8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) October 9, 2009

PHOENIX FOOTWEAR GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

001-31309	15-0327010
(Commission File Number)	(IRS Employer Identification No.)

5840 El Camino Real, Suite 106, Carlsbad, California	92008
(Address of Principal Executive Offices)	(Zip Code)

(760) 602-9688

(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

INFORMATION TO BE INCLUDED IN THE REPORT

Section 1 – Registrant’s Business and Operations

Item 1.01 Entry Into a Material Definitive Agreement.

Effective October 15, 2009, Phoenix Footwear Group, Inc. (“Phoenix Footwear” or the “Company”) and its subsidiaries together with Wells Fargo Bank, National Association (“Wells Fargo”), entered into a Third Amendment to Forbearance Agreement and Fourth Amendment to Credit and Security Agreement (the “Fourth Amendment”). The Fourth Amendment amends and modifies certain terms of the Credit and Security Agreement dated June 10, 2008 (the “Credit Agreement”), as amended by the Forbearance Agreement and First Amendment to Credit and Security Agreement dated July 7, 2009 (the “First Amendment”), the First Amendment to Forbearance Agreement and Second Amendment to Credit and Security Agreement dated July 24, 2009 (the “Second Amendment”), and the Second Amendment to Forbearance Agreement and Third Amendment to Credit and Security Agreement dated September 29, 2009 (the “Third Amendment”), among Phoenix Footwear and its subsidiaries and Wells Fargo.

Under the terms of the Fourth Amendment, the following changes were made to the Credit Agreement and Forbearance Agreement:

• The borrowing base has been changed by decreasing the inventory sublimit to $2.3 million;

• The percentage of Eligible Inventory, currently at 46%, shall be reduced by one percent (1%) each Business Day beginning on October 26, 2009 through and including the Forbearance Termination Date;

• Upon receipt of the October earn-out payment due from Tandy Brands, Accessories, Inc. (the “October Tandy Payment”) in connection with the sales of the Company’s wholly-owned subsidiary, Chambers Belt Company, such payment shall be applied in the following order:

• First, to the outstanding amounts of the $170,000 Forbearance Fee due under the First Amendment;

• Second, to the Deferred Accommodation Fee due under the Third Amendment; and

• Third, to the repayment of the Revolving Note, provided that such repayment shall not result in a permanent reduction of the maximum availability.

• Subsequent earn-out payments by Tandy Brands, Accessories, Inc. to Chambers shall be applied to the repayment of the Revolving Note and may not be reborrowed unless consented to by Wells Fargo; and

• The maturity date for the Revolving Note and the expiration of the forbearance period has been extended to October 23, 2009 with various automatic extensions that defer the maturity to November 30, 2009 provided the Company adheres to certain conditions.

Under the Fourth Amendment, Wells Fargo agreed, during a forbearance period, to refrain from exercising any rights and remedies which it is or may become entitled to as a result of the existing past financial covenant defaults (the “Specified Events of Default”). Also, the Fourth Amendment provides for Wells Fargo to continue making advances under the line of credit (except as described above), subject to the conditions of the Credit Agreement, excluding, however, the Specified Events of Default (which includes the defaults that have been disclosed to Wells Fargo to date). The forbearance period began on July 9, 2009 and, provided the Company meets certain conditions, ends on October 23, 2009, with various automatic extensions that the maturity date to November 30, 2009, subject to earlier termination at the election of Wells Fargo in the event of an occurrence of any event of default under the Credit Agreement other than the Specified Events of Default, and subject to automatic termination in the event of the occurrence of certain insolvency proceedings involving Phoenix Footwear or its subsidiaries.

The Fourth Amendment also provides that the continuing forbearance by Wells Fargo is conditioned upon Phoenix Footwear’s continuing engagement of a financial turnaround consulting firm (which has occurred) to provide specified financial consulting services and the repayment in full of all indebtedness owed to Wells Fargo on or before the maturity date of the Revolving Note. The Fourth Amendment requires Phoenix Footwear to pay a $25,000 accommodation fee on December 1, 2009 unless Phoenix Footwear repays the indebtedness in full on or before November 30, 2009.

As of October 14, 2009, the Company had $2.8 million outstanding under the Credit Agreement with remaining availability of $221,000. The Company is engaged in discussions with several different financing sources to provide the Company with proceeds to repay in full its revolving line of credit debt on or before November 30, 2009. There is no assurance, however, that the Company will be able to obtain such a facility on acceptable terms and covenants or when and if the Company will be able to repay its current facility in full. If the Company is unable to complete a financing transaction prior to November 30, 2009, the Company plans to seek a fourth extension of the forbearance period so that it may complete such a transaction. There is no assurance that it will be granted or the terms and conditions thereof. If such a request is not granted, Wells Fargo may accelerate the Company’s indebtedness and/or foreclose on its assets.

The description of the agreements above is qualified in its entirety by reference to the full text of the applicable agreements, copies of which will be attached as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended October 3, 2009.

Section 2 – Financial Information

Item 2.02 Results of Operations and Financial Condition.

On October 15, 2009, Phoenix Footwear Group, Inc. (the Company) issued a press release announcing its financial results for the three and nine months ended October 3, 2009. A copy of the Company’s press release is attached hereto as Exhibit 99.1 to this current report on Form 8-K.

The information furnished pursuant to this Item 2.02 and the exhibit hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as shall be expressly set forth by specific reference in such filing.

Section 3 – Securities and Trading Markets

Item 3.03 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On October 9, 2009, Phoenix Footwear Group, Inc. (Phoenix Footwear) received written notice from the NYSE Amex LLC (the NYSE Amex) indicating that Phoenix Footwear does not meet certain of the continued listing standards of the NYSE Amex. Specifically, the notice stated that Phoenix Footwear is not in compliance with Section 1003(a)(ii) of the NYSE Amex Company Guide, with stockholders equity of less than $4,000,000 and losses from continuing operations and/or net losses in three of its four most recent fiscal years. The notice also stated that Phoenix Footwear must submit a plan to the NYSE Amex by November 9, 2009 addressing how Phoenix Footwear intends to regain compliance with those continued listing standards by April 11, 2011, and that this plan must be approved by the NYSE Amex, in order for Phoenix Footwear to maintain its listing. Phoenix Footwear intends to submit to the NYSE Amex by November 9, 2009 a plan for compliance with the applicable NYSE Amex continued listing standards.

As required under NYSE Amex rules, Phoenix Footwear issued a press release on October 15, 2009, announcing that it had received the notice from the NYSE Amex and that Phoenix Footwear intends to submit a plan to attain compliance with the applicable NYSE Amex continued listing standards. A copy of that press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are intended to be covered by the safe harbors created thereby. These forward-looking statements include, but are not limited to, statements regarding extension of the Wells Fargo forbearance period, the refinancing of Phoenix Footwear’s indebtedness with Wells Fargo and/or statements preceded by, followed by or that include the words “believes,” “could,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,” “exploring,” or similar expressions. No assurances can be given that the future results or events covered by such forward-looking statements will be achieved or that the transactions described herein will be consummated. Further, investors are cautioned that all forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. More information about potential factors that could affect these forward-looking statements are included in the documents that the Phoenix Footwear files with the Securities and Exchange Commission (the “SEC”) on Forms 10-K, 10-Q and 8-K, including under the heading “Cautionary Statement Concerning Forward-Looking Information” contained in the Phoenix Footwear’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009 filed with the SEC, all of which are available at the SEC’s website (http://www.sec.gov) and Phoenix Footwear’s press releases, including the press release filed as an exhibit to this report. All forward-looking statements included in this filing are based on information available at the time of this filing, and the Phoenix Footwear assumes no obligation to update any forward-looking statements after the date of this report.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit Number	Description
99.1	Press Release issued October 15, 2009.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	PHOENIX FOOTWEAR GROUP, INC.
Dated, October 15, 2009		/s/    DENNIS T. NELSON
	Name:	Dennis T. Nelson
	Title:	Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release issued October 15, 2009.

EX-99.1

EXHIBIT 99.1

PHOENIX FOOTWEAR

REPORTS PRELIMINARY THIRD QUARTER RESULTS

Company Records Profit in the Third Quarter of Fiscal 2009 and

Announces Receipt of NYSE Amex Deficiency Letter

CARLSBAD, Calif., October 15, 2009 — Phoenix Footwear Group, Inc. (NYSE Amex: PXG) today reported its preliminary results of operations for the third quarter of fiscal 2009.

• Net profit of $310,000, or $0.04 per share, compared to a net loss of $2.1 million for the third quarter of fiscal 2008.

• A loss from continuing operations during the third quarter of $1.0 million, or $0.12 per share. Included in this loss is $303,000 in amortized financing exit fees, $180,000 of payroll related expenses for terminated employees, and $115,000 of financial consulting and other fees. This loss compares to a loss from continuing operations of $1.3 million for the third quarter of fiscal 2008.

• Net sales from continuing operations during the third quarter of $5.5 million, down 32% compared to net sales from continuing operations of $8.0 million during the third quarter of fiscal 2008.

• Funded bank debt balance of $2.6 million at the close of the third quarter, which is a reduction of $5.4 million from the close of the second fiscal quarter of 2009.

Commenting on the quarter, Rusty Hall, CEO, said, “We are pleased to report a net profit for the quarter and to have begun rebuilding our capital base and balance sheet. During the quarter we closed the divestiture of our belt accessories business that was operated by our wholly-owned subsidiary, Chambers Belt Company, reduced bank debt by 68%, improved our gross margin by 22 percentage points from the second quarter of fiscal 2009, and further reduced SG&A to $2.3 million for the quarter after eliminating certain nonrecurring items. While our net sales for the quarter continued to be impacted by the difficult retail environment, we believe we have made considerable progress on the sales front. Our order backlog for future shipments is 65% above orders at the same time last year and our products are performing well at retail. Given the foundation our team has rebuilt, and based on this backlog, we expect to begin generating profitable organic growth beginning with the upcoming quarter.”

As previously reported on July 9, 2009, we closed the Chambers’ asset sale transaction with Tandy Brands Accessories, Inc. The transaction was completed pursuant to an Amended and Restated Asset Purchase Agreement dated July 7, 2009. As part of the purchase price, at closing, Tandy paid $2.6 million for inventory and $500,000 for equipment. In addition to the closing payments, during the 12 months following closing, Tandy is obligated to pay Chambers an earn-out based on a percentage of Tandy’s revenues generated from the sale of products formerly sold by the Chambers business. This earn-out is not capped and provides for $2,000,000 in minimum aggregate payments. These payments are to be paid on a monthly basis, except for an initial $430,000 advance payment that was made to Chambers at closing.

Banking Update

On October 15, 2009 the Company and Wells Fargo Bank, National Association entered into a Third Amendment to Forbearance Agreement and Fourth Amendment to Credit and Security Agreement. Under the terms of this Amendment, the existing credit agreement and forbearance agreements were changed by, among other things, decreasing the inventory sublimit in the borrowing base to $2.3 million and providing for daily 1% decreases in the 46% advance rate on eligible inventory after October 26, 2009 and extending the maturity date for the revolving line of credit and the expiration of the forbearance period to November 30, 2009. The time period extensions are subject to the Company’s continuing adherence to various conditions. The Amendment requires the Company pay Wells Fargo a $25,000 accommodation fee on December 1, 2009 unless Phoenix Footwear repays the indebtedness in full on or before November 30, 2009.

As of October 14, 2009, the Company had $2.8 million outstanding under the Credit Agreement with remaining availability of $221,000. The Company is engaged in discussions with several different financing sources concerning the refinancing of the revolving line of credit debt on or before November 30, 2009.

The description of the agreements above is qualified in its entirety by reference to the full text of the applicable agreements, copies of which will be attached as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended October 3, 2009.

NYSE Amex Delisting Notice

On October 9, 2009, the Company received a notice from the NYSE Amex LLC (NYSE Amex), indicating that as of its quarter ended July 4, 2009, the Company failed to meet the continued listing standards of the NYSE Amex. Specifically, the letter stated that the Company is not in compliance with Section 1003(a)(ii) of the NYSE Amex Company Guide, with stockholders’ equity of less than $4,000,000 and losses from continuing operations and/or net losses in three of its four most recent fiscal years. The letter also stated that the Company must submit a plan to the NYSE Amex by November 9, 2009 addressing how it intends to regain compliance with this continued listing standards by April 11, 2011. The plan must be approved by the NYSE Amex in order for the Company to maintain its listing. The Company intends to submit a plan shortly to the NYSE Amex that responds to this notification. The policy of the NYSE Amex is to make a determination within 45 days of a company’s submission of a plan for compliance as to whether the company has made reasonable demonstration in the plan of an ability to regain compliance with the continued listing standards within the requisite time frame. The NYSE Amex may either accept the plan, at which time the Company will be subject to ongoing monitoring for compliance with the plan, or not accept the plan and initiate delisting proceedings. There can be no assurance that the NYSE Amex will accept any plan that the Company submits or that, if it does accept any such plan, the NYSE Amex will not subsequently initiate delisting proceedings as a result of the NYSE Amex’s compliance monitoring with respect to that plan or otherwise.

About Phoenix Footwear Group, Inc.

Phoenix Footwear Group, Inc., headquartered in Carlsbad, California, designs, develops and markets men’s and women’s footwear and accessories. Phoenix Footwear’s brands include Trotters®, SoftWalk® and H.S. Trask®. Emphasizing quality, fit, and traditional and authentic designs, these brands are primarily sold through department stores, specialty retailers, mass merchants and catalogs. Phoenix Footwear Group, Inc. is traded on the NYSE Amex under the symbol PXG.

Forward-Looking Statements

The words “anticipates,” “will,” “expects,” “intends” and words of similar meaning identify forward-looking statements. Forward-looking statements also include representations of the Company’s expectations or beliefs concerning future events that involve risks and uncertainties, including the Company’s statements regarding the Company’s ability to repay its bank debt in a timely manner, obtain an extension of the forbearance agreement by Wells Fargo, successfully regain compliance with the NYSE Amex listing standards and other risks detailed in the Company’s periodic report filings with the Securities and Exchange Commission. The forward-looking statements speak only as of the date of this press release, and the Company expressly disclaims any obligation to release publicly any update or revision to any forward-looking statement contained herein if there are changes in the Company’s expectations or if any events, conditions or circumstances on which any such forward-looking statement is based.

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements include, but are not limited to, statements regarding future growth and performance of individual brands, Phoenix Footwear’s expected financial performance and condition for fiscal 2009 and/or statements preceded by, followed by or that include the words “believes,” “could,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,” “exploring,” or similar expressions. Many of these risks and uncertainties are discussed in Phoenix Footwear’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009 filed with the Securities and Exchange Commission (the “SEC”), and in any subsequent reports filed with the SEC, all of which are available at the SEC’s website at http://www.sec.gov. These include, without limitation: Phoenix Footwear’s ability to refinance its existing bank facility in a timely manner, obtain an extension of the Wells Fargo forbearance agreement, obtain waiver of future defaults and amendments to its credit arrangement and the attendant risk of increased costs or stockholder dilution from refinancing the defaulted debt or foreclosure on the Company’s assets if a waiver/amendment is not obtained or the debt is not refinanced; the risk that Phoenix Footwear could be delisted from the NYSE Amex the risk that Phoenix Footwear will not be able to continue as a going concern; Phoenix Footwear’s ability to sustain its return to profitability despite its restructuring efforts and debt reduction; risk associated with the recent disruptions in the overall economy and the impact on the retail industry, including Phoenix Footwear’s customers; risk associated with Phoenix’s accessories business; the concentration of Phoenix Footwear’s sales to a relatively small group of customers;

changing consumer preferences and fashion trends; Phoenix’s ability to execute on its growth strategies, including the introduction of new products or the distribution of products through new channels; competition from other companies in Phoenix Footwear’s markets; the potential financial instability of Phoenix Footwear’s customers and the risk of loss of future and pending orders; Phoenix Footwear’s ability to protect its intellectual property rights; the risk of losing third party trademark licenses; Phoenix Footwear’s ability to manage inventory levels; fluctuations in its financial results as a result of the seasonality in its business; the risks of doing business in international markets; Phoenix Footwear’s reliance on independent manufacturers, including those to whom the Company may be past-due; disruptions in Phoenix Footwear’s manufacturing system; the loss of one or more senior executives; fluctuations in the price, availability and quality of raw materials; a decline in general market and economic conditions; and, risk associated with claims arising from divestiture transactions, including indemnification claims. Although Phoenix Footwear believes that the assumptions underlying the forward- looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by Phoenix Footwear or any other person that the objectives and plans of Phoenix Footwear will be achieved. All forward-looking statements included in this press release are based on Phoenix Footwear’s current expectations and projections about future events, based on information available at the time of the release, and Phoenix Footwear assumes no obligation to update any forward-looking statements.

Contact:

Dennis T. Nelson

Chief Financial Officer

Phoenix Footwear Group, Inc.

(760) 602-9688

Phoenix Footwear Group, Inc.

Consolidated Condensed Balance Sheets

(Unaudited)

(In thousands)

	As of October 3, 2009		As of January 3, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	207	$	456
Accounts receivable, net		3,829		3,153
Inventories, net		6,016		9,503
Other current assets		1,687		916
Income taxes receivable		245		302
Current assets of discontinued operations		171		16,615
Total current assets		12,155		30,945
Property, plant & equipment, net		1,087		1,290
Other assets		—		93
Long-term assets of discontinued operations		—		821
TOTAL ASSETS	$	13,242	$	33,149
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable, current	$	2,573	$	11,173
Accounts payable		2,441		1,887
Accrued expenses		1,522		1,557
Other current liabilities		22		155
Income taxes payable		5		78
Current liabilities of discontinued operations		2,620		6,406
Total current liabilities		9,183		21,256
Other long-term liabilities		378		382
Long-term liabilities of discontinued operations		—		149
Total liabilities		9,561		21,787
Stockholders’ equity		3,681		11,362
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,242	$	33,149

Phoenix Footwear Group, Inc.

Consolidated Condensed Statements of Operations

(Unaudited)

(In thousands, except per share data)

	For the Three Months Ended
	October 3, 2009					September 27, 2008
Net sales	$	5,453		100.0	%	$	8,028		100.0	%
Cost of goods sold		3,536		64.8	%		4,567		56.9	%
Gross profit		1,917		35.2	%		3,461		43.1	%
Operating expenses:
Selling, general and administrative expenses		2,621		48.1	%		4,722		58.8	%
Total operating expenses		2,621		48.1	%		4,722		58.8	%
Operating loss		(704	)	-12.9	%		(1,261	)	-15.7	%
Interest expense, net		306		5.6	%		47		0.6	%
Loss before income taxes and discontinued operations		(1,010	)	-18.5	%		(1,308	)	-16.3	%
Income tax expense (benefit)		9		0.2	%		7		—	%
Loss before discontinued operations		(1,019	)	-18.7	%		(1,315	)	-16.4	%
Earnings (loss) from discontinued operations, net of tax		1,329		24.4	%		(803	)	-10.0	%
Net earnings (loss)	$	310		5.7	%	$	(2,118	)	-26.4	%
Earnings (loss) per share:
Basic and diluted
Continuing operations	$	(0.12	)			$	(0.16	)
Discontinued operations		0.16					(0.10	)
Net earnings (loss)	$	0.04				$	(0.26	)
Weighted-average shares outstanding:
Basic and diluted		8,166					8,166

Phoenix Footwear Group, Inc.

Consolidated Condensed Statements of Operations

(Unaudited)

(In thousands, except per share data)

	For the Nine Months Ended
	October 3, 2009					September 27, 2008
Net sales	$	15,505		100.0	%	$	23,650		100.0	%
Cost of goods sold		11,003		71.0	%		13,737		58.1	%
Gross profit		4,502		29.0	%		9,913		41.9	%
Operating expenses:
Selling, general and administrative expenses		8,883		57.3	%		14,460		61.1	%
Other expense (income), net		1,018		6.6	%		(1,500	)	-6.3	%
Total operating expenses		9,901		63.9	%		12,960		54.8	%
Operating loss		(5,399	)	-34.8	%		(3,047	)	-12.9	%
Interest expense, net		457		2.9	%		849		3.6	%
Loss before income taxes and discontinued operations		(5,856	)	-37.8	%		(3,896	)	-16.5	%
Income tax expense (benefit)		18		0.1	%		45		0.2	%
Loss before discontinued operations		(5,874	)	-37.9	%		(3,941	)	-16.7	%
Earnings (loss) from discontinued operations, net of tax		(1,893	)	-12.2	%		(616	)	-2.6	%
Net earnings (loss)	$	(7,767	)	-50.1	%	$	(4,557	)	-19.3	%
Earnings (loss) per share:
Basic and diluted
Continuing operations	$	(0.72	)			$	(0.48	)
Discontinued operations		(0.23	)				(0.08	)
Net earnings (loss)	$	(0.95	)			$	(0.56	)
Weighted-average shares outstanding:
Basic and diluted		8,166					8,136

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