  Further, in accordance with the
terms of the acquisition of Rocawear, the former owners of Rocawear earned $3.0
million in contingent consideration as a result of meeting specific performance
thresholds.




The
Company operates as a single integrated business, and as such has one operating
segment which is also used as the reporting unit for purposes of evaluating
goodwill impairment. The fair value of the reporting unit is determined using
discounted cash flow analysis and estimates of sales proceeds. The annual
evaluation of goodwill is performed on October 1, the beginning of the Company's
fourth fiscal quarter.





Revenue
Recognition





The
Company has entered into various trade name license agreements that provide
revenues based on minimum royalties and additional revenues based on a
percentage of defined sales. Minimum royalty revenue is recognized on a
straight-line basis over each period, as defined, in each license agreement.
Royalties exceeding the defined minimum amounts are recognized as income during
the period corresponding to the licensee's sales. Revenue is not recognized
unless collectibility is reasonably assured.





Bright
Star acts as an agent and therefore only net commission revenue is recognized.
Revenue is recognized upon shipment with related risk and title passing to the
customers.





Taxes
on Income





The
Company uses the asset and liability approach of accounting for income taxes and
provides deferred income taxes for temporary differences that will result in
taxable or deductible amounts in future years based on the reporting of certain
costs in different periods for financial statement and income tax purposes.
Valuation allowances are recorded when uncertainty regarding their realizability
exists.





The
Company adopted FIN 48 beginning January 1, 2007. The implementation of FIN 48
did not have a significant impact on the Company’s financial position or results
of operations. At December 31, 2008, the total unrecognized tax benefit was
approximately $1.2 million. However, the liability is not recognized for
accounting purposes because the related deferred tax asset has been fully
reserved in prior years. The Company is continuing its practice of recognizing
interest and penalties related to income tax matters in income tax expense.
There was no accrual for interest and penalties related to uncertain tax
positions for the year ended December 31, 2008. The Company files federal and
state tax returns and is generally no longer subject to tax examinations for
fiscal years prior to 2003.





(000’s
      omitted)
                    
                    2008
                    
                    
                    2007Uncertain
      tax positions at January 1
                    
                    $
                    1,100
                    
                    
                    $
                    780Increases
      during the year
                    
                    
                    80
                    
                    
                    
                    320Decreases
      during the year
                    
                    
                    -
                    
                    
                    
                    -Uncertain
      tax positions at December 31
                    
                    
                    1,180
                    
                    
                    
                    1,100





Fair
Value of Financial Instruments





The
carrying amounts reported in the consolidated balance sheets for cash and cash
equivalents, accounts receivable and accounts payable approximate fair value
because of the immediate or short-term maturity of these financial instruments.
The carrying amount reported for long-term debt approximates fair value because,
in general, the interest on the underlying instruments fluctuates with market
rates. In instances where long-term debt carries fixed interest rates, the
obligation is recorded at the present value of the future payments, which
approximates fair value.





See Note
4 for more information on the fair values of the Company’s marketable securities
and cash flow hedge.





Earnings
Per Share





Basic
earnings per share includes no dilution and is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in periods in
which they have a dilutive effect, the effect of common shares issuable upon
exercise of stock options, warrants and restricted stock. The difference between
reported basic and diluted weighted-average common shares results from the
assumption that all dilutive stock options, warrants, convertible debt and
restricted stock outstanding were exercised into common stock.




85





Advertising
Campaign Costs





All costs
associated with production for the Company’s national advertising campaigns are
expensed during the periods when the activities take place. All other
advertising costs such as print and online media are expensed when the
advertisement occurs. Advertising expenses for 2008, 2007, and 2006 amounted to
$21.9 million $14.5 million, and $7.9 million, respectively.





New
Accounting Standards




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”), which requires an acquirer to do the following:
expense acquisition related costs as incurred; to record contingent
consideration at fair value at the acquisition date with subsequent changes in
fair value to be recognized in the income statement; and any adjustments to the
purchase price allocation are to be recognized as a period cost in the income
statement. SFAS 141R applies prospectively to business combinations for which
the acquisition date is on or after beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier application is
prohibited. At the date of adoption, SFAS 141R is expected to have a material
impact on the Company’s results of operations and its financial position for
future acquisitions due to the Company’s acquisition strategy.





In
December, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51.” This statement
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. This statement is
effective prospectively, except for certain retrospective disclosure
requirements, for fiscal years beginning after December 15,
2008.  This statement will have no impact on the Company’s financial
statements as there are currently no minority interests.





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities - an amendment of FASB Statement No. 133," which changes
the disclosure requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008.





In May
2008, the FASB issued FASB Staff Position (“FSP”) No. APB 14-1, or
FSP 14-1, “Accounting for Convertible Debt Instruments that may be Settled
in Cash upon Conversion.” FSP 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. FSP 14-1 will significantly affect the
accounting for instruments commonly referred to as Instruments B and C in EITF
No. 90-19, “Convertible Bonds with Issuer Option to Settle for Cash upon
Conversion,” which is nullified by FSP 14-1, and any other convertible debt
instruments that require or permit settlement in any combination of cash and
shares at the issuer’s option, such as those sometimes referred to as
“Instrument X.” FSP 14-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, with early adoption
prohibited. The Company is required to adopt the pronouncement in its first
quarter of fiscal 2009. FSP 14-1 is required to be applied retrospectively
to all periods presented.   See Note 6 for an evaluation of the
impact this will have on the Company’s consolidated income
statements.





In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008.  Management is evaluating the impact adopting
this Staff Position will have on the Company’s results of operations and
financial position.





Presentation
of Prior Year Data





Certain
reclassifications have been made to conform prior year data to the current
presentation.





2.  Acquisition
of Waverly and Unaudited Pro-formas




On
October 3, 2008, the Company completed its acquisition of the Waverly trademarks
from Nexcen Brands, Inc.  Founded in 1923, Waverly is a premier home
fashion and lifestyle brand. The brand is sold through better department and
specialty stores. In connection with the acquisition, the Company acquired
Nexcen Brands, Inc.'s direct-to-retail licenses for Waverly Home with Target
Corporation and Waverly Home Classics with Lowe’s Companies.




86





The
purchase price paid to the sellers for the acquisition was $26.0 million in
cash.




(000's
      omitted except share and warrant information)Cash
      paid at closing to sellers
                  
                  
                  
                  
                  $
                  26,000Fair
      value of 12,500 shares of $.001 par value common stock, at $13.87 fair
      market value per share issued as a cost of the
      acquisition
                  
                  $
                  173Fair
      value of 20,000 warrants ($13.87 exercise price) issued as a cost of the
      acquisition
                  
                  
                  133Total
      equity consideration
                  
                  
                  
                  
                  
                  
                  306Other
      costs of the acquisition
                  
                  
                  
                  
                  
                  
                  2,708Total
                  
                  
                  
                  
                  
                  $
                  29,014





The
purchase price was initially allocated to the estimated fair value of the assets
acquired as follows:





(000's
omitted)


Trademarks
                  
                  $
                  27,000License
      agreements
                  
                  
                  1,100Goodwill
                  
                  
                  914Total
      allocated purchase price
                  
                  $
                  29,014





The
Waverly trademark has been determined by management to have an indefinite useful
life and accordingly, consistent with SFAS 142, no amortization is being
recorded in the Company's consolidated income statements. The licensing
contracts are being amortized on a straight-line basis over the remaining
contractual periods of approximately 1 to 9 years. The goodwill and trademarks
are subject to a test for impairment on an annual basis. Any adjustments
resulting from the finalization of the purchase price allocations will affect
the amount assigned to goodwill. The $0.9 million of goodwill is deductible for
income tax purposes.




The following unaudited pro-forma
information presents a summary of the Company's consolidated results of
operations as if the Mudd, Mossimo, Ocean Pacific, Danskin, Rocawear, Pillowtex,
and Starter acquisitions and their related financings had occurred on January 1,
2006. They do not give effect to the Company’sNovember 2006 acquisition of the Ocean
Pacific brand,August 2006 purchase of the London
Fogtrademarks,or the October 2008 acquisition of the
Waverly brand,as such pro
forma disclosure is not required with respect to such transactions under the
rules and regulations of theSecurities and Exchange
Commission.These pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of the results of operations which actually would have resulted had the
acquisitions occurred on January 1, 2006, or which may result in the
future.
 
 Year ended
                      
                      
                      Year endedDecember
31,
                      
                      
                      December
31,(000’s omitted, except per share
      information)
                      
                      2007
                      
                      
                      2006Licensing and other
      revenue
                      
                      $
                      207,295
                      
                      
                      $
                      190,124Operating
      income
                      
                      $
                      156,804
                      
                      
                      $
                      123,416Net Income
                      
                      $
                      77,379
                      
                      
                      $
                      50,399Basic earnings per common
      share
                      
                      $
                      1.36
                      
                      
                      $
                      1.15Diluted earnings per common
      share
                      
                      $
                      1.26
                      
                      
                      $
                      1.02


3.  Investments
in Joint Ventures





Scion
LLC





Scion LLC
(“Scion”) is a brand management and licensing company formed by the Company with
Shawn “Jay-Z” Carter in March 2007 to buy, create and develop brands across a
spectrum of consumer product categories. On November 7, 2007, Scion completed
its first brand acquisition when its wholly-owned subsidiary purchased Artful
Dodger, an exclusive, high end urban apparel brand for a purchase price of $15.0
million. Concurrent with the acquisition of Artful Dodger, Scion, through its
wholly-owned subsidiary Artful Dodger Holdings LLC, entered into a license
agreement covering all major apparel categories for the United
States.





The brand
has also been licensed to wholesale partners in Canada and Europe.





At
inception, the Company determined that it would consolidate Scion since the
Company effectively holds a 100% equity interest and is the primary beneficiary
in the variable interest entity as defined by FIN 46R. The impact of
consolidating the joint venture into the Company’s consolidated statement of
income decreased net income by $0.1 million and increased net income by $0.1
million for 2008 and 2007, respectively.





At
December 31, 2008, the impact of consolidating the joint venture on the
Company’s consolidated balance sheet has increased current assets by $3.5
million, non-current assets by $15.3 million and current liabilities by $2.3
million.





On
November 7, 2007 (the “AH Closing Date”), Artful Holdings LLC (“AH”), a wholly
owned subsidiary of Scion, completed its acquisition of the intellectual
property assets of Sovereign State LLC (“Sovereign”) associated with the Artful
Dodger brand from Fashion Bureau Overseas NY, Inc. and Pan Mellowtex LLC, the
principals of Sovereign. The purchase price of this acquisition was
approximately $15.0 million, of which $13.5 million was paid in cash on the AH
Closing Date, with $1.5 million deferred and payable upon the occurrence of
certain events. The Artful Dodger trademark is estimated to have a useful life
of 15 years. To finance this acquisition, the Company made available to AH an
interest bearing senior secured term loan facility in the aggregate principal
amount of $12 million pursuant to that certain Note and Security Agreement (as
amended, restated or otherwise modified from time to time, referred to as the
“AH Note”) executed by AH in favor of the Company on the AH Closing Date. The
facility consists of two tranches, one in the principal amount of $10.5 million
which was advanced to AH by the Company on the AH Closing Date, and the other in
the principal amount of $1.5 million. The second tranche is available for
borrowing by AH provided that no Event of Default (as defined in the AH Note)
has occurred and is continuing at the time of such request. The obligations are
guaranteed by Scion, the sole manager/member of AH, and are also guaranteed, in
part, by a manager of Scion LLC. The issuance of the loan facility was a
reconsideration event under FIN 46R; the Company once again determined that it
was the primary beneficiary and continued to consolidate the joint venture. As
of December 31, 2008, the Company’s equity at risk was approximately $16
million. The carrying value of the consolidated assets that are collateral for
the variable interest entity’s obligations total $14.7 million comprised of a
trademark. The assets of the Company are not available to the variable
interest entity's creditors.





87




Iconix
China





On
September 5, 2008, the Company and Novel Fashions Holdings Limited (“Novel”)
formed a 50/50 joint venture (“Iconix China”) to develop, exploit and market the
Company's brands in the People’s Republic of China, Hong Kong, Macau and Taiwan
(the “China Territory”). Pursuant to the terms of this transaction, the Company
contributed to Iconix China substantially all rights to its brands in the China
Territory and committed to contribute $5.0 million, and Novel committed to
contribute $20 million.  Upon closing of the transaction, the Company
contributed $2.0 million and Novel contributed $8.0 million.  The
balance of the parties’ respective contributions are due in 2009 and
2010.





At
inception, the Company determined, in accordance with FIN 46R, based on the
corporate structure, voting rights and contributions of the Company and Novel,
Iconix China is a variable interest entity and not subject to consolidation, as
the Company is not the primary beneficiary of Iconix China.  The
Company has recorded its investment under the equity method of
accounting.





Upon
formation of Iconix China, the Company recorded a non-cash gain of $2.6 million
related to its contribution of its trademarks for the China Territory to this
joint venture, which is included in licensing and other revenue.  The
Company’s maximum exposure for this joint venture is $7.7 million.  At
December 31, 2008, Iconix China’s balance sheet included approximately $8.3
million in current assets, $25.1 million in total assets, $1.2 million in
current liabilities, and $1.2 million in total liabilities.  The
consolidated statement of operations has approximately $0.1 million in revenue
and $1.0 million in operating expenses.





During
the year ended December 31, 2008, the Company recorded a loss of $0.5 million on
its equity investment in the Iconix China joint venture.





Iconix Latin
America





In
December 2008, the Company contributed substantially all  rights to
its brands in Mexico, Central America, South America, and the Caribbean (the
“Latin America Territory”) to Iconix Latin America LLC (“Iconix Latin America”),
a newly formed wholly-owned subsidiary.  On December 29, 2008, New
Brands America LLC (“New Brands”), an affiliate of the Falic Group, purchased a
50% interest in Iconix Latin America, which will assist the Company in
developing, exploiting, marketing and licensing the Company's brands in the
Latin America Territory. Pursuant to the terms of this transaction, the Company
has contributed substantially all rights to its brands in the Latin America
Territory.  In consideration for its 50% interest in Iconix Latin
America, New Brands agreed to pay $6 million to the Company.  New
Brands paid $1.0 million upon closing of this transaction and has committed to
pay an additional $5.0 million over the 30 month period following
closing.  As of December 31, 2008, of this $4.7 million receivable,
the current portion of $2.0 million (of which $0.5 million was paid in February
2009) is included in the consolidated balance sheet in accounts receivable and
the long term portion of $2.7 million is included in Other assets –
non-current.





Based on
the corporate structure, voting rights and contributions of the Company and New
Brands, Iconix Latin America is not considered a variable interest entity under
FIN 46R, and, as such, is not subject to consolidation, as the Company is not
the primary beneficiary of Iconix Latin America.  The Company has
recorded its investment under the equity method of accounting.





The
Company recorded a gain of $5.7 million related to New Brands purchase of 50% of
Iconix Latin America, which is included in licensing and other
revenue.





4.  Fair
Value Measurements





Statement
of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurements”
(“SFAS No. 157”), which the Company adopted on January 1, 2008, establishes a
framework for measuring fair value and requires expanded disclosures about fair
value measurement. While SFAS No.157 does not require any new fair value
measurements in its application to other accounting pronouncements, it does
emphasize that a fair value measurement should be determined based on the
assumptions that market participants would use in pricing the asset or
liability. As a basis for considering market participant assumptions in fair
value measurements, SFAS No. 157 established the following fair value hierarchy
that distinguishes between (1) market participant assumptions developed based on
market data obtained from sources independent of the reporting entity
(observable inputs) and (2) the reporting entity's own assumptions about market
participant assumptions developed based on the best information available in the
circumstances (unobservable inputs):





Level 1:
Observable inputs such as quoted prices for identical assets or liabilities in
active markets





Level 2:
Other inputs that are observable directly or indirectly, such as quoted prices
for similar assets or liabilities or market-corroborated inputs





88


Level 3:
Unobservable inputs for which there is little or no market data and which
requires the owner of the assets or liabilities to develop its own assumptions
about how market participants would price these assets or
liabilities





The
valuation techniques that may be used to measure fair value are as
follows:





(A) Market approach -
Uses prices and other relevant information generated by market transactions
involving identical or comparable assets or liabilities





(B) Income approach -
Uses valuation techniques to convert future amounts to a single present amount
based on current market expectations about those future amounts, including
present value techniques, option-pricing models and excess earnings
method





(C) Cost approach -
Based on the amount that would currently be required to replace the service
capacity of an asset (replacement cost)





To
determine the fair value of certain financial instruments, the Company relies on
Level 2 inputs generated by market transactions of similar instruments where
available, and Level 3 inputs using an income approach when Level 1 and Level 2
inputs are not available. The Company’s assessment of the significance of a
particular input to the fair value measurement requires judgment and may affect
the valuation of financial assets and financial liabilities and their placement
within the fair value hierarchy. The following table summarizes the instruments
measured at fair value at December 31, 2008:





Carrying
      Amount as ofDecember
      31, 2008
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          Valuation(000's omitted)
                          
                          Level 1
                          
                          
                          Level 2
                          
                          
                          Level 3
                          
                          TechniqueMarketable
      Securities
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          7,522
                          
                          (B)Cash
      Flow Hedge
                          
                          
                          -
                          
                          
                          
                          1
                          
                          
                          
                          -
                          
                          (A)





In
accordance with the provisions of FSP No. FAS 157-2, Effective Date of FASB
Statement No. 157, the Company has elected to defer implementation of SFAS No.
157 as it relates to its non-financial assets and non-financial liabilities
until January 1, 2009 and is evaluating the impact, if any, this standard will
have on its financial statements.





Under
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS 159”), entities are permitted to choose to measure many
financial instruments and certain other items at fair value.  The
Company did not elect the fair value measurement option under SFAS No. 159 for
any of its financial assets or liabilities.





Marketable
Securities





Marketable
securities, which are accounted for as available-for-sale, are stated at fair
value in accordance with SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities,” (“SFAS No. 115”) and consist of auction rate
securities. Temporary changes in fair market value are recorded as other
comprehensive income or loss, whereas other than temporary markdowns will be
realized through the Company’s income statement.





As of
December 31, 2008 and 2007, the Company held auction rate securities with a face
value of $13.0 million and a fair value of $7.5 million and $10.9 million,
respectively.  The Company estimated the fair value of its auction
rate securities using a discounted cash flow model where the Company used the
expected rate of interest to be received.  Although these auction rate
securities continue to pay interest according to their stated terms and are
backed by insurance, during the year ended December 31, 2008 and 2007 the
Company recorded an unrealized pre-tax loss of $3.4 million and $2.1 million,
respectively, in other comprehensive loss as a reduction to stockholders’ equity
to reflect a temporary decline in the fair value of the marketable securities
reflecting failed auctions due to sell orders exceeding buy orders. The Company
believes the decrease in fair value is temporary due to general macroeconomic
market conditions, and interest is being paid in full as
scheduled.  Further, the Company has the ability to hold the
securities until an anticipated full redemption, and the Company has no reason
to believe that any of the underlying issuers of these auction rate securities
or its third-party insurer are presently at risk of default. These funds will
not be available to the Company until a successful auction occurs or a buyer is
found outside the auction process. As these instruments have failed to auction
and may not auction successfully in the near future, the Company has classified
its marketable securities as non-current. The following table summarizes the
activity for the period:




89







Description (000's omitted)
                                
                                Auction
                                  Rate
                                  SecuritiesBalance
      at January 1, 2008
                                
                                $
                                10,920Additions
                                
                                
                                -Gains
      (losses) reported in earnings
                                
                                
                                -Gains
      (losses) reported in other comprehensive income (loss)
                                
                                
                                (3,398
                                )Balance
      at December 31, 2008
                                
                                $
                                7,522




Cash
Flow Hedge





On July
26, 2007, the Company purchased a hedge instrument from Lehman Brothers Special
Financing Inc. (“LBSF”) to mitigate the cash flow risk of rising interest rates
on the Term Loan Facility (see Note 6 for a description of this credit
agreement). This hedge instrument caps the Company’s exposure to rising interest
rates at 6.00% for LIBOR for 50% of the forecasted outstanding balance of the
Term Loan Facility (“Interest Rate Cap”). Based on management’s assessment, the
Interest Rate Cap qualifies for hedge accounting under SFAS 133 “Accounting for
Derivative Instruments and Hedging Transactions”. On a quarterly basis, the
value of the hedge is adjusted to reflect its current fair value, with any
adjustment flowing through other comprehensive income. The fair value of this
instrument is obtained by comparing the characteristics of this cash flow hedge
with similarly traded instruments, and is therefore classified as Level 2 in the
fair value hierarchy. At December 31, 2008, the fair value of the Interest Rate
Cap was $1,000, resulting in an other comprehensive loss of $54,000 for 2008,
which is reflected in the Consolidated Balance Sheet and Statement of
Stockholders’ Equity, respectively. On October 3, 2008, LBSF filed a petition
for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
The Company currently believes that the LBSF bankruptcy filing and its potential
impact on LBSF will not have a material adverse effect on the Company’s
financial position, results of operations or cash flows.





5.  Trademarks
and Other Intangibles, net




Trademarks
and other intangibles, net consist of the following:




December
      31, 2008
                      
                      December
      31, 2007Estimated
                      
                      Gross
                      
                      
                      
                      GrossLives in
                      
                      Carrying
                      
                      Accumulated
                      
                      Carrying
                      
                      Accumulated(000's omitted)
                      Years
                      
                      Amount
                      
                      Amortization
                      
                      Amount
                      
                      AmortizationIndefinite
      life trademarks
                      
                      indefinite
                      
                      
                      $
                      1,035,791
                      
                      
                      $
                      9,498
                      
                      
                      $
                      1,007,625
                      
                      
                      $
                      9,498Definite
      life trademarks
                      
                      
                      10-15
                      
                      
                      
                      19,152
                      
                      
                      
                      2,252
                      
                      
                      
                      18,897
                      
                      
                      
                      856Non-compete
      agreements
                      
                      
                      2-15
                      
                      
                      
                      10,075
                      
                      
                      
                      6,098
                      
                      
                      
                      10,075
                      
                      
                      
                      4,585Licensing
      agreements
                      
                      
                      1-9
                      
                      
                      
                      22,193
                      
                      
                      
                      9,136
                      
                      
                      
                      21,093
                      
                      
                      
                      4,897Domain
      names
                      
                      
                      5
                      
                      
                      
                      570
                      
                      
                      
                      337
                      
                      
                      
                      570
                      
                      
                      
                      223$
                      1,087,781
                      
                      
                      $
                      27,321
                      
                      
                      $
                      1,058,260
                      
                      
                      $
                      20,059




Amortization
expense for intangible assets was $7.3 million, $5.6 million, and $2.2 million
for fiscal 2008, fiscal 2007, and fiscal 2006, respectively. The trademarks of
Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean Pacific, Danskin, Rocawear,
Cannon, Royal Velvet, Fieldcrest, Charisma, Starter and Waverly have been
determined to have an indefinite useful life and accordingly, consistent with
SFAS 142, no amortization will be recorded in the Company's consolidated income
statements. Instead, each of these intangible assets will be tested for
impairment at least annually on an individual basis as separate single units of
accounting, with any related impairment charge recorded to the statement of
operations at the time of determining such impairment.  Similarly,
consistent with SFAS 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets”, there was no impairment of the definite-lived
trademarks.  Amortization expense for intangible assets subject to
amortization for each of the years in the five-year period ending December 31,
2013 are estimated to be $7.0 million, $6.7 million, $5.0 million, $2.9 million,
and $2.8 million, respectively.


90


6.  Debt
Arrangements




The
Company's debt is comprised of the following:





December 31,
                                
                                
                                December 31,(000’s omitted)
                                
                                2008
                                
                                
                                2007Convertible Senior
      Subordinated Notes
                                
                                $
                                283,437
                                
                                
                                $
                                281,714Term
      Loan Facility
                                
                                
                                255,307
                                
                                
                                
                                270,751Asset-Backed
      Notes
                                
                                
                                117,097
                                
                                
                                
                                137,505Sweet
      Note (Note 7)
                                
                                
                                12,186
                                
                                
                                
                                12,186Total
      Debt
                                
                                $
                                668,027
                                
                                
                                $
                                702,156




Convertible
Senior Subordinated Notes





On June
20, 2007, the Company completed the issuance of $287.5 million principal amount
of the Company's 1.875% convertible senior subordinated notes due 2012 (the
“Convertible Notes”) in a private offering to certain institutional investors.
The net proceeds received by the Company from the offering were approximately
$281.1 million.




The
Convertible Notes bear interest at an annual rate of 1.875%, payable
semi-annually in arrears on June 30 and December 31 of each year, beginning
December 31, 2007. The Convertible Notes will be convertible into cash and, if
applicable, shares of the Company's common stock based on a conversion rate of
36.2845 shares of the Company's common stock, subject to customary adjustments,
per $1,000 principal amount of the Convertible Notes (which is equal to an
initial conversion price of approximately $27.56 per share) only under the
following circumstances: (1) during any fiscal quarter beginning after September
30, 2007 (and only during such fiscal quarter), if the closing price of the
Company's common stock for at least 20 trading days in the 30 consecutive
trading days ending on the last trading day of the immediately preceding fiscal
quarter is more than 130% of the conversion price per share, which is $1,000
divided by the then applicable conversion rate; (2) during the five business day
period immediately following any five consecutive trading day period in which
the trading price per $1,000 principal amount of the Convertible Notes for each
day of that period was less than 98% of the product of (a) the closing price of
the Company's common stock for each day in that period and (b) the conversion
rate per $1,000 principal amount of the Convertible Notes; (3) if specified
distributions to holders of the Company's common stock are made, as set forth in
the indenture governing the Convertible Notes (“Indenture”); (4) if a “change of
control” or other “fundamental change,” each as defined in the Indenture,
occurs; (5) if the Company chooses to redeem the Convertible Notes upon the
occurrence of a “specified accounting change,” as defined in the Indenture; and
(6) during the last month prior to maturity of the Convertible Notes. If the
holders of the Convertible Notes exercise the conversion provisions under the
circumstances set forth, the Company will need to remit the lower of the
principal balance of the Convertible Notes or their conversion value to the
holders in cash. As such, the Company would be required to classify the entire
amount outstanding of the Convertible Notes as a current liability in the
following quarter. The evaluation of the classification of amounts outstanding
associated with the Convertible Notes will occur every quarter.





Upon
conversion, a holder will receive an amount in cash equal to the lesser of (a)
the principal amount of the Convertible Note or (b) the conversion value,
determined in the manner set forth in the Indenture. If the conversion value
exceeds the principal amount of the Convertible Note on the conversion date, the
Company will also deliver, at its election, cash or the Company's common stock
or a combination of cash and the Company's common stock for the conversion value
in excess of the principal amount. In the event of a change of control or other
fundamental change, the holders of the Convertible Notes may require the Company
to purchase all or a portion of their Convertible Notes at a purchase price
equal to 100% of the principal amount of the Convertible Notes, plus accrued and
unpaid interest, if any. If a specified accounting change occurs, the Company
may, at its option, redeem the Convertible Notes in whole for cash, at a price
equal to 102% of the principal amount of the Convertible Notes, plus accrued and
unpaid interest, if any. Holders of the Convertible Notes who convert their
Convertible Notes in connection with a fundamental change or in connection with
a redemption upon the occurrence of a specified accounting change may be
entitled to a make-whole premium in the form of an increase in the conversion
rate.




Pursuant
to Emerging Issues Task Force (“EITF”) 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” (“EITF 90-19”), EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock” (“EITF 00-19”), and EITF 01-6, “The Meaning
of Indexed to a Company's Own Stock” (“EITF 01-6”), the Convertible Notes are
accounted for as convertible debt in the accompanying Condensed Consolidated
Balance Sheet and the embedded conversion option in the Notes has not been
accounted for as a separate derivative. For a discussion of the effects of the
Convertible Notes and the Convertible Note Hedge and Sold Warrants discussed
below on earnings per share, see Note 8.


91


In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008.  Management is evaluating the impact adopting
this Staff Position will have on the Company’s results of operations and
financial position.





At
December 31, 2008, the balance of the Convertible Notes was $283.4 million. The
Convertible Notes do not provide for any financial covenants.




In
connection with the sale of the Convertible Notes, the Company entered into
hedges for the Convertible Notes (“Convertible Note Hedges”) with respect to its
common stock with two entities, one of which was Lehman Brothers OTC Derivatives
Inc. (“Lehman OTC” and together with the other counterparty, the
“Counterparties”). Pursuant to the agreements governing these Convertible Note
Hedges, the Company purchased call options (the “Purchased Call Options”) from
the Counterparties covering up to approximately 10.4 million shares of the
Company's common stock of which 40% were purchased from Lehman OTC. These
Convertible Note Hedges are designed to offset the Company's exposure to
potential dilution upon conversion of the Convertible Notes in the event that
the market value per share of the Company's common stock at the time of exercise
is greater than the strike price of the Purchased Call Options (which strike
price corresponds to the initial conversion price of the Convertible Notes and
is simultaneously subject to certain customary adjustments). On June 20, 2007,
the Company paid an aggregate amount of approximately $76.3 million of the
proceeds from the sale of the Convertible Notes for the Purchased Call Options,
of which $26.7 million was included in the balance of deferred income tax assets
at June 30, 2007 and is being recognized over the term of the Convertible Notes.
As of December 31, 2008, the balance of deferred income tax assets related to
this transaction was $18.7 million.




The
Company also entered into separate warrant transactions with the Counterparties
whereby the Company, pursuant to the agreements governing these warrant
transactions, sold to the Counterparties warrants (the “Sold Warrants”) to
acquire up to 3.6 million shares of the Company's common stock of which 40% were
sold to Lehman OTC, at a strike price of $42.40 per share of the Company's
common stock. The Sold Warrants will become exercisable on September 28, 2012
and will expire by the end of 2012. The Company received aggregate proceeds of
approximately $37.5 million from the sale of the Sold Warrants on June 20,
2007.





Pursuant
to Emerging Issues Task Force (EITF) Issue No. 00-19 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock,” (EITF 00-19), and EITF Issue No. 01-06, “The Meaning of Indexed to a
Company’s Own Stock” (EITF 01-06), the Convertible Note Hedge and the proceeds
received from the issuance of the Sold Warrants were recorded as a charge and an
increase, respectively, in additional paid-in capital in stockholders’ equity as
separate equity transactions. As a result of these transactions, the Company
recorded a net reduction to additional paid-in-capital of $12.1 million in June
2007.





As the
Convertible Note Hedge transactions and the warrant transactions were separate
transactions entered into by the Company with the Counterparties, they are not
part of the terms of the Convertible Notes and will not affect the holders'
rights under the Convertible Notes. In addition, holders of the Convertible
Notes will not have any rights with respect to the Purchased Call Options or the
Sold Warrants.





If the
market value per share of the Company's common stock at the time of conversion
of the Convertible Notes is above the strike price of the Purchased Call
Options, the Purchased Call Options entitle the Company to receive from the
Counterparties net shares of the Company's common stock, cash or a combination
of shares of the Company's common stock and cash, depending on the consideration
paid on the underlying Convertible Notes, based on the excess of the then
current market price of the Company's common stock over the strike price of the
Purchased Call Options. Additionally, if the market price of the Company's
common stock at the time of exercise of the Sold Warrants exceeds the strike
price of the Sold Warrants, the Company will owe the Counterparties net shares
of the Company's common stock or cash, not offset by the Purchased Call Options,
in an amount based on the excess of the then current market price of the
Company's common stock over the strike price of the Sold Warrants.




These
transactions will generally have the effect of increasing the conversion price
of the Convertible Notes to $42.40 per share of the Company's common stock,
representing a 100% percent premium based on the last reported sale price of the
Company’s common stock of $21.20 per share on June 14, 2007.





In May
2008 the FASB issued FASB Staff Position (“FSP”) APB 14-1 “Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlements)” (previously FSP APB 14-a) (“FSP APB
14-1”), which will change the accounting treatment for convertible securities
that an issuer may settle fully or partially in cash. Under the final FSP,
cash-settled convertible securities will be separated into their debt and equity
components. The value assigned to the debt component will be the estimated fair
value, as of the issuance date, of a similar debt instrument without the
conversion feature. As a result, the debt will be recorded at a discount to
adjust its below-market coupon interest rate to the market coupon interest rate
for the similar debt instrument without the conversion feature. The difference
between the proceeds for the convertible debt and the amount reflected as the
debt component represents the value of the conversion feature and will be
recorded as additional paid-in capital. The debt will subsequently be accreted
to its par value over its expected life, with an offsetting increase in interest
expense on the income statement to reflect the market rate for the debt
component at the date of issuance.


92


Beginning
with the year ended December 31, 2009, and applied retrospectively to all past
periods presented, the Company will be required to adopt the
provisions of FSP APB 14-1 as they relate to the Convertible Notes. As
compared to the current accounting for the Convertible Notes, adoption
of the proposal will reduce long-term debt, increase stockholders’ equity, and
reduce net income and earnings per share. Adoption of the proposal would not
affect the Company's cash flows. The Company estimates that the impact
of this change in accounting policy will be approximately $13.1 million of
non-cash interest expense for the full year 2009 as compared to a $12.2 million
of non-cash interest expense the Company would have incurred for the full year
2008 had APB 14-1 been adopted on January 1, 2008.




On
September 15, 2008 and October 3, 2008, respectively, Lehman Brothers Holdings
Inc. (“Lehman Holdings”) and its subsidiary, Lehman OTC, filed for protection
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court in the Southern District of New York. The Company currently
believes that the bankruptcy filings and their potential impact on these
entities will not have a material adverse effect on the Company’s financial
position, results of operations or cash flows. The Company will continue to
monitor the bankruptcy filings of Lehman Holdings and Lehman OTC. The terms of
the Convertible Notes and the rights of the holders of the Convertible Notes are
not affected in any way by the bankruptcy filings of Lehman Holdings or Lehman
OTC.





Term
Loan Facility





In
connection with the acquisition of the Rocawear brand, in March 2007, the
Company entered into a $212.5 million credit agreement with Lehman Brothers
Inc., as lead arranger and bookrunner, and Lehman Commercial Paper Inc.
(“LCPI”), as syndication agent and administrative agent (the “Credit Agreement”
or “Term Loan Facility”). At the time, the Company pledged to LCPI, for the
benefit of the lenders under the Term Loan Facility (the “Lenders”), 100% of the
capital stock owned by the Company in its subsidiaries, OP Holdings and
Management Corporation, a Delaware corporation (“OPHM”), and Studio Holdings and
Management Corporation, a Delaware corporation (“SHM”). The Company's
obligations under the Credit Agreement are guaranteed by each of OPHM and SHM,
as well as by two of its other subsidiaries, OP Holdings LLC, a Delaware limited
liability company (“OP Holdings”), and Studio IP Holdings LLC, a Delaware
limited liability company ("Studio IP Holdings").




On
October 3, 2007, in connection with the acquisition of Official-Pillowtex LLC, a
Delaware limited liability company (“Official-Pillowtex”), with the proceeds of
the Convertible Notes, the Company pledged to LCPI, for the benefit of the
Lenders, 100% of the capital stock owned by the Company in Mossimo, Inc., a
Delaware corporation (“MI”), and Pillowtex Holdings and Management Corporation,
a Delaware corporation (“PHM”), each of which guaranteed the Company’s
obligations under the Credit Agreement. Simultaneously with the acquisition of
Official-Pillowtex, each of Mossimo Holdings LLC, a Delaware limited
liability company (“Mossimo Holdings”), and Official-Pillowtex guaranteed the
Company’s obligations under the Credit Agreement.  On September 10,
2008, PHM was converted into a Delaware limited liability company, Pillowtex
Holdings and Management LLC (“PHMLLC”) and the Company’s membership interest in
PHMLLC was pledged to LCPI in place of the capital stock of PHM.





On
December 17, 2007, in connection with the acquisition of the Starter brand, the
Company borrowed an additional $63.2 million pursuant to the Term Loan Facility
(the “Additional Borrowing”). The net proceeds received by the Company from the
Additional Borrowing were $60 million.





The
Company may borrow an additional $36.8 million under the terms of the Term Loan
Facility.





The
guarantees under the Term Loan Facility are secured by a pledge to LCPI, for the
benefit of the Lenders, of, among other things, the Ocean Pacific/OP, Danskin,
Rocawear, Mossimo, Cannon, Royal Velvet, Fieldcrest, Charisma, Starter and
Waverly trademarks and related intellectual property assets, license agreements
and proceeds therefrom. Amounts outstanding under the Term Loan Facility bear
interest, at the Company’s option, at the Eurodollar rate or the prime rate,
plus an applicable margin of 2.25% or 1.25%, as the case may be, per annum. The
Credit Agreement provides that the Company is required to repay the outstanding
term loan in equal quarterly installments in annual aggregate amounts equal to
1.00% of the aggregate principal amount of the loans outstanding, subject to
adjustment for prepayments, in addition to an annual payment equal to 50% of the
excess cash flow from the subsidiaries subject to the Term Loan Facility, as
described in the Credit Agreement, with any remaining unpaid principal balance
to be due on April 30, 2013 (the “Loan Maturity Date”). Upon completion of the
Convertible Notes offering, the Loan Maturity Date was accelerated to January 2,
2012. The Term Loan Facility can be prepaid, without penalty, at any time. On
March 11, 2008, the Company paid to LCPI, for the benefit of the Lenders, $15.6
million, representing 50% of the excess cash flow from the subsidiaries subject
to the Term Loan Facility for 2007. As a result of such payment, the Company is
no longer required to pay the quarterly installments described above. The Term
Loan Facility requires the Company to repay the principal amount of the term
loan outstanding in an amount equal to 50% of the excess cash flow of the
subsidiaries subject to the Term Loan Facility for the most recently completed
fiscal year.. As of December 31, 2008, $38.9 million has been classified as
Current portion of long-term debt, which represents 50% of the excess cash flow
for 2008 of the subsidiaries subject to the Term Loan Facility.  This
amount will be paid to LCPI, for the benefit of the Lenders, during the first
quarter of 2009.   This amount is now included in the Current
portion of long-term debt. The interest rate as of December 31, 2008 was 3.71%.
For the year ended December 31, 2008, the effective interest rate of the Term
Loan Facility was 5.90%.  At December 31, 2008, the balance of the
Term Loan Facility was $255.3 million.  As of December 31, 2008, the
Company was in compliance with all material covenants set forth in the Credit
Agreement. The $272.5 million in proceeds from the Term Loan Facility were used
by the Company as follows: $204.0 million was used to pay the cash portion of
the initial consideration for the acquisition of the Rocawear brand; $2.1
million was used to pay the costs associated with the Rocawear acquisition; $60
million was used to pay the consideration for the acquisition of the Starter
brand; and $3.9 million was used to pay costs associated with the Term Loan
Facility. The costs of $3.9 million relating to the Term Loan Facility have been
deferred and are being amortized over the life of the loan, using the effective
interest method. As of December 31, 2008, the subsidiaries subject to the Term
Loan Facility were Studio IP Holdings, SHM, OP Holdings, OPHM, Mossimo Holdings,
MI,  Official-Pillowtex and PHMLLC (collectively, the “Term Loan
Facility Subsidiaries”). As of December 31, 2008, the Term Loan Facility
Subsidiaries, directly or indirectly, owned the following trademarks: Danskin,
Rocawear, Starter, Ocean Pacific/OP, Mossimo, Cannon, Royal Velvet, Fieldcrest,
Charisma and Waverly.


93


On July
26, 2007, the Company purchased a hedge instrument to mitigate the cash flow
risk of rising interest rates on the Term Loan Facility. See Note 4 for
further information.





Asset-Backed
Notes





The
financing for certain of the Company's acquisitions has been accomplished
through private placements by its subsidiary, IP Holdings LLC ("IP
Holdings") of asset-backed notes ("Asset-Backed Notes") secured
by intellectual property assets (trade names, trademarks, license agreements and
payments and proceeds with respect thereto relating to the Candie’s, Bongo, Joe
Boxer, Rampage, Mudd and London Fog brands) of IP Holdings. At December 31,
2008, the balance of the Asset-Backed Notes was $117.1
million.




Cash on
hand in the bank account of IP Holdings is restricted at any point in time up to
the amount of the next debt principal and interest payment required under the
Asset-Backed Notes. Accordingly, $0.9 million and $5.2 million as of December
31, 2008 and December 31, 2007, respectively, have been disclosed as restricted
cash within the Company's Current assets. Further, in connection with IP
Holdings' issuance of Asset-Backed Notes, a reserve account has been established
and the funds on deposit in such account will be applied to the final principal
payment with respect to the Asset-Backed Notes. Accordingly, $15.9 million and
$15.2 million as of December 31, 2008 and December 31, 2007, respectively, have
been disclosed as restricted cash within Other assets on the Company's balance
sheets.





Interest
rates and terms on the outstanding principal amount of the Asset-Backed Notes as
of December 31, 2008 are as follows: $40.6 million principal amount bears
interest at a fixed interest rate of 8.45% with a six year term, $18.0 million
principal amount bears interest at a fixed rate of 8.12% with a six year term,
and $58.5 million principal amount bears interest at a fixed rate of 8.99% with
a six and a half year term. The Asset-Backed Notes have no financial covenants
by which the Company or its subsidiaries need comply. The aggregate principal
amount of the Asset-Backed Notes will be fully paid by February 22,
2013.




Neither
the Company nor any of its subsidiaries (other than IP Holdings) is obligated to
make any payment with respect to the Asset-Backed Notes, and the assets of the
Company and its subsidiaries (other than IP Holdings) are not available to IP
Holdings' creditors. The assets of IP Holdings are not available to the
creditors of the Company or its subsidiaries (other than IP
Holdings).





Sweet
Note





On April
23, 2002, the Company acquired the remaining 50% interest in Unzipped (see Note
9) from Sweet Sportswear, LLC (“Sweet”) for a purchase price comprised of
3,000,000 shares of its common stock and $11.0 million in debt, which was
evidenced by the Company’s issuance of the 8% Senior Subordinated Note due in
2012 (“Sweet Note”). Prior to August 5, 2004, Unzipped was managed by Sweet
pursuant to the Management Agreement (as defined in Note 9), which obligated
Sweet to manage the operations of Unzipped in return for, commencing in fiscal
2003, an annual management fee based upon certain specified percentages of net
income achieved by Unzipped during the three- year term of the agreement. In
addition, Sweet guaranteed that the net income, as defined in the agreement, of
Unzipped would be no less than $1.7 million for each year during the term,
commencing with fiscal 2003. In the event that the guarantee was not met for a
particular year, Sweet was obligated under the Management Agreement to pay the
Company the difference between the actual net income of Unzipped, as defined,
for such year and the guaranteed $1.7 million. That payment, referred to as the
shortfall payment, could be offset against the amounts due under the Sweet Note
at the option of either the Company or Sweet. As a result of such offsets, the
balance of the Sweet Note was reduced by the Company to $3.1 million as of
December 31, 2006 and $3.0 million as of December 31, 2005 and was reflected
in Long- term debt. This note bears interest, which was accrued for during
the year ended December 31 2008, at the rate of 8% per year and matures in April
2012.




In
November 2007, the Company received a signed judgment related to the Sweet
Sportswear/Unzipped litigation. See Note 11.





The
judgment stated that the Sweet Note (originally $11.0 million when issued by the
Company upon the acquisition of Unzipped from Sweet in 2002) should total
approximately $12.2 million as of December 31, 2007. The recorded balance of the
Sweet Note, prior to any adjustments related to the judgment was approximately
$3.2 million. The Company increased the Sweet Note by approximately $6.2 million
and recorded the expense as a special charge. The Company further increased the
Sweet Note by approximately $2.8 million to record the related interest and
included the charge in interest expense. The Sweet Note as of December 31, 2008
is approximately $12.2 million and included in the current portion of long-term
debt.


94


In
addition, in November 2007 the Company was awarded a judgment of approximately
$12.2 million for claims made by it against Hubert Guez and Apparel Distribution
Services, Inc. As a result, the Company recorded a receivable of approximately
$12.2 million and recorded the benefit in special charges during the year ended
December 31, 2007. This receivable is included in Other assets - non-current and
bears interest, which was accrued for during the year ended December 31, 2008,
at the rate of 8% per year.




Debt
Maturities





The
Company’s debt maturities on a calendar year basis are as follows:





(000’s
      omitted)
                          
                          Total
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013Convertible
      Notes
                          
                          $
                          283,437
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          283,437
                          
                          
                          $
                          -Term
      Loan Facility
                          
                          
                          255,307
                          
                          
                          
                          38,946
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          216,361
                          
                          
                          
                          -Asset-Backed
      Notes
                          
                          
                          117,097
                          
                          
                          
                          22,231
                          
                          
                          
                          24,216
                          
                          
                          
                          26,380
                          
                          
                          
                          33,468
                          
                          
                          
                          10,802Sweet
      Note
                          
                          
                          12,186
                          
                          
                          
                          12,186
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Total
      Debt
                          
                          $
                          668,027
                          
                          
                          $
                          73,363
                          
                          
                          
                          24,216
                          
                          
                          
                          26,380
                          
                          
                          
                          533,266
                          
                          
                          
                          10,802






7.
Stockholders’ Equity





Stock
Options





The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.





The fair
value for these options and warrants was estimated at the date of grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions:





Expected
      Volatility
                          
                          
                          30
      - 50
                          %Expected
      Dividend Yield
                          
                          
                          0
                          %Expected
      Life (Term)
                          
                          3 -
      7 yearsRisk-Free
      Interest Rate
                          
                          
                          3.00 - 4.75
                          %





The
Company’s has estimated its forfeiture rate at 0%.  The options
that the Company granted under its plans expire at various times,
either five, seven or ten years from the date of grant, depending on the
particular grant.





Summaries
of the Company's stock options, warrants and performance related options
activity, and related information for the year ended December 31, 2008 are as
follows:





Options
                                                                    
                                                                    Weighted-AverageOptions
                                                                    
                                                                    
                                                                    Exercise PriceOutstanding
      January 1, 2006
                                                                    
                                                                    
                                                                    7,506,625
                                                                    
                                                                    
                                                                    $
                                                                    4.31Granted
                                                                    
                                                                    
                                                                    43,000
                                                                    
                                                                    
                                                                    
                                                                    16.99Canceled/Forfeited
                                                                    
                                                                    
                                                                    (17,750
                                                                    )
                                                                    
                                                                    
                                                                    2.28Exercised
                                                                    
                                                                    
                                                                    (1,762,243
                                                                    )
                                                                    
                                                                    
                                                                    4.55Expired
                                                                    
                                                                    
                                                                    -
                                                                    )
                                                                    
                                                                    
                                                                    -Outstanding
      December 31, 2006
                                                                    
                                                                    
                                                                    5,769,632
                                                                    
                                                                    
                                                                    $
                                                                    4.35Granted
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -Canceled/Forfeited
                                                                    
                                                                    
                                                                    (12,000
                                                                    )
                                                                    
                                                                    
                                                                    16.80Exercised
                                                                    
                                                                    
                                                                    (651,089
                                                                    )
                                                                    
                                                                    
                                                                    5.02Expired
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -Outstanding
      December 31, 2007
                                                                    
                                                                    
                                                                    5,106,543
                                                                    
                                                                    
                                                                    $
                                                                    4.23Granted
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -Canceled/Forfeited
                                                                    
                                                                    
                                                                    (12,000
                                                                    )
                                                                    
                                                                    
                                                                    16.96Exercised
                                                                    
                                                                    
                                                                    (1,199,405
                                                                    )
                                                                    
                                                                    
                                                                    3.92Expired
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -Outstanding
      December 31, 2008
                                                                    
                                                                    
                                                                    3,895,138
                                                                    
                                                                    
                                                                    $
                                                                    4.29Exercisable
      at December 31, 2008
                                                                    
                                                                    
                                                                    3,895,138
                                                                    
                                                                    
                                                                    $
                                                                    4.29


95
  The
weighted average contractual term (in years) of options outstanding as of
December 31, 2008, 2007, and 2006, were 4.66, 5.57, and 6.00 respectively. The
weighted average contractual term (in years) of options exercisable as of
December 31, 2008, 2007, and 2006, were 4.66, 5.54, and 5.97
respectively.
 
 The total
fair value of options vested during the years ended December 31, 2008, 2007 and
2006, was $0 million, $0.1 million, and $0.2 million, respectively.
 
 Cash
received from option exercise under all share-based payment arrangements for the
years ended December 31, 2008, 2007 and 2006 was $2.3 million, $3.2 million, and
$4.0 million respectively. A tax benefit of approximately $8.2 million and $1.2
million for the years ended December 31, 2008 and 2007, respectively, were
share-based payment arrangements.
 
 The
aggregate intrinsic value is calculated as the difference between the market
price of the Company’s common stock as of December 31, 2008 and the exercise
price of the underlying options. At December 31, 2008, 2007, and 2006, the
aggregate intrinsic value of options exercised was $7.0 million, $9.5 million,
and $40.9 million, respectively. At December 31, 2008, 2007, and 2006, the
aggregate intrinsic value of options exercisable was $21.4 million, $77.4
million, and $84.9 million, respectively. In addition, the aggregate intrinsic
value of options outstanding was $21.4 million, $78.8 million, and $86.8
million at December 31, 2008, 2007, and 2006, respectively.
 
 Warrants
  Weighted-AverageWarrants
                                  
                                  
                                  Exercise PriceOutstanding
      January 1, 2006
                                  
                                  
                                  1,275,000
                                  
                                  
                                  $
                                  6.56Granted
                                  
                                  
                                  654,110
                                  
                                  
                                  
                                  11.53Canceled
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Exercised
                                  
                                  
                                  (1,129,935
                                  )
                                  
                                  
                                  6.29Expired
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      December 31, 2006
                                  
                                  
                                  799,175
                                  
                                  
                                  $
                                  11.02Granted
                                  
                                  
                                  436,668
                                  
                                  
                                  
                                  21.38Canceled
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Exercised
                                  
                                  
                                  (968,943
                                  )
                                  
                                  
                                  11.34Expired
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      December 31, 2007
                                  
                                  
                                  266,900
                                  
                                  
                                  $
                                  16.76Granted
                                  
                                  
                                  20,000
                                  
                                  
                                  
                                  6.65Canceled
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Expired
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      December 31, 2008
                                  
                                  
                                  286,900
                                  
                                  
                                  $
                                  16.99Exercisable
      at December 31, 2008
                                  
                                  
                                  286,900
                                  
                                  
                                  $
                                  16.99
 
 All
warrants issued in connection with acquisitions are recorded at fair market
value using the Black Scholes model and are recorded as part of purchase
accounting. Certain warrants are exercised using the cashless
method.
 
 The
Company values other warrants issued to non-employees at the commitment date at
the fair market value of the instruments issued, a measure which is more readily
available than the fair market value of services rendered, using the Black
Scholes model. The fair market value of the instruments issued is expensed over
the vesting period.
  96
  The
weighted average contractual term (in years) of warrants outstanding as of
December 31, 2008, 2007 and 2006 were 6.97, 7.39 and 8.87, respectively. The
weighted average contractual term (in years) of warrants exercisable as of
December 31, 2008, 2007 and 2006 were 6.97, 7.39 and 8.83,
respectively.
 
 The fair
value of warrants vested during the years ended December 31, 2008, 2007 and 2006
were $0.1 million, $5.9 million and $8.3 million, respectively.
 
 Cash
received from warrants exercised under all share-based payment arrangements for
the years ended December 31, 2008, 2007 and 2006 was $0, $0.4 million and
$5.1 million, respectively.
  Performance
Related Options
  Weighted-AveragePerformance
                                  Related Options
                                
                                
                                Exercise PriceOutstanding
      January 1, 2006
                                
                                
                                1,200,000
                                
                                
                                $
                                8.81Granted
                                
                                
                                -
                                
                                
                                
                                -Canceled
                                
                                
                                (1,200,000
                                )
                                
                                
                                8.81Exercised
                                
                                
                                -
                                
                                
                                
                                -Expired
                                
                                
                                -
                                
                                
                                
                                -Outstanding
      December 31, 2006
                                
                                
                                -
                                
                                
                                $
                                -Granted
                                
                                
                                -
                                
                                
                                
                                -Canceled
                                
                                
                                -
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                -Expired
                                
                                
                                -
                                
                                
                                
                                -Outstanding
      December 31, 2007
                                
                                
                                -
                                
                                
                                $
                                -Granted
                                
                                
                                -
                                
                                
                                
                                -Canceled
                                
                                
                                -
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                -Expired
                                
                                
                                -
                                
                                
                                
                                -Outstanding
      December 31, 2008
                                
                                
                                -
                                
                                
                                $
                                -
  There
were no performance related options outstanding for employees as of December 31,
2008, 2007 and 2006. No performance related options were exercisable as of
December 31, 2008, 2007 and 2006.
 
 At
December 31, 2008, 2007, and 2006, the aggregate intrinsic value of performance
related options outstanding was $0, $0 and $0 million, respectively. In
addition, the aggregate intrinsic value of performance related options
exercisable was $0, $0 and $0 as of December 31, 2008, 2007, and 2006,
respectively.
  At
December 31, 2008, December 31, 2007, and December 31, 2006, exercisable stock
options totaled 3,895,138, 5,021,875, and 5,646,964, and had weighted average
exercise prices of $4.29, $4.18, and $4.27 per share, respectively.
 
 At
December 31, 2008, 75,965 common shares were reserved for issuance of stock
options under the 2006 Stock Option Plan.   There were no common
shares available for issuance under the 2002, 2001, and 2000 Stock Option Plans
..
  Restricted
stock
  Compensation
cost for restricted stock is measured as the excess, if any, of the quoted
market price of the Company’s stock at the date the common stock is issued over
the amount the employee must pay to acquire the stock (which is generally zero).
The compensation cost, net of projected forfeitures, is recognized over the
period between the issue date and the date any restrictions lapse, with
compensation cost for grants with a graded vesting schedule recognized on a
straight-line basis over the requisite service period for each separately
vesting portion of the award as if the award was, in substance, multiple awards.
The restrictions do not affect voting and dividend rights.
  97
  The
following tables summarize information about unvested restricted stock
transactions (shares in thousands):
  2008
                          
                          
                          2007
                          
                          
                          2006Shares
                          
                          
                          Weighted
                            Average
                            Grant
                            Date Fair
                            Value
                          
                          
                          Shares
                          
                          
                          Weighted
                            Average
                            Grant
                            Date Fair
                            Value
                          
                          
                          Shares
                          
                          
                          Weighted
                            Average
                            Grant Date
                            Fair
      ValueNon-vested,
      January 1
                          
                          
                          144,127
                          
                          
                          $
                          19.41
                          
                          
                          
                          95,655
                          
                          
                          $
                          17.46
                          
                          
                          
                          -
                          
                          
                          $
                          -Granted
                          
                          
                          1,721,198
                          
                          
                          
                          18.98
                          
                          
                          
                          107,182
                          
                          
                          
                          20.68
                          
                          
                          
                          95,655
                          
                          
                          
                          17.46Vested
                          
                          
                          (272,563
                          )
                          
                          
                          18.90
                          
                          
                          
                          (53,308
                          )
                          
                          
                          18.58
                          
                          
                          
                          -
                          
                          
                          
                          -Forfeited/Canceled
                          
                          
                          (78,779
                          )
                          
                          
                          20.31
                          
                          
                          
                          (5,402
                          )
                          
                          
                          18.51
                          
                          
                          
                          -
                          
                          
                          
                          -Non-vested,
      December 31
                          
                          
                          1,513,983
                          
                          
                          
                          18.96
                          
                          
                          
                          144,127
                          
                          
                          
                          19.41
                          
                          
                          
                          95,655
                          
                          
                          
                          17.46
 
 The
Company has awarded restricted shares of common stock to certain employees. The
awards have restriction periods tied to employment and vest over a period of 2-5
years. The cost of the restricted stock awards, which is the fair market value
on the date of grant net of estimated forfeitures, is expensed ratably over the
vesting period. During fiscal 2008, 2007 and 2006, the Company awarded
1,721,198, 107,182 and 95,655 restricted shares, respectively, with a vesting
period of 2-3 years and a fair market value of approximately $32.7 million, $2.2
million and $1.7 million. For the year ended December 31, 2008, 272,563
restricted stock grants had vested.
 
 Unearned
compensation expense related to restricted stock grants for fiscal 2008, fiscal
2007 and fiscal 2006 was approximately $9.1 million, $1.7 million and $0.3
million, respectively. An additional amount of $23.6 million is expected to be
expensed evenly over a period of approximately 1-4 years.  During the
years ended December 31, 2008, 2007, and 2006, the Company withheld shares
valued at $3.2 million, $0, and $0, respectively, of its restricted common stock
in connection with net share settlement of restricted stock grants and option
exercises.
  Stockholder
Rights Plan
 
 In
January 2000, the Company's Board of Directors adopted a stockholder rights
plan. Under the plan, each stockholder of common stock received a dividend
of one right for each share of the Company's outstanding common stock, entitling
the holder to purchase one thousandth of a share of Series A Junior
Participating Preferred Stock, par value, $0.01 per share of the Company, at an
initial exercise price of $6.00. The rights become exercisable and will trade
separately from the Common Stock ten business days after any person or group
acquires 15% or more of the Common Stock, or ten business days after any person
or group announces a tender offer for 15% or more of the outstanding Common
Stock.
 
 Stock
Repurchase Program
 
 On
November 3, 2008, the Company announced that its Board of Directors authorized
the repurchase of up to $75 million of the Company's common stock over a period
of approximately three years. This authorization replaces any prior plan or
authorization. The current plan does not obligate the Company to repurchase any
specific number of shares and may be suspended at any time at management's
discretion.  During the year ended December 31, 2008, the Company
repurchased 258,200 shares for approximately $1.8 million.  No shares
were repurchased by the Company during the years ended December 31, 2007 and
2006.
 
 8.  Earnings
Per Share
 
 Basic
earnings per share includes no dilution and is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in periods in
which they have a dilutive effect, the effect of restricted stock-based awards
and common shares issuable upon exercise of stock options and warrants. The
difference between basic and diluted weighted-average common shares results from
the assumption that all dilutive stock options outstanding were exercised and
all convertible notes have been converted into common stock.
 
 As of
December 31, 2008, of the total potentially dilutive shares related to
restricted stock-based awards, stock options and warrants, 1.9 million were
anti-dilutive, compared to 0.1 million as of December 31, 2007 and none as of
December 31, 2006.  As of December 31 2008, 0.2 million warrants to
purchase common stock shares were anti-dilutive, all restricted stock-based
awards were anti-dilutive, and 0.1 stock options were
anti-dilutive.
 
 As of
December 31, 2008, of the performance related restricted stock-based
awards issued in connection with the Company’s new employment agreement
with its chairman, chief executive officer and president, 1.2 million of such
awards (which is included in the total 1.9 million anti-dilutive stock-based
awards described above) were anti-dilutive and therefore not included in this
calculation.
  98
  Warrants
issued in connection with the Company’s Convertible Notes financing were
anti-dilutive and therefore not included in this calculation. Portions of the
Convertible Notes that would be subject to conversion to common stock were
anti-dilutive as of December 31, 2008 and therefore not included in this
calculation.
 
 A
reconciliation of shares used in calculating basic and diluted earnings per
share follows:
 
 For the Year Ended(000's omitted)
                                                      
                                                      December 31,2008
                                                      
                                                      
                                                      2007
                                                      
                                                      
                                                      2006Basic
                                                      
                                                      
                                                      57,810
                                                      
                                                      
                                                      
                                                      56,694
                                                      
                                                      
                                                      
                                                      39,937Effect
      of exercise of stock options
                                                      
                                                      
                                                      3,144
                                                      
                                                      
                                                      
                                                      4,323
                                                      
                                                      
                                                      
                                                      5,241Effect
      of exercise of warrants
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      115
                                                      
                                                      
                                                      
                                                      -Effect
      of contingent common stock issuance
                                                      
                                                      
                                                      287
                                                      
                                                      
                                                      
                                                      144
                                                      
                                                      
                                                      
                                                      -Effect
      of assumed vesting of restricted stock
                                                      
                                                      
                                                      7
                                                      
                                                      
                                                      
                                                      150
                                                      
                                                      
                                                      
                                                      9661,248
                                                      
                                                      
                                                      
                                                      61,426
                                                      
                                                      
                                                      
                                                      45,274
 
 9.
Unzipped Apparel, LLC (“Unzipped”)
 
 On
October 7, 1998, the Company formed Unzipped with its then joint venture partner
Sweet Sportswear, LLC (“Sweet”), the purpose of which was to market and
distribute apparel under the Bongo label. The Company and Sweet each had a 50%
interest in Unzipped. Pursuant to the terms of the joint venture, the Company
licensed the Bongo trademark to Unzipped for use in the design, manufacture and
sale of certain designated apparel products.
  On April
23, 2002, the Company acquired the remaining 50% interest in Unzipped from Sweet
for a purchase price of three million shares of the Company's common stock and
$11 million in debt evidenced by the Sweet Note. See Note 6. In connection with
the acquisition of Unzipped, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") for the three million shares of the
Company's common stock issued to Sweet, which was declared effective by the SEC
on July 29, 2003.
 
 Prior to
August 5, 2004, Unzipped was managed by Sweet pursuant to a management agreement
(the “Management Agreement”). Unzipped also had a supply agreement with Azteca
Productions International, Inc. ("Azteca") and a distribution agreement with
Apparel Distribution Services, LLC ("ADS"). All of these entities are owned or
controlled by Hubert Guez.
 
 On August
5, 2004, Unzipped terminated the Management Agreement with Sweet, the supply
agreement with Azteca and the distribution agreement with ADS and commenced a
lawsuit against Sweet, Azteca, ADS and Hubert Guez. See Note 11.
 
 There
were no transactions with these related parties during the years ended December
31, 2008 and 2007.
 
 In
November 2007, a judgment was entered in the Unzipped litigation, pursuant to
which the $3.1 million in accounts payable to ADS/Azteca (previously shown as
“accounts payable - subject to litigation”) was eliminated and recorded in the
income statement as a benefit to the “expenses related to specific
litigation”.
 
 As a
result of the judgment, in Fiscal 2007 the balance of the $11.0 million
principal amount Sweet Note, originally issued by the Company upon the
acquisition of Unzipped from Sweet in 2002, including interest, was increased
from approximately $3.2 million to approximately $12.2 million as of December
31, 2007. Of this increase, approximately $6.2 million was attributed to the
principal of the Sweet Note and the expense was recorded as an expense related
to specific litigation. The remaining $2.8 million of the increase was
attributed to related interest on the Sweet Note and recorded as interest
expense. As of December 31, 2008, the full $12.2 million current balance of the
Sweet Note and $0.7 million of accrued interest are included in the current
portion of long term debt and accounts payable and accrued expenses,
respectively.
 
 In
addition, in November 2007 the Company was awarded a judgment of approximately
$12.2 million for claims made by it against Hubert Guez and ADS. As a result,
the Company recorded a receivable of approximately $12.2 million and recorded
the benefit in special charges for Fiscal 2007. As of December 31, 2008, this
receivable and the associated accrued interest of $1.0 million for the year
ended December 31, 2008 are included in other assets - non-current.
 
 10.  Expenses
Related to Specific Litigation
 
 Expenses
related to specific litigation consist of legal expenses and costs related to
the Unzipped litigation. For the year ended December 31, 2008, Company recorded
expenses related to specific litigation of $0.9 million; for the year ended
December 31, 2007, the Company recorded a net benefit related to specific
litigation of $6.0 million; and, for the year ended December 31, 2006, the
Company recorded expenses related to specific litigation of $2.5 million. See
Note 9 for information relating to Unzipped.
  99
  11.  Commitments
and Contingencies
  Sweet
Sportswear/Unzipped litigation
 
 On
August 5, 2004, the Company, along with its subsidiaries, Unzipped, Michael
Caruso & Co., referred to as Caruso, and IP Holdings, collectively referred
to as the plaintiffs, commenced a lawsuit in the Superior Court of California,
Los Angeles County, against Unzipped's former manager, former supplier and
former distributor, Sweet, Azteca and ADS, respectively, and a principal of
these entities and former member of the Company's board of directors, Hubert
Guez, collectively referred to as the Guez defendants. The Company pursued
numerous causes of action against the Guez defendants, including breach of
contract, breach of fiduciary duty, trademark infringement and others and sought
damages in excess of $20 million. On March 10, 2005, Sweet, Azteca and ADS,
collectively referred to as cross-complainants, filed a cross-complaint against
the Company claiming damages resulting from a variety of alleged contractual
breaches, among other things.
 
 In
January 2007, a jury trial was commenced, and on April 10, 2007, the jury
returned a verdict of approximately $45 million in favor of the Company and its
subsidiaries, finding in favor of the Company and its subsidiaries on every
claim that they pursued, and against the Guez defendants on every counterclaim
asserted. Additionally, the jury found that all of the Guez defendants acted
with malice, fraud or oppression with regard to each of the tort claims asserted
by the Company and its subsidiaries, and on April 16, 2007, awarded plaintiffs
$5 million in punitive damages against Mr. Guez personally. The Guez defendants
filed post-trial motions seeking, among other things, a new trial. Through a set
of preliminary rulings dated September 27, 2007, the Court granted in part, and
denied in part, the Guez defendants’ post trial motions, and denied plaintiffs’
request that the Court enhance the damages awarded against the Guez defendants
arising from their infringement of plaintiffs’ trademarks. Through these
rulings, the Court, among other things, reduced the amount of punitive damages
assessed against Mr. Guez to $4 million, and reduced the total damages awarded
against the Guez defendants by approximately 50%.
  The Court
adopted these preliminary rulings as final on November 16, 2007. On the same
day, the Court entered judgment against Mr. Guez in the amount of $10,964,730
and ADS in the amount of $1,272,420, and against each of the Guez defendants
with regard to each and every claim that they pursued in the litigation
including, without limitation, ADS’s and Azteca’s unsuccessful efforts to
recover against Unzipped any account balances claimed to be owed, totaling
approximately $3.5 million including interest (collectively, the “Judgments”).
In entering the Judgments, the Court upheld the jury’s verdict in favor of the
Company relating to its write-down of the senior subordinated note due 2012,
issued by the Company to Sweet in connection with the Company’s acquisition of
Unzipped for Unzipped’s 2004 fiscal year. The monetary portion of the Judgments
accrues interest at a rate of 10% per annum from the date of the Judgments’
entry. Also on November 16, 2007, the Court issued a Memorandum Order wherein it
upheld an aggregate of approximately $6,800,000 of the jury’s verdicts against
Sweet and Azteca, but declined to enter judgment against these entities since it
had ordered a new trial with regard to certain other damage awards entered
against these entities by the jury.
 
 On March
7, 2008, the Court commenced a hearing with regard to plaintiffs’ petition
seeking in excess of $15.0 million attorneys’ fees and costs, which hearing was
concluded on April 18, 2008. By order dated May 6, 2008, the Court awarded
plaintiffs certain statutory costs against the Guez defendants. The Court also
determined that plaintiffs were entitled to pursue recovery of their
non-statutory costs, comprised primarily of expert witness fees, incurred in
connection with this action. The hearing with regard to plaintiffs’ recovery of
non-statutory costs was conducted on August 7 and 8, 2008.
  By final
order dated October 31, 2008, the plaintiffs’ petition for attorneys’ fees was
granted with respect to $7,663,456 of fees. The Court did not award any
non-statutory costs.  On December 1, 2008, the Judgments were amended
to include the $647,712.69 in statutory costs awarded by the Court on May 8,
2008, as well as $100,000 of the attorneys’ fees awarded by the Court on October
31, 2008.
 
 On
November 21, 2007, the Guez defendants filed a notice of appeal. They also filed
a $49,090,491 undertaking with the Court, consisting primarily of a $43,380,491
personal surety given jointly by Gerard Guez and Jacqueline Rose Guez, bonding
the monetary portions of the Judgments. By Order dated December 17, 2008 the
Court determined that the undertaking was adequate absent changed circumstances.
This determination serves to prevent the Company and its subsidiaries from
pursuing collection of the monetary portions of the Judgments during the
pendency of the appeal. The Company and its subsidiaries filed a notice of
appeal on November 26, 2007, appealing, among other things, those parts of the
jury’s verdicts vacated by the Court in connection with the Guez defendants’
post-trial motions. On December 5, 2008, the Company filed a notice of appeal
from the Court’s orders relating to attorneys’ fees, statutory costs and
non-statutory costs. The Company and its subsidiaries intend to vigorously
pursue their appeals, and vigorously defend against the Guez parties’
appeal.
 
 Bader/Unzipped
litigation
 
 This
lawsuit was settled and discontinued with prejudice on March 25, 2008. The
lawsuit was commenced on November 5, 2004, when Unzipped filed a complaint in
the Supreme Court of New York, New York County, against Unzipped's former
president of sales, Gary Bader, alleging that Mr. Bader breached certain
fiduciary duties owed to Unzipped as its president of sales, unfairly competed
with Unzipped and tortiously interfered with Unzipped's contractual
relationships with its employees. On October 5, 2005, Unzipped amended its
complaint to assert identical claims against Bader's company, Sportswear
Mercenaries, Ltd. On October 14, 2005, Bader and Sportswear Mercenaries filed an
answer containing counterclaims to Unzipped's amended complaint, and a
third-party complaint, which was dismissed in its entirety on June 9, 2006,
except with respect to a single claim that it owed Bader and Sportswear
Mercenaries $72,000.
  100
 
 Bongo
Apparel, Inc. litigation
 
 On or
about June 12, 2006, Bongo Apparel, Inc. (“BAI”) filed suit in the Supreme Court
of the State of New York, County of New York, against the Company and IP
Holdings alleging certain breaches of contract and other claims and seeks, among
other things, damages of at least $25 million. Additionally, on or about October
6, 2006, the Company and IP Holdings filed suit in the United States District
Court for the Southern District of New York against BAI and its guarantor, TKO
Apparel, Inc. (“TKO”). In that complaint, the Company and IP Holdings
asserted various contract, tort and trademark claims that arose as a result of
the failures of BAI with regard to the Bongo men's jeanswear business and its
wrongful conduct with regard to the Bongo women's jeanswear business. The
Company and IP Holdings sought monetary damages in an amount in excess of $10
million and a permanent injunction with respect to the use of the Bongo
trademark.
 
 By
Agreement and Mutual General Release dated September 15, 2008, the Company, IP
Holdings, BAI, and TKO entered into an Agreement and Mutual General Release
settling their disputes identified or that could have been identified in the
actions set forth above (the “Settlement Agreement”). Among other things, the
Settlement Agreement requires TKO to pay to the Company a total of $1,000,000
over an eight year period, and obligated the parties to dismiss all of the
actions identified above with prejudice, which has occurred. Also, by Personal
Guaranty dated September 15, 2008, J. Kenneth Tate and James D. Tate personally
guaranteed TKO’s payment obligations arising pursuant to the Settlement
Agreement.
 
 Normal
Course litigation
 
 From time
to time, the Company is also made a party to litigation incurred in the normal
course of business. While any litigation has an element of uncertainty, the
Company believes that the final outcome of any of these routine matters will not
have a material effect on the Company’s financial position or future
liquidity.
 
 12.  Related
Party Transactions
 
 On May 1,
2003, the Company granted Kenneth Cole Productions, Inc. the exclusive worldwide
license to design, manufacture, sell, distribute and market footwear under its
Bongo brand. The chief executive officer and chairman of Kenneth Cole
Productions is Kenneth Cole, who is the brother of Neil Cole, the Company's
Chief Executive Officer and President. During the years ended December 31, 2008,
2007 and 2006, the Company received $1.1 million, $0.7 million and $1.3 million,
respectively, in royalties from Kenneth Cole Productions.
  The
Candie's Foundation, a charitable foundation founded by Neil Cole for the
purpose of raising national awareness about the consequences of teenage
pregnancy, owed the Company $0.8 million at December 31, 2008. The Candie's
Foundation will pay-off the entire borrowing from the Company during 2009,
although additional advance will be made as and when necessary. Mr. Cole's wife,
Elizabeth Cole, was employed by the Candie's Foundation at an annualized salary
of $0.1 million until May 2005. She continues to perform services for the
foundation but without compensation.
 
 The
Company recorded expenses of approximately $354,000 for 2008 for the hire and
use of aircraft solely for business purposes owned by a company in which
the Company’s chairman, chief executive officer and president is the sole
owner.  There were no such expenses in 2007. Management believes that all
transactions were made on terms and conditions no less favorable than those
available in the marketplace from unrelated parties.
 
 13.  Operating
Leases
 
 Future
net minimum lease payments under non-cancelable operating lease agreements as of
December 31, 2008 are approximately as follows:
  (000’s
omitted)
 Year
      ending December 31, 2009
                      
                      $
                      2,214Year
      ending December 31, 2010
                      
                      
                      2,158Year
      ending December 31, 2011
                      
                      
                      2,153Year
      ending December 31, 2012
                      
                      
                      1,864Year
      ending December 31, 2013
                      
                      
                      1,923Thereafter
                      
                      
                      20,545Totals
                      
                      $
                      30,857
  101
  The
leases require the Company to pay additional taxes on the properties, certain
operating costs and contingent rents based on sales in excess of stated
amounts.
 
 Rent
expense was approximately $1.6 million, $1.0 million, and $0.7 million for
the years ended December 31, 2008, 2007, and 2006, respectively. Contingent rent
amounts have been immaterial for all periods.
 
 14.  Benefit
and Incentive Compensation Plans and Other
  The
Company sponsors a 401(k) Savings Plan (the “Savings Plan”) which covers all
eligible full-time employees. Participants may elect to make pretax
contributions subject to applicable limits. At its discretion, the Company may
contribute additional amounts to the Savings Plan. During the year ended
December 31, 2008, the Company made $27,000 in contributions to the Savings
Plan.  The Company had no contributions for the years ended December
31, 2007 and 2006.
  Stock-based
awards are provided to certain employees under the terms of our 2006 Equity
Incentive Plan. The Plans are administered by the Compensation Committee of the
Board of Directors.
 
 With
respect to performance-based restricted common stock units, the number of shares
that ultimately vest and are received by the recipient is based upon various
performance criteria. Though there is no guarantee that performance targets will
be achieved, the Company estimates the fair value of performance-based
restricted stock based on the closing stock price on the grant
date.  Over the performance period, the number of shares of common
stock that will ultimately vest and be issued is adjusted upward or
downward based upon the Company’s estimation of achieving such performance
targets. The ultimate number of shares delivered to recipients and the related
compensation cost recognized as an expense will be based on the actual
performance metrics as defined under the 2006 Equity Incentive Plan. Restricted
common stock units are unit awards entitle the recipient to shares of common
stock upon vesting annually over as much as 5 years for time-based awards or
over 5 years for performance-based awards. The fair value of restricted common
stock units is determined on the date of grant, based on the Company’s closing
stock price.
 
 15.   Income
Taxes
 
 At
December 31, 2008 the Company had available federal net operating loss
carryforwards (“NOL’s”) of approximately $3.3 million, of which approximately $3
million were derived from stock options exercises, for income tax purposes,
which expire in the years 2009 through 2025. As of December 31, 2008, the
Company had available state and local NOL’s ranging from approximately $87
million to $128 million (inclusive of $18.8 million from exercises of stock
options on the state level).
 
 The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes” (“SFAS 109”). Under SFAS 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. A valuation allowance is established when necessary to reduce deferred
tax assets to the amount expected to be realized. In determining the need for a
valuation allowance, management reviews both positive and negative evidence
pursuant to the requirements of SFAS 109, including current and historical
results of operations, future income projections and the overall prospects of
the Company's business. Based upon management's assessment of all available
evidence, including the Company's completed transition into a licensing
business, estimates of future profitability based on projected royalty revenues
from its licensees, and the overall prospects of the Company's business,
management is of the opinion that the Company will be able to utilize the
deferred tax assets in the foreseeable future, and as such do not anticipate
requiring a further valuation allowance. During the year ended December 31,
2008, the Company has provided an additional valuation allowance of
approximately $1.7 million to offset state and local tax NOL’s which the Company
believes are unlikely to be utilized in the foreseeable future.
 
 The
income tax provision (benefit) for federal, and state and local income taxes in
the consolidated income statements consists of the following:
  (000's
      omitted)
                              
                              Year Ended
                                December 31,
                                2008
                              
                              
                              Year Ended
                                December 31,
                                2007
                              
                              
                              Year Ended
                                December 31,
                                2006Current:Federal
                              
                              $
                              13,559
                              
                              
                              $
                              5,890
                              
                              
                              $
                              140State
      and local
                              
                              
                              446
                              
                              
                              
                              830
                              
                              
                              
                              -Total
      current
                              
                              
                              14,005
                              
                              
                              
                              6,720
                              
                              
                              
                              140Deferred:Federal
                              
                              
                              24,128
                              
                              
                              
                              27,616
                              
                              
                              
                              7,195State
      and local
                              
                              
                              640
                              
                              
                              
                              (1,814
                              )
                              
                              
                              -Total
      deferred
                              
                              
                              24,768
                              
                              
                              
                              25,802
                              
                              
                              
                              7,195Total
      provision
                              
                              $
                              38,773
                              
                              
                              $
                              32,522
                              
                              
                              $
                              7,335
  The
Company's effective income tax rate differs from the federal statutory rate
primarily as a result of a decrease in the tax rate on certain deferred tax
liabilities.
  102
  The
significant components of net deferred tax assets of the Company consist of the
following:
  December
      31,(000's
      omitted)
                                    
                                    2008
                                    
                                    
                                    2007Net
      operating loss carryforwards
                                    
                                    $
                                    13,148
                                    
                                    
                                    $
                                    16,866Receivable
      reserves
                                    
                                    
                                    208
                                    
                                    
                                    
                                    1,654Depreciation
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Federal
      Foreign Tax Credits
                                    
                                    
                                    209
                                    
                                    
                                    
                                    -Federal
      Alternative Minimum Tax Credits
                                    
                                    
                                    1,130
                                    
                                    
                                    
                                    958Hedging
      transaction
                                    
                                    
                                    18,739
                                    
                                    
                                    
                                    23,705Intangibles
                                    
                                    
                                    2,292
                                    
                                    
                                    
                                    1,396Contribution
      carryover
                                    
                                    
                                    87
                                    
                                    
                                    
                                    378Equity
      compensations
                                    
                                    
                                    2,576
                                    
                                    
                                    
                                    -Accrued
      compensation and other
                                    
                                    
                                    1,781
                                    
                                    
                                    
                                    268Total
      deferred tax assets
                                    
                                    
                                    40,170
                                    
                                    
                                    
                                    45,225Valuation
      allowance
                                    
                                    
                                    (13,052
                                    )
                                    
                                    
                                    (16,625
                                    )Net
      deferred tax assets
                                    
                                    
                                    27,118
                                    
                                    
                                    
                                    28,600Trademarks,
      goodwill and other intangibles
                                    
                                    
                                    (47,029
                                    )
                                    
                                    
                                    (24,310
                                    )Depreciation
                                    
                                    
                                    (1,098
                                    )
                                    
                                    
                                    (108
                                    )Difference
      in cost basis of acquired intangibles
                                    
                                    
                                    (49,000
                                    )
                                    
                                    
                                    (49,000
                                    )Investment
      in joint ventures
                                    
                                    
                                    (2,477
                                    )
                                    
                                    
                                    -Total
      deferred tax liabilities
                                    
                                    
                                    (99,604
                                    )
                                    
                                    
                                    (73,418
                                    )Total
      net deferred tax assets (liabilities)
                                    
                                    $
                                    (72,486
                                    )
                                    
                                    $
                                    (44,818
                                    )Current
      portion of net deferred tax assets
                                    
                                    $
                                    1,655
                                    
                                    
                                    $
                                    7,442Non
      current portion of net deferred assets (liabilities)
                                    
                                    $
                                    (74,141
                                    )
                                    
                                    $
                                    (52,260
                                    )
 
 The
following is a rate reconciliation between the amount of income tax provision at
the Federal rate of 35% and provision for (benefit from) taxes on operating
profit (loss):
 
 Year
      ended December, 31(000's
      omitted)
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006Income
      tax provision computed at the federal rate of 35%
                          
                          $
                          38,125
                          
                          
                          $
                          33,697
                          
                          
                          $
                          13,544Increase
      (reduction) in income taxes resulting from:State
      and local income taxes (benefit), net of federal income
tax
                          
                          
                          706
                          
                          
                          
                          (640
                          )
                          
                          
                          -Change
      in valuation allowance
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (6,200
                          )Tax
      credit
                          
                          
                          (304
                          )
                          
                          
                          -
                          
                          
                          
                          -Other,
      net
                          
                          
                          246
                          
                          
                          
                          (535
                          )
                          
                          
                          (9
                          )Total
                          
                          $
                          38,773
                          
                          
                          $
                          32,522
                          
                          
                          $
                          7,335
  The
Company recognizes interest and penalties related to uncertain tax positions in
income tax expense, which were zero for the years ended December 31, 2008, 2007
and 2006.
  The
Company is subject to taxation in the U.S. and various state and local
jurisdictions. The Company remains subject to examination by U.S. federal and
state tax authorities for tax years 2004 through 2008.
  103
  16.   Segment
and Geographic Data
 
 The
Company has one reportable segment, licensing and commission revenue generated
from its brands. The geographic regions consist of the United States and Other
(which principally represents Canada, Japan and Europe). Long lived assets are
substantially all located in the United States. Revenues attributed to each
region are based on the location in which licensees are located.
 
 The net
revenues by type of license and information by geographic region are as
follows:
  For
      the Year Ended(000's
      omitted)
                                
                                December
      31,2008
                                
                                
                                2007
                                
                                
                                2006Net
      sales by category:Direct-to-retail
      license
                                
                                $
                                54,270
                                
                                
                                $
                                53,952
                                
                                
                                $
                                34,349Wholesale
      license
                                
                                
                                151,714
                                
                                
                                
                                103,639
                                
                                
                                
                                43,925Other
      (commissions, sale of certain trademarks to joint venture, sale of
      interest in subsidiary)
                                
                                
                                10,777
                                
                                
                                
                                2,413
                                
                                
                                
                                2,420$
                                216,761
                                
                                
                                $
                                160,004
                                
                                
                                $
                                80,694Net
      sales by geographic region:United
      States
                                
                                $
                                195,856
                                
                                
                                $
                                150,376
                                
                                
                                $
                                77,564Other
                                
                                
                                20,905
                                
                                
                                
                                9,628
                                
                                
                                
                                3,130$
                                216,761
                                
                                
                                $
                                160,004
                                
                                
                                $
                                80,694
  17.  Unaudited
Consolidated Interim Financial Information
 
 Unaudited
interim consolidated financial information for the years ended December 31, 2008
and 2007 is summarized as follows:
  First
                            Quarter
                          
                          
                          Second
                            Quarter
                          
                          
                          Third
                            Quarter
                          
                          
                          Fourth
                            Quarter(in
      thousands except per share data)The year ended December 31,
      2008Licensing
      and other revenue
                          
                          $
                          55,667
                          
                          
                          $
                          51,700
                          
                          
                          $
                          55,135
                          
                          
                          $
                          54,259Operating
      income
                          
                          
                          36,765
                          
                          
                          
                          33,185
                          
                          
                          
                          36,298
                          
                          
                          
                          35,804Net
      income
                          
                          
                          18,244
                          
                          
                          
                          16,456
                          
                          
                          
                          18,317
                          
                          
                          
                          17,136Basic
      earnings per share
                          
                          
                          0.32
                          
                          
                          
                          0.29
                          
                          
                          
                          0.32
                          
                          
                          
                          0.30Diluted
      earnings per share
                          
                          
                          0.30
                          
                          
                          
                          0.27
                          
                          
                          
                          0.30
                          
                          
                          
                          0.28The year ended December 31,
      2007Licensing
      and commission revenue
                          
                          $
                          30,841
                          
                          
                          $
                          39,071
                          
                          
                          $
                          42,681
                          
                          
                          $
                          47,411Operating
      income
                          
                          
                          22,359
                          
                          
                          
                          29,729
                          
                          
                          
                          29,320
                          
                          
                          
                          40,381Net
      income
                          
                          
                          12,747
                          
                          
                          
                          14,789
                          
                          
                          
                          16,993
                          
                          
                          
                          19,226Basic
      earnings per share
                          
                          
                          0.23
                          
                          
                          
                          0.26
                          
                          
                          
                          0.30
                          
                          
                          
                          0.33Diluted
      earnings per share
                          
                          
                          0.21
                          
                          
                          
                          0.24
                          
                          
                          
                          0.28
                          
                          
                          
                          0.31
  104
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Board of
Directors and Stockholders
 Iconix
Brand Group, Inc.
 New York,
New York
 
 The
audits referred to in our report dated February 27, 2009, relating to the
consolidated financial statements of Iconix Brand Group, Inc. and Subsidiaries,
which is contained in Item 8 of this Form 10-K also included the audit of the
financial statement schedule listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based upon our audits.
 
 In our
opinion the financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
  /s/ BDO Seidman LLP
 February
27, 2009
 New York,
New York
  105
  Schedule
II - Valuation and Qualifying Accounts
 Iconix
Brand Group, Inc. and Subsidiaries
 (In
thousands)
  Column
      A
                              
                              Column
      B
                              
                              
                              Column
      C
                              
                              
                              Column
      D
                              
                              
                              Column
      EDescription
                              
                              Balance at
                                Beginning of
                                Period
                              
                              
                              Additions
                                Charged to
                                Costs and
                                Expenses
                              
                              
                              Deductions
                              
                              
                              Balance at
                                End of
                                PeriodReserves
      and allowances deducted from asset accounts:Accounts
      Receivables (a):Year
      ended December 31, 2008
                              
                              $
                              3,519
                              
                              
                              $
                              1,879
                              
                              
                              $
                              (4,879
                              )
                              
                              $
                              519Year
      ended December 31, 2007
                              
                              $
                              1,633
                              
                              
                              $
                              2,280
                              
                              
                              $
                              (394
                              )
                              
                              $
                              3,519Year
      ended December 31, 2006
                              
                              $
                              260
                              
                              
                              $
                              1,373
                              
                              
                              $
                              -
                              
                              
                              $
                              1,633
  (a)
              These
      amounts include reserves for bad
debts.
  106