As filed with the Securities and Exchange Commission on April 16, 2004

Registration No. 333-112494

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 5
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

GANDER MOUNTAIN COMPANY
(Exact name of Registrant as specified in its charter)

4567 American Boulevard West
Minneapolis, Minnesota 55437
(952) 830-8700
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

Mark R. Baker
Chief Executive Officer and President
Gander Mountain Company
4567 American Boulevard West
Minneapolis, Minnesota 55437
(952) 830-8700
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

        Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.

        If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o

        If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: o

CALCULATION OF REGISTRATION FEE

(1)

Includes 750,000 shares of Common Stock issuable upon exercise of the underwriters' over-allotment option.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended.

(3)

Previously paid.

        The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

5,000,000 Shares

Gander Mountain Company

Common Stock

        Gander Mountain Company is offering 5,000,000 shares of common stock. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $14.00 and $16.00 per share.

        We have applied to quote our common stock on the Nasdaq National Market under the symbol "GMTN."

        Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 8.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

        We have granted the underwriters the right to purchase up to 750,000 additional shares of common stock to cover any over-allotments. The underwriters can exercise this right at any time within 30 days after the offering. The underwriters expect to deliver the shares of common stock to investors on or about            , 2004.

Piper Jaffray

            , 2004

        You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since the date indicated on the front cover of this prospectus.

        "Gander Mountain," "Gander Mtn.," "Gander Mountain Guide Series," "We Live Outdoors" and our logos mentioned or used in this prospectus are our trademarks. This prospectus also contains trademarks and service marks belonging to other entities.

TABLE OF CONTENTS

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SUMMARY

        This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus, including the financial statements.

Gander Mountain Company

        We are a leading specialty retailer that caters to the needs of outdoor lifestyle enthusiasts, with a particular focus on hunting, fishing and camping. Our core strategy and focus is to provide our target customer with a unique retail experience founded upon our "We Live Outdoors" culture and theme. Our stores offer competitively priced national, regional and owned brand outdoor equipment, accessories, related technical apparel and footwear. We seek to combine our broad and deep merchandise assortments with a unique store environment and an emphasis on customer service based on our store associates' extensive product knowledge and outdoor-related experience. We have expanded our store base from 26 stores in 1997 to our current base of 66 Gander Mountain outdoor lifestyle stores in nine states — Illinois, Indiana, Iowa, Michigan, Minnesota, New York, Ohio, Pennsylvania and Wisconsin.

        We are transforming our market position from a traditional specialty store to a larger format, category-focused store. Our new larger format stores, which range from 50,000 to 100,000 square feet, have a warehouse-style shopping environment that reinforces our overall value proposition to our customers and enables us to substantially increase the breadth and depth of our product offerings. We currently have nine larger format stores, the first of which opened in March 2003.

        We believe that the following strengths distinguish us from our competitors and are critical to our continuing success:

•

the 43 year heritage and strong brand identity of the Gander Mountain brand name;



•

a merchandise assortment that we believe is significantly broader and deeper than that offered by our primary competitors;



•

a superior level of customer assistance, outdoor product expertise and value-added technical services;



•

our price leadership and "every day low price" policy; and



•

the broad retail operating experience of our current management team.

        Our long-term objectives are to build upon the Gander Mountain brand name and create the leading retail store chain that defines the outdoor lifestyle category. To achieve our objectives we intend to:

•

use the strong store economics of our larger format stores to continue profitable new store expansion and gain a substantial share within the outdoor lifestyle market;



•

continue to employ our flexible real estate strategy using different store prototype sizes depending on market characteristics, demographics and availability of sites and facilities;



•

continue increasing our comparable store sales, store operating margins and profitability through improved purchasing leverage, strengthening of inventory positions and supply chain initiatives; and



•

leverage our scalable infrastructure, including our management ranks and information systems.

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Risk Factors

        An investment in our common stock involves a high degree of risk. The following risks, as well as the other risks discussed in "Risk Factors," should be carefully considered before participating in this offering:

•

our ability to execute our current business strategy focusing on larger format stores;



•

the regional concentration of our stores and the seasonal fluctuations in our business;



•

our ability to raise capital in the future;



•

our lack of familiarity with markets in which we will open future stores;



•

our ability to locate suitable sites for new stores and open new stores in a timely manner;



•

our ability to attract and retain management talent and store employees;



•

our ability to maintain relationships with our key vendors;



•

the effect of competition in our industry; and



•

the controlling interest of the members of the Erickson family and their affiliates in our company and their ability to influence or control matters requiring approval by our shareholders.

The Erickson Family's Controlling Interest in Gander Mountain Company

        Members of the Erickson family and their affiliates collectively own a controlling interest in us. The Erickson family founded and control the companies that own, operate and franchise Holiday Stationstore gasoline/convenience stores located throughout the northern tier of the United States. Members of the Erickson family collectively own a controlling interest in us through a combination of their individual stock ownership in us and their control of our largest shareholders, Holiday Stationstores, Inc. and Lyndale Terminal Co. Following this offering, Holiday Stationstores, Inc., Lyndale Terminal Co. and individual members of the Erickson family will own 57.5% of our outstanding common stock or 54.3% of our outstanding common stock if the underwriters exercise their over-allotment option in full. We have been advised that members of the Erickson family have no existing agreement or arrangement to act in concert with respect to the voting or disposition of their respective ownership interests.

        Prior to this offering, there have been significant transactions between Holiday Companies, the parent of Holiday Stationstores, Inc., and us. These transactions have involved Holiday Companies obtaining insurance for us and providing us with human resources services, cash management, financial analysis and other financial services, legal services, benefits administration services, various tax services, information technology services, credit card processing services and other administrative services. We have entered into various agreements with Holiday Companies to provide for the continuity of these services after this offering at rates which we believe are commercially reasonable. We also use Holiday Companies' airplane for which we pay Holiday Companies a fee and lease from Holiday Companies our corporate headquarters, certain warehousing space and other administrative space, as well as our retail stores located in Bemidji, Minnesota and Fridley, Minnesota. In addition, Holiday Companies or Holiday Stationstores, Inc. currently guarantees our leases with third parties for 36 of our stores and our distribution center, guarantees $11.7 million of borrowings under our credit facility until May 14, 2004 and guarantees amounts due to certain vendors, without charging us a fee for these guarantees.

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For more information about these agreements, see "Certain Relationships and Related Party Transactions — Relationship with the Erickson Family and Their Affiliates."

        We were initially organized as a Delaware limited liability company on November 27, 1996 and we converted to a Delaware corporation on December 31, 2000. We reincorporated in Minnesota in January 2004 by merging into our wholly owned subsidiary formed solely for that purpose. We have been operating our current business since our initial organization in 1996. Our principal executive offices are located at 4567 American Boulevard West, Minneapolis, Minnesota 55437, and our telephone number is (952) 830-8700. Our web site is located at www.gandermountain.com. Information contained on our web site or that can be accessed through our web site is not a part of this prospectus.

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The Offering

        The number of shares of common stock outstanding after this offering is based on the number of shares outstanding as of April 16, 2004 and excludes:

•

222,806 shares of common stock issuable upon exercise of currently outstanding options under our 2002 Stock Option Plan, and 948,352 shares of common stock issuable upon exercise of currently outstanding options issued outside of our 2002 Stock Option Plan and 2004 Omnibus Stock Plan, at a weighted average exercise price of $8.04 per share; and



•

17,194 shares of common stock reserved for future grants under our 2002 Stock Option Plan, none of which we intend to grant, and 2,144,000 shares of common stock reserved for future issuance under our 2004 Omnibus Stock Plan, 839,700 of which we intend to use for grants to our employees effective upon the pricing of this offering with an exercise price equal to the offering price.

        Except as otherwise indicated, all information in this prospectus assumes:

•

no exercise of the underwriters' over-allotment option;



•

all outstanding shares of our capital stock will automatically convert into a total of 7,638,175 shares of common stock upon this offering; and



•

no outstanding options have been exercised since April 16, 2004.

        All accumulated and unpaid dividends on our preferred stock will be extinguished without being paid upon this offering.

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Summary Financial Data

        You should read the summary financial data presented below in conjunction with the financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. In the opinion of management, the unaudited summary financial data presented below under the heading "Statement of Operations Data" reflect all adjustments, which include only normal and recurring adjustments, necessary to present fairly our results of operations for the period presented. Historical results are not necessarily indicative of the results of operations to be expected for future periods.

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(1)

We changed our fiscal year end in 2001 from the Saturday closest to the end of December to the Saturday closest to the end of January, electing a 52/53 week fiscal year. The fiscal years ended January 1, 2000, January 27, 2001, February 1, 2003 and January 31, 2004 included 52 weeks. The fiscal year ended February 2, 2002 included 53 weeks. For purposes of annual comparisons, unless otherwise noted, we have not adjusted for this difference. Our fiscal year change occurred in connection with our conversion from a limited liability company to a C-corporation in December 2000. We were not subject to income taxation for the periods during which we were a limited liability company.

(2)

Assumes the conversion of all our outstanding capital stock into a total of 7,638,175 shares of common stock upon this offering and the sale by us of 5,000,000 shares of our common stock in this offering and the application of the estimated aggregate net proceeds to us of $68.4 million after deducting offering expenses and underwriting discounts and commissions. We intend to use $9.8 million of the net proceeds to repay all of our outstanding debt to Holiday Companies and the remainder to repay approximately $58.5 million of outstanding indebtedness under our credit facility. Amounts repaid under our credit facility may, subject to the terms of our credit facility, be reborrowed by us. See "Use of Proceeds." The pro forma statement of operations data are presented as if the shares of common stock necessary to generate proceeds sufficient to repay the debt obligations expected to be repaid by us with the proceeds of this offering were issued on the various dates during fiscal 2003 that those debt obligations were first outstanding. The as adjusted balance sheet data are presented as if this offering and the application of the net proceeds from this offering occurred on January 31, 2004.

(3)

The following tables provide a reconciliation of loss applicable to common shareholders for fiscal 2003 to pro forma net income applicable to common shareholders for fiscal 2003 and a reconciliation of common shares outstanding used in calculating loss per common share for fiscal 2003 to pro forma shares outstanding used in calculating pro forma net income per share for fiscal 2003. The preferred stock dividend amounts reflect the 10% compounded annual dividend rate on all outstanding classes of preferred stock. All classes of preferred stock were outstanding for all of fiscal 2003. Interest on debt to be repaid was calculated using the daily weighted average interest rate applied to the pro forma amount of reduction in debt outstanding during each day of fiscal 2003 after giving effect to this offering. The daily weighted average interest rates for fiscal 2003 were 6.1% for the $2.2 million note payable to affiliate, 6.3% for the $7.6 million note payable to affiliate and 3.8% under our credit facility. The 4,759,644 total shares of common stock reflected in the weighted average common shares outstanding table below as being sold in this offering were calculated assuming that the applicable shares were outstanding only for the periods beginning on the various dates of issuance of the notes payable to affiliate and the various dates of borrowings under our credit facility expected to be repaid with the proceeds of this offering and ending on December 31, 2003.

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(4)

A store is included in the comparable store base in its fourteenth full month of operations. A relocated store is returned to the comparable store base in its fourteenth full month of operations following relocation.

(5)

Calculated based on the weighted average of the gross square footage in the period, which includes office, storage and receiving areas that comprise approximately 20% of total square footage.

(6)

Calculated based on operating income (loss) and sales for the period.

(7)

EBITDA consists of net income (loss) plus interest expense, plus income tax provision or minus income tax benefit and plus depreciation and amortization. This term, as we define it, may not be comparable to a similarly titled measure used by other companies and is not a measure of performance presented in accordance with GAAP. We use EBITDA as a measure of operating performance, but we do not use it as a measure of liquidity. EBITDA should not be considered as a substitute for net loss, net cash provided by or used in operations or other financial data prepared in accordance with GAAP, or as a measure of liquidity.

We believe EBITDA is useful to an investor in evaluating our operating performance because:

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it is a widely accepted financial indicator of a company's ability to service its debt and it is used in determining compliance with certain covenants under our credit facility;

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it is widely used to measure a company's operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired; and

•

it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing from our operating results the impact of our capital structure, primarily interest expense from our outstanding debt, and asset base, primarily depreciation and amortization of our property and equipment.

Our management uses EBITDA:

•

as a measurement of operating performance because it assists us in comparing our performance on a consistent basis, as it removes from our operating results the impact of our capital structure, which includes interest expense from our outstanding debt, and our asset base, which includes depreciation and amortization of our property and equipment; and

•

in presentations to the members of our board of directors to enable our board to have the same consistent measurement basis of operating performance used by management.

The following table provides a reconciliation of net income (loss) to EBITDA:

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below before participating in this offering. If any of the following risks actually occur, our business, financial condition, operating results or cash flows could be materially harmed. As a result, the trading price of our common stock could decline, and you might lose all or part of your investment.

Risks Related to Our Business

Our current business strategy that focuses on larger format retail stores has not been proven successful on a long-term basis and may negatively impact our operating results.

        We recently began implementing our current business strategy that focuses on larger format retail stores. The viability of this business strategy has not been proven on a long-term basis. We recently transitioned from opening approximately 30,000 square foot stores to predominantly opening stores ranging from 50,000 to 100,000 square feet. The results we achieved at our smaller format stores may not be indicative of the results that we may achieve at our new larger format stores. The larger format increases our operating costs per store, but may not lead to proportionately increased revenues per store. Our mix of higher and lower margin merchandise in our larger format stores differs from the merchandise mix in our smaller stores, and therefore, may negatively impact our gross margins in our larger format stores. In addition, we may not carry the appropriate merchandise mix during our busiest seasons in our larger format stores. We cannot assure you that we will be successful in operating our larger format stores on a profitable basis. If a larger format store is unprofitable, the impact on our financial results could be greater than the impact of an unprofitable smaller format store.

Our concentration of stores in the north central United States makes us susceptible to adverse conditions in this region, including atypical weather.

        The majority of our stores are located in the north central United States. As a result, our operations are more susceptible to regional factors than the operations of more geographically diversified competitors. These factors include regional economic and weather conditions, natural disasters, demographic and population changes and governmental regulations in the states in which we operate. Our sales may also be affected by environmental changes and disease epidemics affecting fish or game populations in this region, such as chronic wasting disease. If the region were to suffer an economic downturn or other adverse event, our operating results could suffer.

        Our results of operations may be harmed by unseasonably warm winter weather conditions. Many of our stores are located in areas that traditionally experience seasonably cold weather. Approximately 13% of our sales in fiscal 2003 consisted of merchandise for winter activities. Abnormally warm weather conditions could reduce our sales of these items and harm our operating results. Moreover, significant snowfalls on peak shopping days, particularly during the holiday season, could impact our sales if potential customers choose not to shop during those days.

Our operating results are subject to seasonal fluctuations and the timing of new store openings, which could cause the market price of our common stock to decline.

        We experience substantial seasonal fluctuations in our sales and operating results. In addition, we typically open new stores during the second half of the year, which increases the percentage of our sales generated in our third and fourth fiscal quarters. In fiscal 2003, we generated 30% of our annual sales in our third fiscal quarter, which includes the fall hunting season months of September and October, and we generated 37% of our annual sales in our fourth fiscal quarter, which includes the peak cold weather and holiday season months of November and December. We incur significant additional expenses in the third and fourth fiscal quarters due to higher purchase volumes and increased staffing in our stores. If, for any reason, we miscalculate the demand for our products or our

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product mix during the third or fourth fiscal quarters, our sales in these quarters could decline resulting in significantly lower margins and excess inventory, which could cause our annual operating results to suffer and our stock price to decline significantly.

Erickson family members and their affiliates will continue to collectively own a controlling interest in our company and these individuals and entities may have interests that differ from those of our other shareholders.

        As of April 16, 2004, members of the Erickson family, together with Holiday Stationstores, Inc. and Lyndale Terminal Co., both of which are wholly owned by members of the Erickson family or entities they control, collectively owned 100% of the outstanding shares of our voting stock and on a pro forma basis after giving effect to this offering will own 57.5% of our common stock. As a result, these entities and members of the Erickson family will continue to be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and that may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our shareholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

        In addition, conflicts of interest may arise as a result of the continued collective controlling ownership interest of these entities and the members of the Erickson family. We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with unaffiliated parties. These conflicts may include the structure and timing of transfers by these entities and members of the Erickson family of all or any portion of their ownership interest in us and the ability of these entities and members of the Erickson family to control our management and affairs.

The actual or potential sale by Erickson family members and their affiliates of their holdings of our common stock could cause the market price of our stock to decline significantly.

        As of April 16, 2004, on a pro forma basis giving effect to this offering, members of the Erickson family and their affiliates will own 7,265,247 shares of our common stock. No members of the Erickson family or the entities they control are subject to any contractual obligations to retain their controlling interest, except that Holiday Companies, Lyndale Terminal Co., Holiday Stationstores, Inc. and members of the Erickson family have agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of Banc of America Securities LLC and William Blair & Company, L.L.C. Except for this brief period, there can be no assurance as to how long the Erickson family and the entities they control will maintain their beneficial ownership of our common stock following the offering. Following this brief period, Holiday Stationstores, Inc., Lyndale Terminal Co. and certain individual members of the Erickson family will also have rights to cause us to register their shares. A sale by the Erickson family or their affiliates of a large interest in us, or the perception that such a sale could occur, could cause the market price of our common stock to decline significantly.

Changes in our relationship with Holiday Companies could require us to negotiate alternative agreements that may have less favorable terms.

        After this offering, we will continue to obtain various services from Holiday Companies under a shared services agreement. The services provided by Holiday Companies under this agreement are material to our operations. These services include obtaining insurance and providing human resources services, cash management, financial analysis and other financial services, legal services, benefits

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administration services, various tax services, information technology services, credit card processing services and other administrative services, as well as use of Holiday Companies' airplane. The intention of this agreement is to continue the relationship between Holiday Companies and us in a manner consistent with past practices. Holiday Companies' position as a company under common control with us may cause conflicts of interest relating to the nature, quality and pricing of services or products provided to us by Holiday Companies under the shared services agreement or other agreements. In addition, the shared services agreement has a term of one year with automatic one year renewal terms, subject to early termination by either party upon 90 days' written notice. If the shared services agreement is terminated, we will have to provide the services covered by the agreement on our own or obtain them from a third party. We may not be able to replace all of these services in a timely manner or on terms, including cost, that are as favorable as those we receive from Holiday Companies. In addition, we may not be able to provide these services internally or hire individuals who can provide these services to us on favorable terms or at all.

        Holiday Companies or Holiday Stationstores, Inc. also guarantees our leases with third parties for 36 of our stores and our distribution center. If Holiday Companies or Holiday Stationstores, Inc. fails or is unable to continue to guarantee these leases, we may be required to incur higher costs for these leases. Holiday Companies or Holiday Stationstores, Inc. also guarantees $11.7 million of borrowings under our credit facility until no later than May 14, 2004 and guarantees amounts due to certain vendors. In the event Holiday Companies or Holiday Stationstores, Inc. fails or is unable to continue to guarantee (1) these borrowings, we may be in default under our credit facility and incur higher borrowing costs, or (2) the vendor liabilities, we may incur penalty payments or may be unable to acquire merchandise from certain vendors.

Two of our directors may have conflicts of interest because they are members of the Erickson family and directors and officers of the Erickson family's affiliates and one of our executive officers may have conflicts of interest because he is a consultant to Holiday Companies.

        Following this offering, we anticipate that Donovan Erickson, Neal Erickson, Richard Erickson and Marjorie Pihl will resign from our board of directors and that Mark Baker and four other individuals will be elected to our board of directors. Following this transition, two of our continuing directors will be members of the Erickson family and directors or officers of companies affiliated with the Erickson family, which may create conflicts of interest when our board of directors faces decisions that affect both us and such companies. This includes the Chairman of our board of directors, Ronald Erickson, who is the Chief Executive Officer and Chairman of the board of directors of Holiday Companies, Holiday Stationstores, Inc. and Lyndale Terminal Co., and Gerald Erickson, another of our directors who is also Vice President and Vice Chairman of the board of directors of Holiday Companies and a director of Holiday Stationstores, Inc. and Lyndale Terminal Co. In addition, Dennis Lindahl, our Executive Vice President and Chief Financial Officer, is also a consultant to Holiday Companies, which could create conflict of interests when he is involved in decisions affecting both us and Holiday Companies. In the ordinary course of business we will provide material, non-public information about our company to Ronald Erickson and to Gerald Erickson. Although people who receive material non-public information about our company will be subject to federal law regarding their use of such information, we cannot control their use of such information, which may be adverse to your interests.

The growth of our business will be dependent upon the availability of adequate capital.

        The growth of our business will depend on the availability of adequate capital, which in turn will depend in large part on cash flow generated by our business and the availability of equity and debt financing. To date, we have relied on Holiday Stationstores, Inc. and Lyndale Terminal Co. to finance our company, although we do not intend to rely on them in the future. We cannot assure you that our operations will generate positive cash flow or that we will be able to obtain equity or debt financing on

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acceptable terms or at all. Our credit facility contains provisions that restrict our ability to incur additional indebtedness or make substantial asset sales that might otherwise be used to finance our expansion. Security interests in substantially all of our assets, which may further limit our access to certain capital markets or lending sources, secure our obligations under the credit facility. Moreover, the actual availability of funds under our credit facility is limited to specified percentages of our eligible inventory and credit card receivables. Accordingly, opportunities for increasing our cash on hand through sales of inventory would be partially offset by reduced availability under our credit facility. As a result, we cannot assure you that we will be able to finance our current expansion plans.

Our expansion into new, unfamiliar markets presents increased risks that may prevent us from being profitable in these new markets.

        Pursuant to our growth strategy, we intend to open stores in new markets. We anticipate that the initial stores opened in a new market will not typically achieve operating results comparable to our existing stores until approximately their third year of operations, due in large part to factors that generally affect store performance in new markets. These factors include less familiarity with local customer preferences, difficulties in attracting customers due to a reduced level of customer familiarity with our brand, difficulties in hiring a sufficient number of qualified store associates and other matters. In addition, entry into new markets may bring us into competition with new, unfamiliar competitors. We cannot assure you that we will be successful in operating our stores in new markets on a profitable basis.

Our expansion strategy includes further penetration of our existing markets, which could cause sales at our existing stores to decline.

        Pursuant to our expansion strategy, we intend to open additional stores in our existing markets. Because our stores typically draw customers from their local areas, a new store may draw customers away from nearby existing stores and may cause sales performance and customer counts at those existing stores to decline, which may adversely affect our overall operating results.

An inability to find suitable new store sites or delays in new store openings could materially affect our financial performance.

        In order to meet our growth objectives, we will need to secure an adequate number of suitable new store sites. We require that all proposed store sites satisfy strict criteria regarding cost and location established by us. We cannot assure you that we will be able to find a sufficient number of suitable new sites for any planned expansion in any future period.

        Our expected financial performance is based on our new stores opening on expected dates. It is possible that events such as problems with our credit, delays in the entitlements process or construction delays caused by permitting or licensing issues, material shortages, labor issues, weather delays or other acts of god, discovery of contaminants, accidents, deaths or injunctions could delay planned new store openings beyond their expected dates or force us to abandon planned openings altogether. Any failure on our part to recognize or respond to these issues may adversely affect our sales growth, which in turn may adversely affect our future operating results.

If we lose key management or are unable to attract and retain the talent required for our business, our operating results and financial condition could suffer.

        Our performance depends largely on the efforts and abilities of our senior management, including our Chief Executive Officer and President, Mark Baker; our Executive Vice President and Chief Financial Officer, Dennis Lindahl; our Executive Vice President, Merchandising and Marketing, Allen Dittrich; and our Senior Vice President, Finance and Administration, Sharon Link. None of our

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employees, except Messrs. Baker, Lindahl and Dittrich and Ms. Link, has an employment agreement with us and we do not have key person insurance covering any of our employees. If we lose the services of one or more of our key executives, we may not be able to successfully manage our business or achieve our growth objectives. As our business grows, we will need to attract and retain additional qualified personnel in a timely manner.

We rely on a single distribution center, and if there is a natural disaster or other serious disruption at the facility, we may be unable to deliver merchandise effectively to our stores.

        We rely on a single distribution center in Lebanon, Indiana. Any natural disaster or other serious disruption at this facility due to fire, tornado, flood or any other cause could damage a portion of our inventory or impair our ability to use our distribution center as a docking location for merchandise. Either of these occurrences could impair our ability to adequately stock our stores and harm our operating results.

Our planned growth may strain our business infrastructure, which could adversely affect our operations and financial condition.

        We expect to grow at a rapid pace. As we grow, we will face the risk